This is becoming a fascinating discussion and, if I can make a slight claim to having told it on FW several years ago, the social and income divide that is now becoming increasingly apparent is part of what I called the "hour-glass" phenomenon in the modern job structure. This is that the skills of the modern economy are increasingly dividing between high skills and low skills. In the high-skills lobe of the hour-glass we have the rich, the technocrats, the CEOs and the self-identifying intelligentsia. This portion of the population -- say about 20% -- are not all of one mind, of course, and they're not always rich -- and they sometimes they have bitter things to say against one another -- but they all have one thing in common and this is that here is increasingly yawning gulf between their values and ways of life and the general population. In reality, the 20% tend to despise the general values of the rest even though they are necessary to extract revenue from.
I interpret this as being the way that the rank-ordering instinct within primate and human groups is now being projected onto a much larger and more complicated scene. This is evolution in action in the human species. In societies prior to the agricultural revolution of around 10,000BC, human evolution proceeded relatively simply. Generally, the less competent didn't survive because life was very rigorous and dangerous. A little more precisely (and a phenomemon that modern evolutionary biologists are increasingly thinking may be the most important factor) the females choose the more competent males so the least-able tended not to produce offspring. In the two recent centuries this has been overlaid somewhat by the massive population surge (until the last decade or two) of all parts of the population in the developed countries -- the able and the less able -- due to prosperity brought by fossil fuels. But let me leave that for now and turn to some allied comments on what you have written.
At 15:31 22/05/2005 -0400, you wrote:
Not really sure of what you are saying, Harry. If you are telling me that the present situation has been encountered many times in the past, I'd agree. Because of their control over land or capital, the rich have always been enormously better off than the poor. Except perhaps during periods of great economic and social change, income and class gaps have tended to widen instead of narrow.
However, I would argue that, in the past, the poor had more ways of getting out of situations of poverty than they have today. The 18th and 19th Centuries were times of large-scale population movements, not only from the country to the city, but from country to country.
Yes, during that period of rapidly growing industrialisation there were many opportunities for the brightest of the poor getting out of poverty -- most of the great innovators and industralisiasts were orignally poor people who taught themselves -- Telford, Brunel, Wedgewood, Carnegie, etc. But their children and granchildren, once they had broken through into great wealth and joined the previous land-based ariocracy became "frozen" again. But from about 1900 innovation then tended to come from the middle-class of Western Europe and America, and that has since become even more concentrated as the richer classes were able to supply a far better education to their own children than was available to those of the masses. Today, in England (and in America, too) almost all the leading scientists and public intellectuals come from private schools (7% of the whole in England). However, within the wider world of economic development, this picture is being shattered again by China and India where, once again, even the children of the poor -- by virtue of brains and hard work -- can, and do, break into the upper class.
But what happened in the period before the industrial revolution? Instead of, say, a 20% meritocratic/aristocratic portion being required to run the show, the numbers were far smaller. The opportunities for the brainy sons of the peasantry were very remote. But it happened -- usually via the all-powerful church and monastic system where the monks would identify the occasional very bright peasant child and recruit him into the system. At the highest levels of the church and secular government, individuals could easily slide between them -- they were one society really.
Early in the 19th Century, one branch of my ancestry was trapped in a part of Germany, Baden-Wuertemburg, that had been ravaged by war and was going absolutely nowhere economically. So they got out of there by moving to another part of Germany, then to the Ukraine and then to Canada. It took a hundred years or so, but while each of the early moves paid-off in small ways, the final move, to Canada, paid off rather handsomely. The Irish left famine ravaged Ireland during and after the 1850s in droves and headed to the US and Canada. That also paid off, as did a mass exodus from the Ukraine early in this century. One also thinks of the migration across the US and Canada during the 19th and 20th Centuries. It paid off hugely for Americans and Canadians of European extraction, even if it played hell with native Americans.
My point is that moving to a place in which you could find work and a livelihood was a real possibility during recent times, but times that are now past. Now the world is filled up. Relocating to a better place is far less possible. Sure, techies still move to California, as many from the Ottawa area did not long ago, but now it is mainly the jobs that are moving. In the US, the movement of jobs from the northeast in the 1960s produced the Rust Belt, noted for its abandonment of factories as manufacturers relocated to less costly places in the south, overseas, and Mexico. The loss of jobs is currently continuing with the outsourcing of hi-tech, manufacturing and service jobs to developing countries in Asia. You can't move Americans to where the jobs are going, but you can move jobs and capital to places where labour is cheaper.
Yes, all the above is very accurate -- except right at the end. Please don't keep on the usual refrain about cheap labour. That's a relatively small part of the decision-making. As I frequently say on FW, why hasn't American industry moved into Africa where labour must be the cheapest of anywhere in the world? There are mental and cultural factors, too. There are matters such as reliability, quality of local management, the available educational level and so on. It's only in the lowest skilled sectors -- such as textiles -- where low labour costs are significant. But in the production of a car, for example, direct labour costs are today only about 15% of the total cost -- and this is steadily decreasing due to automation. In the production of modern electronic goods, the direct labour costs are below 5%. (That's the criterion Japanese industry uses in deciding whether to move their production operations from Japan to China. If labour costs in Japan are above 5%, they move.)
It is not only the fact that the world has now filled up that has produced this situation. It is also that there are huge wage disparities in wage costs between rich lands and poor . Increasingly, the poor world produces and the rich world consumes. This probably won't work as a long run strategy. The productive world will get richer, as China and India are, and the rich world will get poorer.
