Author: stimsinstitute

Do Americans really miss the unions?

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Every wage earner contributes to three kinds of wage earning effort: Knowledge and its use (A); Information work (B) and Physical Labor (C).

Labor Productivity as judged by the employer = A / (A + B + C)

There are claims that the current low wage economic climate in US is a refection of poor US education, need for higher college degrees, weak unions, …. These traditional arguments miss a couple of fundamental issues. They are:

  1. The role of IT (and broadly Digital Technology) in eliminating the need for human centered activities (labor);
  2. Failure of the nations to invest heavily in new technologies – beyond DT
  3.  Meaningful programs to convert them into new economic activities and jobs;
  4. Failure of students, educators, universities and parents to point out the need for a three legged balanced education (which will be the only way to find high wage jobs in the new Binary Economy).

Weakness in all of the four points are leading to a low or stagnant wage labor, with a collapsing middle class.

We address this fourth point in this essay as it pertains to the role of strong/weak labor unions. When the labor is strong in terms of its direct and identifiable contribution to the GDP, then unions will find their role and strength. It is like blaming the security guard in a bank, when there is no money left in the vault! The money is not stolen, but it has been used up and not replenished.

Following is a quote from a recent NYT article.

More than 151 million Americans count themselves employed, a number that has risen sharply in the last few years. The question is this: What are they doing all day? Because whatever it is, it barely seems to be registering in economic output. The number of hours Americans worked rose 1.9 percent in the year ended in March. New data released Thursday showed that gross domestic production the first quarter was up 1.9 percent over the previous year. Despite constant advances in software, equipment and management practices to try to make corporate America more efficient, actual economic output is merely moving in lock step with the number of hours people put in, rather than rising as it has throughout modern history.

Productivity is one of the most important yet least understood areas of economics. Over long periods, it is the only pathway toward higher levels of prosperity; the reason an American worker makes much more today than a century ago is that each hour of labor produces much more in goods and services. 

In our opinion this confusion exists because of the long held conventional views on labor productivity.

There is a traditional view that everything that is done to increase the productivity in one nation has to reflect in the GDP of that nation. If this were true that the rate of growth in GDP in countries like India and China will reflect a far larger labor productivity in these countries  than that in USA.

According to a report from Oxford.  ” the basis of U.S. manufacturing’s continued strong competitive position is increasing productivity. The productivity of U.S. manufacturers has risen by 40% since 2003, outpacing competitors such as Germany (23%), the UK (30%), and Mexico (18%). While productivity of manufacturers in China and India has more than doubled over the same period, the report notes, U.S. manufacturers in 2016 are still nine times as productive per employee than manufacturers in China”

Why is this dichotomy?

Today labor productivity – PE Score – can be measured as the value added effort by the employee / Total Effort. Value addition is achieved through the skills of the work force to create “New Solutions”. Value addition can also be through their workers in terms of their contribution to pass along information or pick and place or move things (Physical labor). This later kind of labor activity which is disappearing is illustrated well in the GE Commercial.  

New Solutions can be created and implemented  using labor and the productivity here will be much higher. This can be judged by the output / employee in companies like Apple, Google, Tesla, Space X. The labor productivity in manufacturers in USA are much higher (as noted above) because of the very low content of information work and physical effort (replaced by IT systems and automation) per employee.

What does this mean in terms of graduates and their earning potential? Simply graduating from colleges and looking for new jobs is not enough. They need a collection of three sets of knowledge: Academic education from the college, application oriented experience or training and Transformational Skills to identify, develop and implement New Solutions.

For details Contact us.

 

The Men of America

Triangle of Skills

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The article titled Election 2016: The men America has left behind, in the CNN – Election 2016: Your money, your vote section is misleading on many ways.

In the first place, America did not leave behind any one. America as a nation is made up of people, who work in the country and get paid for AND the business men who run the companies and employ these workers. So, the article should be titled: The men that American businesses have left behind.

