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Ideas are the Only Currency in the New Economy

The End of the Middle Class

February 23rd, 2012 · No Comments · Ideas

Big Ideas:

  • Technology is leading to more automation and outsourcing of work, increasing rates of unemployment are the inevitable result.
  • The middle class is bearing the brunt of these job losses.
  • Developed societies must change their fundamental social pact to cope with massively higher rates of structural unemployment.

We are automating, outsourcing, crowdsourcing and off-shoring more work than ever. It is not going to stop. After World War II, middle class families enjoyed fantastic improvements in their living standards. Great jobs in manufacturing, service and later technology industries brought comfortable incomes and low cost products to purchase. Life was good. Those times are over.

Here is an excerpt of what Thomas Friedman wrote in the New York Times:

Why now? It starts with the fact that globalization and the information technology revolution have gone to a whole new level. Thanks to cloud computing, robotics, 3G wireless connectivity, Skype, Facebook, Google, LinkedIn, Twitter, the iPad, and cheap Internet-enabled smartphones, the world has gone from connected to hyper-connected.

This is the single most important trend in the world today. And it is a critical reason why, to get into the middle class now, you have to study harder, work smarter and adapt quicker than ever before. All this technology and globalization are eliminating more and more “routine” work — the sort of work that once sustained a lot of middle-class lifestyles.

The merger of globalization and I.T. is driving huge productivity gains, especially in recessionary times, where employers are finding it easier, cheaper and more necessary than ever to replace labor with machines, computers, robots and talented foreign workers. It used to be that only cheap foreign manual labor was easily available; now cheap foreign genius is easily available. This explains why corporations are getting richer and middle-skilled workers poorer. Good jobs do exist, but they require more education or technical skills. Unemployment today still remains relatively low for people with college degrees. But to get one of those degrees and to leverage it for a good job requires everyone to raise their game. It’s hard.

Jeremy Rifkin predicted the End of Work back in 1995 with his book of the same name. The Wikipedia page offers this summary:

Worldwide unemployment would increase as information technology eliminates tens of millions of jobs in the manufacturing, agricultural and service sectors. He traced the devastating impact of automation on blue-collar, retail and wholesale employees. While a small elite of corporate managers and knowledge workers reap the benefits of the high-tech world economy, the American middle class continues to shrink and the workplace becomes ever more stressful.

Economies are thought to be in devastating depressions when unemployment approaches ten percent, what will happen once we reach structural unemployment of 15 or even 25%? Rifkin showed that it happened to farm workers with the productivity improvements of the agricultural revolution. It happened in Detroit, with the decimation of the automobile industry. Where are jobs going to come from in the future?

Economists and politicians will naturally focus on job growth. After all, that is the problem, unemployment getting higher so we must need more jobs. What if the Friedmans and Rifkins are right and high unemployment is here to stay? Perhaps it is time to start asking ourselves different questions.

Some of those questions might be:

Is unimpeded economic growth good for civilization?
Why do we need to keep growing GDP at 2 or 3% per year to be successful. We are polluting our air, contaminating our water supply, killing wildlife, and countless other problems. Maybe growth at all costs, is no longer the ultimate goal?

Why do we need to work 40 plus hours a week?
With less consumption, individuals can start cutting back on work hours. Perhaps we all shift to a 25 or 30 hour work week? France has led the way with a 35 hour work week.

How do we limit social unrest when potential a quarter of the population will be unemployed?
Are access to adequate food, clothing, shelter, education and medical care only for the privileged classes, or are these basic human rights that government must provide to all. Northern European countries  have been doing a pretty decent job of taking care of all of their citizens, maybe it is time the US followed suit.

How do we pay for social services?
Jeremy Rifkin says that non-profits and volunteers will start filling the gap where government fails. Perhaps the time is coming for a mass renaissance of civic and community engagement?

What do we do with the freed up time from lower hour work weeks and higher employment?
We could watch TV, we can commit crimes, or we can get involved in our communities and government. What does it mean to be a citizen anyway? Is it about working 40 hours a week and spending as much money as we can to keep the economy growing? Could it be possible that a good citizen volunteers in their community and connects with their neighbors?

It is not all bad news

The smartest and highest skilled in society will always be in demand. We will need more doctors, computer programmers, engineers and countless other professionals for whom jobs are not even invented yet. However, the real winners will be the rising middle class of the developing world.

Those lost automobile jobs in the U.S. and Japan are being done by $500 per month Indians who are ecstatic about their rise in living standards. While factories like Apple’s FoxConn in China are suffering from worker suicides, there is no denying that conditions in the developing world are improving. $2 per hour might sound like slave wages to a westerner, but for many in the third world, it means food, shelter and an opportunity for a better life.

Action Items

  • Financial rewards will flow to the highest skilled and most connected. What are you doing to increase your value in the Idea Economy of the future?
  • Could you survive on a 20 hour work week at your current salary? What would you have to give up?
  • Why not start making those consumption sacrifices now and save your salary surplus for the future? Not only will you have much more savings, but you will also have the time to enjoy it.
  • Work can be more than making a salary. Start volunteering in your community and giving back. You might find that giving provides a greater reward than consuming.



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