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Progress in Technology & Business Productivity – Friend or Enemy to the Economy of America?
Technological progress is widely welcomed by society. We cannot deny the benefits of technological progress. From being able to store food in a refrigerator, to later microwaving that food, it is easy to see the benefits of technological improvements. But how do emerging technologies effect the American economy? How are things like the internet, or networks in general changing the landscape of the business and economic world? Why is the unemployment rate at 9.5% according to the Bureau of Labor? Is technological progress actually hurting the American economy right now? My answer is yes, I believe it is. And the major culprits are outsourcing, off-shoring, manufacture automation, and all types of productivity increases. Here is why they are harming us:
As a self-employed person, I currently have a small business consisting of a few websites. Last December, in anticipation of school taking much of my time, I decided to give a try at hiring staff to help with the work while I was handling school. I also read books on how to automate and streamline business processes through programming to decrease work hours and they also recommended outsourcing the tedious and repetitive work that could not be done by programmed scripts. So I read books on outsourcing too; where to look, who to hire, and how much to pay. Since I was starting off low on capital I had to start as cheaply as I could, so I decided to outsource this work over seas, to India because they were experienced and knowledgeable in IT and also they are considerably cheaper than hiring locally. Now its not like I was going to take jobs away from thousands of people but my mom, having lost her job at AT&T due to outsourcing, asked me why I had to do that as well? She was against all sorts of outsourcing and wanted to know why I would support that type of business plan. I told her that I couldn’t afford to hire locally and that by outsourcing I could get more work done than I ever got done by on my own, and in turn would put more money into my pocket, or our pockets. I didn’t want to hurt the economy, and I thought it would help the economy by giving me consumer spending power. This does make sense in the short term and on the small scale, but large corporations that do this will affect hundreds of thousands of people; and that is when it really hurts the economy. But none-the-less, my experience was kind of a microcosm of what is going on. Even though I did increase productivity dramatically I didn’t see a rise in sales, this is because people weren’t interested in spending what little money they had on what I was offering. It was bad timing for what I was selling. So after two months I had to let my two employees go to keep my expenses down and profits up. I was originally going to write in the defense of technology and outsourcing, but the evidence against it was overwhelming and made more sense that the evidence defending technology and automation. It wasn’t until I had to research this paper that I asked the question: How can we expected more sales if our customers, Americans, don’t have jobs to give them money?
From my own experience, I am able to see how the internet has even given a young self-employed student like me the power to access a cheap labor force. The internet has opened a portal of communication which allows me to find people on the other side of the globe, with extremely lower wage requirements. Of course I or any other business would like to hire them! These workers actually compete against each other online to provide more service, more hours, for cheaper wages. So it just makes sense to do this right? Wrong. People who defend outsourcing, for example the authors of the books I was reading, might and do argue that outsourcing will allow for lower costs of services and products. Well, sometimes this is true. Take a look at Walmart and its low prices, in that case it’s true. But, many times the corporations will simply reduce their own costs while keeping the same price for the customers. Take a look at AT&T, they lowered their costs, by what they called “sun setting“, which basically means closing down different departments and moving them over seas. But we still see the same prices from them! Meanwhile since every major corporation is starting to move its IT jobs over seas, you actually get less customers because the American customers have less spending power, and this causes the corporations to want to either reduce costs, or increase prices in a vicious cycle.
According to research from 2003, which is when outsourcing began to gain significant momentum, Forrester Research reported that offshore outsourcing of American IT jobs went from 12% in 2000, to a staggering 28% in 2003, and META Group, Inc predicted that percentage of offshore outsourcing would increase by 20% annually. Today, Forrester Research says that outsourcing has reached a tipping point, although I was unable to find any exact figures; but even in my business I have felt it. People stopped hiring in India because they have gotten too expensive, and now jobs are moving to parts of Asia like the Philippines for example. This means that now India’s new middle class, will experience a job shortage according to the E-Commerce Times. The trend was to hire Filipinos and being half Filipino I was happy to accept it. I could, and wanted to hire someone for only $250 a month for full time work. The problem was that I would have to either train them from scratch, or develop a detailed business process that anyone could follow regardless of experience. But I never got around to it due to being busy with school. But luckily for me, and unluckily for those without jobs; a new type of outsourcing caught my attention and I began to utilize this much easier and cheaper way of outsourcing.