America is not a socialistic or communist country where everyone gets taken care of by “America” (i.e.) the US government and hence the POTUS and the US Congress. It is a Democracy – of the people, by the people and for the people. Hence the more appropriate title may be: The men of America who let themselves to be left behind. These American men were happy to be paid good wages as long as they had a job where they could use their physical labor in the factory floor. This is very well illustrated in the GE commercial: https://www.youtube.com/watch?v=3xGoBlI_fdg These skills – the muscle power – has always been available everywhere across the globe. Being born or living in the US does not guarantee the use or need for these skills. These men always used their brawn, but never used their innate skills to think and analyze what is happening around them. They let business men like Donald Trump take their jobs across the globe. Now they are being conned by the same business leader to think that it is everybody else’s fault, except theirs. The focus is on men only because there were more men than women using their brawn in our factory floors. But, the issues and being conned are the same for the women as well as the men of America. Also these men were idle or willing to let the state governments weaken the unions and their bargaining power, while the crony capitalism was also growing. Democracy does not succeed if the voters do not exercise their vote or uneducated on policies that affect them or swayed by cable news and radio talk shows and reality TV.

The title could also be The Men of America left behind by “Technology”. It is sad but true that everyone has been conned to accept that the word “Technology” stands for Digital Technology or IT. This technology is useful to take the power of information away from many people into the hands of a few. This has dramatically reduced the number of white collar jobs. This impact has been largest in the US first, but it is sweeping its impact across the globe. With the automation of information the men of muscle power could also be replaced by lower cost labor from Mexico, China, … all padding the pockets of business men like Donald Trump, with more profit. I

The title could also be The Men of America left behind by intellectuals and policy makers across the globe. The word Technology stands for integrated use of Science, Engineering and Managnment in any discipline. While America continues to make progress in a few other technology areas besides IT, the time and investments needed in many more technologies – for alternative fuels, clean air and water, controlling the global warming, space exploration, under water exploration, eradicating hunger, thirst and poverty across the globe, peace through prosperity in Middle East, …. – is far less than the jobs being taken away by the relentless use of IT in the current work place.

The title could also be The Men of America being misled by Donald Trump. No matter how much Mr. Trump promises, he cannot make America great again, by forcing US businesses to “make” things in America. It is only a matter of time that some manufacturing jobs will be returning to US due to natural economic forces (with or without Mr. Trump). But, they will not be for these men of muscle power. They will be for the few who with skills to work in an automated factory floor with robots and AGVs and networked machines and systems.

The title could also be The Men of America lured by cheap products at Walmart. While the US business men were attracted and even addicted to low cost labor, the US population has been equally attracted to lower cost items – made in China – available in places like Walmart. No one gets anything for nothing. Lower cost products at Walmart also mean lower cost labor from China and Mexico and lower cost of white collar labor every where.

May be the title can also be The Men of America who think college education is their savior. This is the myth propagated by the media and fueled by free college for all by Mr. Bernie Sanders. College education, even if it is free may not be the answer for a large majority of American workers. Yes, it is a definite pathway but only for a few.

May be the tile could be Men of America who are not learning some skills – to be a solution provider – for locally accessible jobs. Following quote from the same CNN Money article is relevant here:

Meanwhile, unlike some of his fellow factory workers, Cavins is determined to get a good job. He’s betting that a yearlong course in industrial maintenance will give him the skills needed to work in heating and cooling services, which his online searches found can start at $40,000 a year. He’s willing to leave Scioto County and work anywhere … in a hospital, factory, school or water supply facility, for instance. One day, he’d like to start his own business. …… The program, offered at Scioto County Career Technical Center, costs nearly $10,000 and has placed 95% of its graduates over the past two years in jobs that typically earn between $31,000 and $40,000 annually. To finance it, Cavins received a federal Pell Grant for $5,900 and took out two loans.  ….   “I didn’t think I’d get anywhere without learning a trade,” said Cavins, who graduates in September. “I want to give my family better than what I had. I want to try to break the cycle and not live on disability.”

May be the title could be: Men of America that the country and US policies left behind, due to crony capitalism, Republican obstruction in the Congress for infra-structure investment and false hope on higher education at the expense of free or affordable training for employable skills development. Perhaps for the time left before the November election, the presidential candidates can propose and develop support for such training. Community Colleges in collaboration with local companies and employers can offer such training. The companies who collaborate on such training can be given tax subsidies as their incentive? Free community college education proposed by the POTUS can be for such targeted training and not for open ended education?

