It was the over-riding theme of Trump’s inauguration speech: foreigners, aided and abetted by politicians in Washington, stole our jobs. Now we want them back. ‘For many decades, we’ve enriched foreign industry at the expense of American industry,’ yammered the new President. ‘One by one, shutters have closed on our factories without even a thought about the millions and millions of those who have been left behind.’
It’s a simple story about a simple problem with a simple solution. ‘Protection will lead to great prosperity and strength.’ Enhanced border controls, strict quotas for immigrants, protective tariffs on imports, an end to free trade, an instruction to American multinationals that they must unpick their global supply chains and repatriate those operations they’ve spent the last three decades outsourcing to other countries: these, plus a healthy splurge on domestic infrastructure, are Trump’s job creation policies.
Would that it were so simple. The unfortunate reality is that globalisation and open borders are not the sole cause of the demise of the Good American Job. There are at least two other critical factors in play – neither of which got a mention in Trump’s inauguration speech.
The first is technology. At the World Economic Forum in Davos this week, observers have noted a rather anxious, downbeat mood amongst the great and the good of the tech community. Google’s party, normally one of the most high-profile events on the WEF agenda, was cancelled this year. Silicon Valley bigwigs like Satya Nadella, CEO of Microsoft, flagged concerns that he and his ilk could become the new bankers: loathed for destroying ordinary people’s livelihoods and creating ever more inequality between the top 1% and everyone else.
There is a lively debate about whether technological advances will have an overall positive or negative impact on jobs. Martin Ford’s 2015 bestseller, The Rise of the Robots: Technology and the Threat of Mass Unemployment propelled the pessimistic case into the limelight. Ford cites research conducted by academics at Oxford’s Martin School that suggests that almost half of US jobs (47% to be precise) are at risk of automation within the next two decades. The numbers for many other countries are higher – and, with advances in fields such as Artificial Intelligence, it’s no longer just manual labour that is under threat: white collar workers, too, are increasingly being replaced by machines.
An Economist special report on the world’s biggest companies, published last September, offered data that suggests this process is already well underway. At the end of 2006, there was just one tech firm – Microsoft – in the top 10 largest companies worldwide (by market capitalisation). A decade later, there are five: Apple, Alphabet, Amazon and Facebook have joined the list. What’s significant about this, from a jobs perspective, is that these companies have achieved enormous financial success with a fraction of the workforce of a previous generation of corporate giants.
The report goes on to make a rather telling comparison between America in the industrial age and America in the digital age:
‘In 1990 the top three carmakers in Detroit between them had nominal revenues of $250 billion, a market capitalisation of $36 billion and 1.2m employees. In 2014 the top three companies in Silicon Valley had revenues of $247 billion and a market capitalisation of over $1 trillion but just 137,000 employees.’
Looking at those figures, it’s difficult to avoid the conclusion that, in the digital age, the link between economic success and mass employment is broken. Today’s IT giants are generating equivalent revenues and a market capitalisation almost thirty times higher than the automotive giants of a quarter century ago with just a tenth of the workforce.
Others are more optimistic. For example, Andrew McAfee of MIT, co-author of The Second Machine Age, argues in this recent video that ‘technology and tech progress always create jobs and create opportunities and they always destroy old jobs and old opportunities… Overall, the creation outweighs the destruction.’
The problem though, as McAfee goes on to acknowledge, is that the creative destruction wrought by technological progress does not tend to lead to the replacement of like with like in the jobs market. Jobs destroyed in one location, requiring one skillset are often replaced by new jobs in a different location, requiring a different skillset. At Davos this week, Marc Benioff, CEO of Salesforce.com – another tech industry leader who fears a societal backlash – coined a good term for the people whose lives are disrupted by this process: “digital refugees.”
Even if you think the prophecies about mass obsolescence of the human workforce are overblown, there’s no avoiding the fact that much of the dislocation and disruption people are already feeling in their working lives is a result of technological advances. And the pessimists and optimists all agree on one thing: you ain’t seen nothing yet.
The other factor that Trump ignored in his inaugural address is rent-seeking. Machines and foreigners have created pressure from below on American jobs: increasingly, they can do what someone in an office or factory in the Midwest might once have done both cheaper and better. But the disappearance of the once ubiquitous Good American Job – secure, well-paid, status-enhancing – is also threatened by pressure from above.
The last quarter century has seen the incomes of those at the very top go through the roof. The three highest paid CEOs in the US took home nearly $300 million between them last year. On this side of the Atlantic, the average pay of a FTSE 100 CEO has gone from 45 times the median pay of their staff twenty years ago to 130 times today. And that’s just the tip of the iceberg.
To get a sense of how unprecedented this is, it’s worth listening to a man who, in his own time, was the poster-boy for capitalist excess: the great Gilded Age US banker, JP Morgan. A little over a century ago, he let it be known that his bank would not invest in any company whose CEO was paid more than 20 times what the average worker in the firm got. Why? Because, he believed, a CEO who paid himself more than that was serving his own self-interest rather than the good of the company.
Using that rule of thumb, Morgan would be hard-pressed to find a single worthy investee listed on any of the major stock exchanges today. And, at least in general terms, he was right. The link between CEO pay and company performance has been broken and those that suffer most are workers in the ‘squeezed middle’. Automation and globalisation have enabled corporate executives to radically reduce the cost of doing business, by laying off expensive developed world employees, but conveniently there’s one layer of the corporate structure that has been immune to these changes: the very top.
Donald Trump is right about one thing: the Good American Job has become an endangered species. But his myopic focus on just one of the three causes of this situation is dangerous and his resultant policy prescription likely to fail. Globalisation is not as irresistible a force of nature as its most ardent champions led us to believe and, yes, politicians should look to temper its worst excesses and mitigate its most damaging consequences on communities that have indeed been ‘left behind’.
But we cannot turn the clock back. Without also addressing the two linked challenges I’ve outlined – how to enable populations to adapt to technological progress, and how to counter the irresponsible rent-seeking of an overpaid corporate elite – any attempt to bring good jobs back to America will be akin to pissing into the wind. Perhaps, given his rumoured penchant for golden showers, that’s not such a bad thing in Donald Trump’s mind.