As of August 2010, the most recent outsourcing trend has become cloudsourcing. Cloudsourcing, by the way cannot exists without the internet, and it also cannot exists without third world workers having internet access. Cloudsourcing is where you don’t hire individual people separately, rather you divide your business process into tiny pieces and you post them on these cloudsourcing websites, for example Amazon’s MTURK, then thousands of people can complete your “chunked” business processes for pennies instead of dollars. So instead of paying one person 15$ to work for a certain amount of hours doing many different tasks, you pay hundreds of people a few cents each to do much smaller and easier tasks; some taking only a few seconds to complete. This allows you to scale your business very easily, and when done correctly it actually allows you to get more work done faster, and cheaper. But the bottom line is that the only people who benefit are people working out of third world countries, and the business owners. This innovation which I admittedly currently love and appreciate, doesn’t solve our economic problems, and as a result, it’s gets harder and harder to make sales. Since its harder to make sales, its increasing my need to lower my costs and improve productivity! How has this technology turned against us? It seems like we are suffering from our own cleverness, or perhaps ignorance, because we fail to realize that our customers need jobs in order to have money.
Some people argue that outsourcing, and off-shoring labor actually increases deflation which increases the value of the dollar. But those claims were made by the companies during the hype of outsourcing and were used as an excuse to give the jobs to other countries besides America, and to comfort an uneasy America. Sure, in theory it should lower prices, but really its only about lowering the costs of production, not so much about lowering the price for customers. According to Professor Ron Hira, from the Rochester Institute of Technology, who is an outspoken opponent of outsourcing and off-shoring; the name of the game is cost cutting. And I would agree, I don’t and cannot actually lower the prices of the product I sell because I don’t own it. All I can actually do is lower my costs and increase marketing output which increase my own profit. Any way, he also believes that cutting out the high paying IT jobs from America, which is happening faster than we realize, along with the loss of the manufacturing jobs will change America from a rich nation into a poor nation. He says that it is not only the low end, low pay jobs, but high end jobs that are being lost rapidly as well. In 2003, IBM had around 6,000 workers in India. Later in 2009 it was reported that they had around 90,000 employees in India, but they wouldn’t say exactly how many. He also reports the companies like Microsoft, Google, and Boeing have opened cutting-edge research and development facilities in low cost places like Bangalore, and China. These are extremely high end jobs going to other nations. Also, doing this research, I have read that jobs lost are lost forever and they cannot reappear in the USA if we ever simply decide to change our policies. Why is this true? This is because we have closed up and or removed many of our manufacture and industry facilities. If there was to be a change that required US industrial expansion, we would be under funded and ill equipped to simply move hundreds of thousands of jobs back to America. This means that the longer we outsource the more we must rely on it. But how can we know what will happen in the future? Well, history tends to repeat itself and this isn’t the first time a country has outsourced on a big scale.
This also has happened in Britain during the Transatlantic slave trade era. In the 19th century, when cotton was the major commodity of the day, it was grown mainly in the southern states of America. We sold that cotton in raw and spun form to the British The British in turn, took these materials and produced linen, clothing, and fabric, and sold it world wide. America grew rich off the cotton, especially the South, and Britain grew rich from its own fabric exports as well. At that time, Britain as a nation kept 80% of the monetary gains from these exports and added it to the national wealth, and as a nation they grew rich. Eventually some of the mill owners came up with the idea of increasing their profits by hiring a much cheaper workforce, and by producing it closer to where they were to sell it they should increase profits again. What place was that you ask? It was India! India was at that time their colony, and also their major buyer of fabric. So they decided to start to grow cotton in India, instead of purchasing it from America. They would move the mills and textile machines to India, and save a lot of money on shipping costs and wages for their work force. It seemed like a great idea. What happened however, was that only 10-15% of the profit from the textiles returned to England. But 80% of the profits and monetary gains stayed within India and it was a big loss the British economy. This huge hit not only caused unemployment to Britain but now Britain relied on India to produce its cotton and textiles. Then when civil war broke out in the slave states, this propelled India to be the major source of cotton and Britain depended only on them for cotton.
