E An Allegory For What Troubles Developed Economies

 

Metaphors can bring focus to complex situations, like what underlies the troubles of the American and European economies. My allegory conjures moons and tides to create an image that is easy to grasp but difficult to solve. It hints at why public dialogue about what to do about it has, increasingly, taken on toxic qualities.

To set-up the imagery, recognize that a mega-trend drives the economic disquiet that is so evident among voters; the return on labor is falling while the return on capital remains relatively high. Here, the return on capital is rents, interest, dividends and capital gains while the return on labor is real wages and proxies for a sense of security, belonging, and purpose.

The relationship reflects slow economic growth and rising income inequality. This trend has three interweaving drivers—technology, economic theory and the supply of labor. Their effect came into play in the 1980s and have gathered strength since.

Technology

Computers and telecom technologies made it easier to perform all manner of work and be more productive. However, and significantly, it also made it easier to relocate where it is performed. Once digitized, work took far less time and effort to recreate. And it was easily shared, willingly or not.

It is difficult to identify job categories where the income potential has not been adversely affected by ability to move the work elsewhere. Robotics and other forms of machine learning represent a permutation of the trend—they move work away from humans altogether

Economic Theory

Philosophers provide the intellectual framework for movements. Technology enabled schools of thought that led businesses to conclude that they didn’t need to do everything in-house. The initial expression of this idea was outsourcing. It first affected support functions like computer operations and payroll, then migrated to those that had been considered central to competitiveness, manufacturing and customer support. Offshoring was just a skip and a hop away.

The outsourcing and offshoring movements were aided by two other economic theories. One was that countries are net beneficiaries of free-trade. The other was that management’s principal duty was to maximize the wealth of shareholders—this exerted a negative effect on the return on labor for non-management employees.

1 2 3 4
View single page >> |

Karl M. Sjogren is writing a book about an idea for a performance-based capital structure for companies that seek to raise venture capital via a public offering. It is called The Fairshare Model ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.