The rich are worried
Trade is under assault, even though automation is the main reason for the shrinkage of good middle-class jobs, explains historian
Ican't wait to see how the incoming administration deals with AI (artificial intelligence),” said outgoing Secretary of State John Kerry in a less-than-gracious reference to the fact that the Trump team doesn’t understand the real driving force in the changing world economy.
What was striking was that Mr. Kerry didn’t have to clarify his remark for the 2,000 “global leaders” – politicians, bureaucrats, business representatives and public intellectuals – who gathered this past week in the Swiss alpine town of Davos for the annual World Economic Forum. They all knew what he’s talking about.
This year’s Davos gathering was actually focused on the rise of populism and simple-minded attacks on globalization (Donald Trump, Brexit, et al.). That’s only to be expected, since the world’s ultra-rich are potentially threatened by that sort of thing. But they didn’t get rich by being stupid, and they have a fairly sophisticated analysis of what’s causing it.
The headline event on the first day of Davos was an hourlong speech by China’s President Xi Jinping in which he laid claim to the leadership role on free trade, globalization and the struggle to contain climate change that is being abandoned by the United States under President Trump. His main concern was to fight the rise of protectionism: “No one will emerge as a winner in a trade war,” he said.
But Mr. Xi didn’t go into the sources of the anger that fuels the populist revolt (for China is not a democratic country, and it hasn’t happened there yet). John Kerry did get into it, and he went well beyond the usual platitudes about rising unemployment and under-employment, stagnating wages and the widening gulf between the rich and the rest. “Trade is not to blame for job losses,” he said. Automation is.
Quite a few American manufacturing jobs did go abroad in the early stages of globalization, in the 1980s and 1990s, but that’s old news. Eighty-five percent of the almost 6 million American manufacturing jobs that disappeared between 2000 and 2010 did not go anywhere; they just evaporated. The workers were replaced by tireless, uncomplaining machines that could do their jobs more cheaply.
Although Mr. Kerry did not mention it, the same thing is now happening in China: Relatively cheap Chinese labor is still more expensive than the automation that replaces it. Even in India, where wages are lower still, there is now talk of “premature deindustrialization.”
It’s a misleading phrase, because it suggests that India will never become fully industrialized. It probably will – but perhaps without ever creating a huge industrial
working class with reasonably good and steady wages. Further industrial growth is likely to come mainly through automation, and employment in manufacturing may be peaking right now.
So, Mr. Trump is barking up the wrong tree, as are the other populists emerging all across Europe, and their emulators who are beginning to appear in the developing world. Why do they all persist in blaming free trade and globalization instead of automation? Because you can’t do anything about automation.
It’s like the old story about the man looking for his car keys under the streetlight. “Where did you lose them?” “Over there.” “Then why are you looking for them here?” “The light’s better here.”
If you are a politician, then it’s better to blame globalization because you can do something about that. You can build walls, impose tariffs, make all sorts of impressive gestures to stop the free trade that is allegedly destroying the good jobs. Or more precisely, you can win political power by claiming that you will do those things and thereby solve the problem.
Whereas nobody will believe you if you say that automation is what is really changing the economy, and so you are going to stop the automation. That’s Luddism, and everybody (or at least, everybody at Davos) knows that doesn’t work. So the rich and powerful are way out ahead of the pack in accepting that growing automation really is going to destroy large numbers of jobs.
A recent Citibank research note forecasts that automation will eliminate 57 percent of all existing jobs in the developed countries within the next 20 years. In China, 77 percent of manufacturing jobs are at risk over the same period. And the notion that the economy will create other, better jobs to replace them is just a comforting myth. Most of the new jobs that are being created are McJobs.
If more than half the workforce ends up unemployed – and therefore humiliated and broke – then their anger will be so great that it could sweep away the comfortable world of the ultra-rich. Which is why there are sessions at Davos this year considering radical ideas like a “Universal Basic Income.”
To stop the populism, first you have to deal with the anger.
Gwynne Dyer is a historian and independent journalist based in London.