But not as a whole. This is the whole point. The 20% sector in America (and Western Europe) is still doing very well, thank you. In the distribution of income chart from the NYT which you copied, note that the histograms are rising geometricaly. The rich are now not only getting richer, but they're getting richer at a faster rate and the poor are losing out at a faster rate, too.
But what is happening isn't based on long run thinking or strategizing. It's based on millions of little decisions people take every day. Manufacturers or people in the service industries think about where they can get things done cheapest and consumers think about where they can buy the cheapest products - why, Wal-Mart of course, which gets a lot of the stuff it sells from China. And while it's all happening, this filled-up world is becoming more rigid in terms of its class structure and what we can all expect out of life.
Yes. But there is now another factor. Look at what is happening to American exports -- or, rather, what is not happening. The value of the dollar has been declining for several years now (30% against world currencies, 60% against the European Union's euro), and yet America hasn't been able to respond in the usual way by expanding its household products-services exports to the rest of the world. It did so all through the last century -- leading the world, of course. As Greenspan tried to say the other day (to teach Bush, Cheney and Snow some basic economics of present-day reality) even if the renminbi of China was revalued upwards, it would make little difference because most of America's trade is with Europe and the rest of the world.
So although it's no part of my evolutionary-economics hypothesis (that is, that all new significant products are driven by consumer demand for status reasons) this consumer satiation effect seems to be coming upon us. Until about 1985-90 almost all the populations of the developed countries were able to "enjoy" much the same goods and services as the very rich -- tourism to exotic places, cars, TVs, health care, etc. Not as much, or as frequently or as high quality as those enjyed by the rich, of course, but by and large much the same. But now it's changing. Since 1985-90 the average wage in America has been going down, long-term unemployment has been rising, no new significant export goods are being made, and the rich are finding much more subtle ways of flaunting their wealth -- second homes, make-overs, expensive nursery education for their children (very important indeed -- amplifying the effect of existing private schooling), private airplanes, secure housing estates, advanced medical surgery, etc. All these are not available for mass production as happened broadly during the last century. All these are what the economist Fred Hirsch called "positional goods" in his book Social Limits to Growth 30 years ago. He was prescient and it is sad that he died young -- otherwise he would have seen his prophecies being fulfilled.
All in all I think we are now in for a period of increasing social/wealth stratification. China will catch up with America and then overtake it -- so most economist say. Catch up, yes. I'm not so sure about overtaking because, as said above, there now appears to be a consumer satiation effect, and this will affect China in just the same wasy as it's already affecting America, Japan and Western Europe.. There seems to be nowhere further to go, economically, as long as the present supply of fossil fuels holds up and maintains the present sort of "metal-bashing" industrial system. I see China and America becoming increasingly interlinked with mutual investment and so on (the present spats over textiles and other imports from China are minor, considering the vast investments that American firms already have in China). I see Western Europe being increasingly isolated from fossil fuels resources.
I therefore see a sort of extreme social stratification occurring in a sort of America-China "dumbell" economy and the rest of the world can go hang. The only possibility I see of escape from this is that there might be a breakthrough in other forms of energy production and household goods production. I am pretty certain in my own mind that biology will be the key here. As regards energy production I think it's likely that this will come from bacterial-production of hydrogen (with an intermediate period of hydrogen/ethanol production from sugar-cane, maize, etc) from which a vast array of chemical feedstocks can be made cheaply*, but all this lies probably in three or four decades' time when fossil fuel prices start becoming very high indeed. (Even now, fossil fuel prices are half of those the 50s and 60s, so the baseline price rise since about 1985 is still quite moderate.)
(*And this is probably main reason why Western governments are not going overboard in building the next wave of nuclear reactors [the first wave having been built mainly for production of weapon-plutonium]. Yes, they'll probably build some -- and there's a tremendously powerful lobby in the civil engineering industry pushing them -- but the experts know that electricity production is only part of the story. Nuclear power stations can't supply chemical feedstock -- via hydrogen via electrolysis of water -- anywhere near cheaply enough. It simply doesn't compare with the efficiency of chemical production from solar-powered plant life.)
Keith
Ed
- ----- Original Message -----
- From: Harry Pollard
- To: 'Ed Weick' ; 'Karen Watters Cole' ; [email protected]
- Sent: Saturday, May 21, 2005 10:33 PM
- Subject: RE: [Futurework] NYT Series: Class in America: shadowy lines thatstilldivide
- Ed,
- Again, I must remind you that Classical Political Economy forecast all this 200 years ago, yet it�s still a subject that invites guesswork from the neo-Classicals. Such as:
- �Globalization and technological change have shuttered factories, killing jobs that were once stepping-stones to the middle class. Now that manual labor can be done in developing countries for $2 a day, skills and education have become more essential than ever.�
- Would they like to calculate the income gap in the 17th, 18th, and 19th centuries? The very rich enjoyed god-like stature while the poor were crammed into tiny leaky, smoky, dwellings that would not be allowed for animals by today�s Humane Society. Even in the period of immense �technological progress� of the Industrial Revolution life was hellish. You�ll recall my piece about the Welsh coal mines and the 6 year old boys in pitch blackness opening the doors for the coal trucks to come through.
- The big war interrupted the normal course of events and ended with such �technological advances� as the GI Bill and Levittown. But, soon the inevitable pressure downward began again.
- So, it seems that rather adopt an old-fashioned but supported analysis, the modern economist tries to link the long-time problem to recent happenings. I suppose it makes him feel more hip. To do this, they furiously contrive relationships in a way not remarkably different from the Bush/Blair machinations around Iraqi intelligence.
- Your points are well taken Ed, but you are a scientist confronting a kind of non-science where rigor is closer to mortis than to method.
- Harry
Keith Hudson, Bath, England, <www.evolutionary-economics.org>
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