For more details on how these men – working middle class – were left behind, please read: The System Approach – A strategy to survive and succeed in the global economy  ;

Thriving in the 21st Century Economy – Transformational skills for technical professionals.

Opportunities that should not be lost in the current Presidential Election Cycle?

The uniqueness of any democracy is the discussion and debate on policy issues in the public square. Every election cycle provides a unique opportunity for such debate. The result is an emerging consensus often treated as the “mandate” for further actions and programs implemented through the congress and the elected officials. America stands as the beacon of hope for such public policy development and actions that serve the larger interests of its people. As the single super power the leadership from US also serves the needs of the citizens of all nations across the globe.

Let us see how these hopes and aspirations of the middle class in the USA and the people across the globe are served or not during this current election cycle?

Turning to the Democrats the promise from Bernie Sanders’ campaign is tuition free education in all public colleges and universities. The Hillary Clinton campaign offers an alternative – debt free college education for all. Assuming either or both policies are implemented what comes next? Where will the high wage jobs come from? Do we really need college education for the many jobs to be created through infrastructure investments? If not then what? Aren’t the middle class starved of good paying jobs and wage stagnation also likely to be left with more number of well-educated un-employed youth to care for?

Affordable higher education is certainly a laudable goal. But the total silence on the nature of higher education and how it must be reformed to create graduates who can create and sustain new job and career opportunities is astonishing indeed.

Are the graduates coming out of colleges today fully employed? If the answer is No, then is it merely a case of lack of adequate number of jobs? Or is it a case that the higher education today is insufficient or incapable of meeting the needs of the jobs available today? What is the required education? Are the educators of today capable of offering such modified education? Writing a blank check to the higher education industry with an open ended expectation may serve no one’s best interests.

Better funding for basic research is claimed as one of the needs to recover more well-paying jobs. Assuming that organizations such as NIST, NSF and NIH and others are funded ten times more than their current budgets, are they capable of creating outcomes which in turn can result in adequate number of well-paying jobs in US to accommodate all the future graduates? Does their track record justify such expectations in the future? Educators and intellectuals need to step in and fill this policy vacuum. There may be no time better than now for such debate and consensus building.

Turning to the Republicans, their leading candidate Donald Trump promises to make “America great again”, by bringing back the manufacturing from China to USA. Let us take a closer look at this proposal.

The role and impact of labor cost is gradually declining in most manufacturing activities. With the rapidly declining cost for information processing and increasing competencies through programmable automation (robots, CNC, AGV, drones, etc.) the need for human labor in manufacturing sector is substantially lower today than any time before. Hence large segments of manufacturing may return to US on their own accord. But it is unlikely that they will bring back the large number of jobs lost in the manufacturing sector.

It will not be the Chinese or Mexicans stealing the future US manufacturing jobs. It will be the shrewd rich investors and the few technology workers who implement their modern operations in the US. They will also be the beneficiaries of any manufacturing renaissance in the USA. This being the case, one wonders what is it that Trump supporters are voting for? When their expectations go unfulfilled, will their anger find further new scape goats? Is that in the best interest of any one?

The reality is that in the 21st century Binary Economy no one is immune from the forces of globalization. One needs to produce outcomes better than anyone else across the globe to command high wage jobs. That is a tall order. Unfortunately it is also the reality. All others – who produce outcomes that can be replicated by someone else – will be forced into low wage jobs with stagnant wages. Being born in any country – including the USA – is not an automatic pathway for better wage jobs.

A nation with a collection of unique skills, capabilities and products and services that cannot be easily replicated by some other nation has a better chance to serve the needs of its citizens. It will require an innovation spirit which becomes the nation’s way of life. This cannot happen through isolation, building walls or pitting one group against another.

Republicans may be lost in their internal political fractures, with little time to spare for larger policy discussions. But they need to consider that governing is not just a matter of smaller government and personal responsibility but how such philosophy is put into practice. The crisis in Flint, MI is a clear case of task oriented actions – being penny wise and pound foolish. It is a matter of not looking at the problems as a whole, as a system. It is a matter of taking responsibility at all levels – being transformational – and not merely for one task (short term cost reduction) at a time.