As we can see, outsourcing is a great way to take power away from your country and give it to another. And unfortunately, that is exactly what we are doing today. It is not just the progress of our business models but literally technological progress as well that may damage our economy. Since the dawn of time man has been striving to increase productivity. The spear was one of the first tools which did just that, it allowed a man to bring home more meat. Fire also increased the productivity because it allowed more work to be done, whether it was used to cut bigger trees, used to create light, keep warm, or used as protection. Tribes also found that by trading they could increase productivity. If Adam takes 4 hours to make a spear and 3 hours to make an ax; and Oz takes only 1 hour to make a spear and only 2 hours to make an ax you might think that Oz has no benefit from Adam because he can make both items faster. But, if Adam were to make two axes and Oz were to make two spears and then they were to trade and ax for a spear, they both would have saved 1 hour of work. This was taken from David Ricardo in 1817, and was about exchange between countries. But to take his idea into more recent terms, it would be much more productive if Adam were to create an assembly line he could make multiple spears in one hour. And that new technological revolution changed the course of history as we all know from basic history.
Since we have grown to learn that the assembly line did so much good for our economy, how can it possibly be bad? We know that it creates more jobs in factories and increases output of products which means that more people can afford those products. This is true, but there also comes a point where if all the companies only require a few workers to produce their products, then those without jobs literally don’t have the money to buy those products. The reason this is the case today, is because we have become so good at engineering technological solutions to increase productivity. We have basically engineered our way out of the factories. A modern day example is the automotive industry, but really this is happening with agriculture, construction, and virtually any industry where a technological breakthrough replaces the human being.
Today it only takes 2.23 workers to build a Nissan at the Nissan Motor Manufacturing plant in Tennessee. This is the most productive assembly plant in North America and actually it has slipped by 6% where last year it only took 2.09 workers per vehicle. The manufacturers are constantly trying to get that number lower and lower. That means more jobs are actively trying to be dropped. You can just imagine the effect this has on the economy. You can see what has happened in Detroit’s economy which used to be the major center for automotive production.
In the early 1900s, 1909 to be exact, there were a lot more firms producing cars, around two hundred. But within the next fifteen years, that number quickly fell. This shake off occurred during a 15 year period where around 200 firms fell out, from either bankruptcy, merger, or from the simple fact that they were all located geographically so close to one another. This type of competition for such a pricey product is too much, and firms quickly fell. Only three firms ended up dominating the entire American automobile industry. General Motors, Ford, and Chrysler. Chrysler was the last to join the three, not entering until 1924 when Walter Chrysler, former President of Buick which was bought by GM, started his new firm. Since that time is has been a battle for increasing profits, decreasing costs, and improving productivity. Millions were invested in research and development to create a competitive advantage, because if any one of those firm would slip just a little bit they would be gobbled up by their competition, which was happening fiercely for the years before. Mathematicians are hired to develop the highly calculated business and manufacture algorithms to determine the company’s next move. You see, developing better cars was only part of the game. More importantly, they needed to develop better manufacturing process designs. Better ways to create better cars more easily and for cheaper. This created jobs for a while. Until automation started to slowly started to take those jobs away again.
Kuka Robotics is one of the major suppliers of robotic solutions for many industries. They create those big robotic arms which are capable of grabbing, flipping, spinning, large car parts and can put them together with precise accuracy, over and over again. These robots according to their website currently have applications in 20+ industries, and within each industry, there are dozen of applications. Anything from painting, to measuring, testing, inspection, welding, fastening literally anything. The human now only has a few simply things to do. Quality assurance, monitoring everything, and a few odd jobs here and there. These robots are great on one level because they make something so complicated become a very simple process. But once again these robot are just taking jobs out of the hands of American workers.
Again, people say that this is great, because it give us better prices for vehicles and other things that are cheaper to produce. Well is that really true? Lets take a look at the numbers. According to MSNBC, car prices are actually rising! Yes, they are going up, even though we supposedly reduced the costs to create them, reduced the man power required, and increased the rate of production. These three things should cause the price to go down. But they are not going down!
