Nov 9 2015
When Nixon opened China to American business, U.S. manufacturing was still a viable source of employment for a large swath of the middle class. When robots began replacing workers on assembly lines, it was an early sign of myopia. When corporations (which, as late as the 1990s, offered mentoring programs for high school and college students and often provided internships as a first step toward employment) stopped nurturing a domestic workforce, U.S. industry made it clear that profitability was number one. There was no consistent number two.
Now the problem is severe. The American middle class is the subject of countless political speeches by candidates and elected officials. Yet nothing’s ever done that offers real hope of restoring domestic employment. Meanwhile, in parallel, there is the rise of smart machines, the export of white collar jobs, and the elimination of job training/retraining programs for lack of funding (and the easy availability of Asian workers who can be brought into the States on H-1B visas, be hired as students, or be employed in situ in their home countries). This is, in a very real sense, a tax issue, as I’ll explain.
Smarter than a Rocket Scientist
Taken to a logical end, artificial intelligence has the potential to replace millions of workers in the U.S. and around the world, whether A.I. is employed to solve problems, run machinery, or create new machines that can program themselves. For all the good that IBM’s Watson can do in fields like medical research (to find effective treatments and cures for disease), national security (to detect threat patterns), and fraud detection (in financial services industries), it also implies that humans aren’t fast enough or objective enough to do that work. And a November 2015 story in the Harvard Business Review, while crowing about a new generation of robots that are safe enough to interact with people, points out with no sense of irony that the robots can learn from their human co-workers. That is not a source of comfort to the labor force.
Of course, in a power outage during a natural disaster, the computers and robots will grind to a halt...until battery backup systems are universal. That’s one reason why the U.S. Navy decided to reinstitute training in celestial navigation...just in case a hack disables GPS communications.
Though it’s encouraging that some U.S. manufacturers are bringing operations back to our own shores, they’re often bringing overseas talent along with them, at least on the high end – engineering, computer sciences, and the like. Or they’re hiring them as U.S. university students, according to a story in Computerworld, and getting the government to extend their student visas as a way around the caps on H-1Bs. The manufacturers’ reasons, however, are not strictly altruistic. The price of manufacturing in and shipping from China has gone up, and China is demanding more IP secrets in exchange for favorable terms (which may explain the surge in corporate espionage tied to Chinese hackers).
Everything Old Is Not New Again
The new domestic manufacturing jobs “are not your father’s factory job” because much of the work is automated and the workers are in charge of the machines, instead of making the products; the machines aren’t necessarily domestic; and the training isn’t available (through the manufacturer) to displaced U.S. workers. That’s part of the reason why companies can claim that Americans lack the skills and hire foreign employees. We’ve gone from the GE College Bowl on TV to Are You Smarter Than a Fifth Grader. It’s sad.
Sports fans can rejoice, however. The deductible expenses of in-house nurturing and training programs seem to have been re-directed toward marketing – the tens of millions spent on naming rights for sports stadiums, for example. This is money that does nothing to attract revenue, but it gives CEOs bragging rights. Will Petco Park attract more pet owners to San Diego Padres games? Will Chase Manhattan lose business to fans who watch the Mets in Citi Park? Will Giants fans switch from Verizon after seeing a game at AT&T Park? Not likely. But those millions, if invested in local school districts that lost state funding thanks to lower tax rates (and, because of joblessness, tax revenues), could invigorate American education – a system which ranks abysmally low in international standings – 24th in one study (below Estonia in 11th place and Vietnam in 19th), though that’s up from 36th in an earlier report.
Taxes vs. the Tax Base
By focusing on profit, business leaders have lost sight of the connection between education, employment, and purchasing power. If the folks who used to make TVs and PCs, handle claims processing and legal discovery, and do accounting and web design are all out of work because their jobs were replaced by AI robots, offshore plants, and a lack of training, they can’t afford to buy those TVs and PCs, purchase insurance or file lawsuits, or hire an accountant or designer.
Nobody likes taxes but they like unemployment, non-competitive skills, and a lack of buying power even less. Firms that
- boost stock prices through buybacks instead of investments in R&D which creates jobs and new sources of revenue and profit,
- improve margins by offshoring jobs and, through corporate inversions, moving their headquarters overseas,
- and lower overhead by eliminating outreach and training
may look good on paper now. At some point, however, even those companies’ managers may all find themselves in jobs where they have to ask, “Want fries with that?”
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