The Democrats will be no better off if they do not propose and foster a common language that facilitates the innovation spirit as the new way of life. An education at all levels that promotes System Thinking and Transformational Skills will be required for such way of life. This may need challenging the teachers and labor and their unions to think differently and act differently from their well established procedures and practices.

You are not afraid of change – but for what pupose?

One thing that can be said for certain about the American public is that they are not afraid of change; if that suits their short term economic self-interest so much the better, even at the expense of the long term impact. This sub-text would appear to be often missed in the analysis when looking at the current appeal of the Donald Trump campaign.

The traditional belief was that the Americans loved big U.S. made cars even if they were gas guzzlers. This resulted in U.S. automakers expecting their customers to buy a new car every three to five years. “Planned obsolescence” was part of their strategy, without regard to its long term consequences.

The US customers were eager and ready to switch to smaller Japanese cars when such cars offered better fuel economy, higher reliability and lower cost. The loss of jobs for US auto workers was never a concern that stopped them from flocking to the Japanese auto dealers and later to other lower priced imports.

The traditional belief was that America was the manufacturing capital of the world. The products made in China and elsewhere were considered cheap but of poor quality. Yet, when companies like Walmart could import Chinese made products at lower price, the impact of which can be readily seen in any one’s pocket book, the switch was imminent and seamless. Never mind the loss of millions of jobs and the economic and wage stagnation for many.

Any one working in import/export business knows full well the difficulties in selling into Japan, and China than it is to import from these countries. Such trade may not be open and free as assailed by Mr. Trump. But the unfair trade has been embraced and not rejected by the US business community for their short term gains. It is disingenuous now for this business leader to blame the foreign governments without himself looking at the mirror and asking his fellow business leaders to do the same.

The lure of cheap labor and tax incentives and tax free infrastructure investments from China and other countries were sufficient for thousands of investors and their CEOs to switch their US production to these countries. The favorable impact on their short term profits and balance sheet was adequate for such switch. Never mind the hollowing out of the middle of every kind in the US economy.

Converting all fixed costs into variable cost was seen as a business strategy, promoted by business consultants, never mind the impact on loss of skills and capabilities required for long term sustainability of their client companies.

US consumers were not averse to sub-prime home mortgage loans, never mind their long term inability to pay for such loans.

We see the same emphasis on the short term economic self-interest at work in many other facets. US Congress is stagnating because the representatives in the Congress place greater emphasis on their re-election and primary fights than advancing national policies and programs. Wall Street may be greedy, but behind the Wall Street are men and women with greater emphasis on short term needs never mind their long term impact.

Apple claims to be fighting for the protection of first amendment rights, but one can wonder how much of this resistance has to do with protecting their current overseas sales?

Income from their overseas operations is parked by many companies outside the country because they don’t want to pay the current US taxes.

It may be the short term self-interest that drives Mr. Trump in his quest for Presidency as well as his supporters to the polls. The same short term self-interest may keep the Republican candidates against coalescing around a consensus anti-Trump candidate for the long term benefit of the Republican Party.

Let us be clear about one thing: It may be only a minority of the US population that is so focused on short term self-interest. But Democracy is a system of Government where the majority protects the interests of the minority.

Perhaps the current discussion in the presidential primaries should be expanded to include the role of the minority and their economic self-interest and how it can co-exist with the needs of the majority or the nation as a whole. Such a holistic view – system thinking –  will be a welcome change that every American can embrace?

It is the reality now that being born in the US or any other developed nation by itself is not a guarantee for economic success. One would hope that many of the Trump’s supporters would see this writing on the wall. Also one who has been playing by the rules of crony capitalism can not change over night to become a populist and fighter for economic equality for all, as Donald Trump promises to be.

Yes, the US population seeks a change and ready to embrace it. But the change has to come from within each individual and their passion for success. But emphasis on the economic self-interest of every individual also requires them to focus their short term efforts on System Thinking and Transformational skills. This change which in turn will lead to their long term competitiveness and success in the global economy.