Why is this happening? MSNBC says that it’s because automotive manufacturers are getting better at matching their production rates with the lower consumer demand. From 2006 to 2009 car prices were increasing, but the auto manufacturers offered all kinds of incentives which essentially brought the price down, causing the price growth rate to remain flat. There basically wasn’t price growth during those three years if you take into account the incentives. But in 2010 things changed with the Toyota crisis which changed their ability to offer incentives. Since they were starting to decrease production in response to lower demands, this allowed them to offer those incentives. Due to the strong used car market, brought on by our recession, which was in part caused by the loss of jobs; new models had to have a price increase. A Ford Taurus now costs, on average $31,458. Which is up about 25% in price from last year. So we can see that automation, doesn’t immediately result in lower prices. The sad part too is that we cannot easily replace these robots with people even if we had to. The companies will not be able to afford the costs of redesigning their entire manufacture system. Corporations are now locked in a cycle of increasing prices and or cutting costs.
The textile industry is another example. American textiles and apparel industries have been facing severe cuts in profits. This is because even if a textile company was working here in America, with American workers, it would eventually lose due to the lower priced competition who is outsourced, off-shore, and likely automated. Since the 70′s the US textile industry has been facing hard times. The combined manufacture employment produced by this industry was around 12% in the 70′s, now it is lower than 6% and in 2001 there were one hundred textile plant closings. This caused about 60,000 workers to lose their jobs. The development of new synthetic fibers has also been the cause of textile closings, with new and easily produced fibers, the need for all the steps required to create fabric can be eliminated, along with the costs. Industries these days are literally forced to compete, unless they want to die off. If they don’t find ways to cut costs, eliminate workers, and increase productivity they will be easily beaten by the company who is willing. We should remember that these companies are getting rich doing this. There is big incentives for companies to automate. Unfortunately, they are not thinking long term, because if this is kept up there might eventually be a collapse, or a change in power. Or more simply, who will be there to buy your products when no one is there to employ them?
Sadly, the automation of the two industries described above is not where it ends. Automation is easier to describe in the automotive industry because we have seen those robotic arms in movies, and on TV, so it is easy to understand the loss of employment they cause. But technology is slowly taking the everyday jobs as well. Self check out lines are the new wave in grocery stores, and I have to admit, I love to use them. Online shopping is cutting the need for places like Circuit City. By the way, Best Buy is only able to survive though because of the experience the store is able to deliver to the consumer. Places like Best Buy, and Starbucks are excellent at providing a satisfying store experience. But, once people get bored of Best Buy, it will be out the door too because much of their sales are lost to sites like Amazon.com, Ebay.com, Newegg.com. The websites are able to conduct business with virtually no over head costs, or inventory even. These sites offer huge discounts compared to Best Buy, who employs around 180,000 workers as of 2010; if it did close down due to the online competition those jobs will be gone too. Movie theaters are losing out to people like me who are pushing for the online delivery of movies. And even the food industry is downsizing its workforce in favor of robot workers that need no benefits, wage, and are unable to form unions. I actually read, although I can’t remember where, that automation is causing more job loss than outsourcing and off-shoring combined. The jobs lost due to this type of technological advancement has been occurring long before outsourcing even entered the English lexicon.
As we can see, technology does make our lives better. It makes our lives so much better that we don’t even work anymore! But unfortunately, things cost money, so it turns out that we still do need to work. We need to realize that job opportunities are on a downhill slide, and it only gets worse as the recession continues. We need to put out best heads together to figure out a way to turn technology back in our favor. How can we get humans back to work? We need to figure out profitable ways of creating more jobs. With all this technology perhaps we just have to start aiming higher, perhaps we need to create new industries to explore the new depths in science and society. Perhaps there will be a technological breakthrough will will birth an entire wave of industries and put our people back to work. I think we are just stagnating right now and we need to put on our thinking hats, pull out the drawing board, and start finding a way to dig ourselves out of this hole we have dug ourselves into. But until we are able to harness technological progress, and know when to let it take our jobs and to let it create more jobs, it will be an enemy to the American economy.
About the Author
American Look: 1950s Automotive, Industrial, Interior and Architectural Design (1/3) (1958)
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