### Where Did the Benefits of Technology Go?

Stephen H. Unger
February 10, 2012

As a young engineer, a half century ago (Wow! Time does fly), I was fascinated by the ideas I was wrestling with, mainly dealing with various aspects of what is now called computer engineering. I greatly enjoyed my work in research and development. But I did have concerns over possible misuse of what we were developing, particularly about possible military applications. I dealt with this mainly by avoiding work on military projects.

A lesser problem involved economic effects. Would technology applicable to the automation of various processes eliminate many good jobs, causing hardship for displaced workers? I didn't worry too much about this. My assumption was that a lot of tedious jobs would be taken over by machines, freeing up people to do more interesting work, working hours would be reduced, and everybody would benefit when automation lowered production costs. Let's look at this more closely. What actually happened?

#### How Technological Advances Can Make our Lives Better

There are a number of ways that scientific and technological advances can benefit us. I will mention just a few. Applications to sanitation, health care, and medicine can result in longer, healthier lives for many. Great improvements in transportation can enrich our lives by facilitating travel over both long and short distances. There are also a number of ways that technology can make life more pleasant thru enhanced entertainment facilities. A major factor is the labor saving nature of technology ranging from bulldozers replacing pick and shovel work, to powerful computers eliminating the need for tedious calculations in connection with many engineering projects. Let's look at this one more closely.

How can the benefits of labor saving technology be realized? One way is to increase production, with no increase in human effort. In order to sell the increased quantity of goods or services, prices might be lowered. The resulting increase in revenue (assuming we are dealing here with the private sector) might be shared by employers and employees, while consumers benefit from the reduced prices. There would also be gains to the public sector via increased tax revenue. (A good case could be made that, for environmental reasons, we should not produce greater quantities of material goods, but rather should utilize technology advances more for reducing working hours and improving efficiency and quality.)

Worker shares might be realized in a variety of ways. These include increased income, shorter working days, increased vacation time, earlier retirement. Working conditions might also be improved. I.e., the most tedious or dangerous jobs could be automated, and environmental hazards, such as toxic air in the workplace, might be eliminated. Ideally, individuals would be able to choose how to allocate their share of the gains; picking various mixes of higher income and more leisure time.

#### What Happened?

As suggested above, since 1975, we would expect to see increased profits for business, and gains for workers in various forms.

Corporations did indeed do very well [Nutting], with substantial gains in profit and in income for upper level management. Taxes were reduced for both corporations and for wealthy people [Eichler]. Those in finance did exceptionally well.

But the great majority of people, particularly those below the median in income, did poorly. From 1975 to 2009, real income of median families increased by 23%, while working hours increased by 26%, as more married women took jobs outside the home. These numbers do not take into account substantial child-care costs incurred when mothers work outside the home. Median real income wages for men in two-parent families actually fell by 7% over this period [Greenstone][Reddy].

The above calculations are in terms of "real dollars", which supposedly take into account inflation. Inflation is calculated on the basis of changes in the Consumer Price Index (CPI), intended to measure of the cost of living. It is used, among other things, to govern increases in social security payments and in salaries for many groups of employees. For the past 2 decades the CPI, calculated by the Bureau of Labor Statistics, has been manipulated in several ways, so that the published numbers understate annual inflation rates by several percentage points [Kaifosh]. One consequence of this distortion is that the official numbers for the real incomes of median families are substantially inflated. The median family today is significantly worse off financially than comparable families were in 1975.

Unemployment increased. Furthermore, a great many good jobs evaporated [Unger-3]. Substantial numbers of people today cannot find employment commensurate with their skills and ability. Skilled machinists are working as security guards, computer programmers as retail clerks, engineers are selling real-estate.

During this same period, when corporations and wealthy people were prospering and the great majority of Americans were experiencing hard times, our societal infrastructure, bridges, school buildings, sanitation facilities, deteriorated as tax dollars were diverted to pay for multiple wars and a bloated military establishment. In addition, tax rates for corporations and wealthy people were lowered [Eichler].

Three principal mechanisms are generating the financial troubles of the great majority of Americans. One is the technology that I had hoped would help them. In addition to eliminating many simple, repetitive jobs, e.g., many on assembly lines, sophisticated technology also eliminated many fairly high level jobs requiring knowledge and judgment, for example, in the control of complex, continuous processes such as those in a steel or paper mill. Word processors greatly reduced the need for skilled typists.

The second mechanism is the phasing out of factories in the US, with American companies setting up facilities in low-wage countries, or contracting out production of their products to overseas producers [Unger-3]. By far the most popular country for this outsourcing is China. Related to this is the export of work such as telephone help, and the interpretation of medical-rays.

The third mechanism that has made it difficult for many Americans to get decent jobs is the import of workers, mostly from low-wage countries [Unger-2]. Legal immigration is currently at an annual rate of about a million. There are also various "guest worker" programs that bring in hundreds of thousands annually, ranging from farm workers to nurses and computer programmers. In addition, there are roughly 11 million illegal immigrants now here, with varying (depending on economic conditions) numbers, of the order of a half million, arriving annually.

Forty years ago, workers, acting thru labor unions, would have been able to mount substantial campaigns to counter these factors, but labor unions, especially in the private sector, are no longer effective defenders of worker interests. Decades of strong anti-union activity by private industry, supported, or at least not opposed, by government, have essentially reduced unions to an interesting historical phenomenon. Fewer than 7% of private sector employees belong to unions, and the leadership of virtually all remaining unions is anything but militant. Unions are much more prevalent in the public sector (over a third of public sector workers belong to unions), but these are now increasingly coming under attack by both corporate controlled political parties [Bagli].

Over the past several decades, most Americans have been working longer hours trying, with limited success, to maintain their living standards. Many have fallen below the poverty line as un- and under-employment has increased substantially. It is not uncommon for people to hold several low paying jobs in an effort to make ends meet. This while other qualified people are unemployed. Somehow, few people outside the privileged 1% have benefited from the increased productivity resulting from great advances in science and engineering.

#### Is it Fair?

One might, and some do, argue that, in our free enterprise system, those who contribute the most are the ones who should, and do, reap the greatest material rewards. If we assume that this is a just criterion for distributing wealth and income, there are at least 3 important questions.

1. If we agree that rewards should increase with contributions, how should contributions be measured?
2. How steeply should rewards increase with contributions? I.e., if A contributes K more than B, how much greater should A's income be compared to B's?
3. In our country today, are those receiving the most income or possessing the greatest wealth, the people who are contributing, or did contribute, the most to society?

Question 1 is a tough one. How do you measure contributions to society? How do we compare the value of work done by a top-rank musician, a first-rate surgeon, a leading biologist? Perhaps we might agree on some rough measure that would rank these close together. But how about the CEO of a major pharmaceutical company, a top notch engineer, a skilled machinist, a firefighter? Consider a leading Wall Street stock trader, and an excellent preschool teacher?

Even if we had some way to quantify societal contributions, it would still be difficult to decide how to determine appropriate income as a function of contribution. If A's work output is worth K times B's work output, should A be paid K times as much as B, or K2 times as much as B, or $\sqrt{K}$ times as much as B, or—what?

Question 3 is easy. How could anyone justify the fact that the income of a Wall Street croupier (stock trader) is something like 100 times that of a teacher playing an important role in shaping the lives of a dozen small children? Would the sudden disappearance of the CEO of a leading advertising agency disrupt society more than the disappearance of a hundred licensed plumbers, whose total incomes are exceeded by his? Is the value to society of the work done by the head of a big law firm specializing in corporate tax work greater than the work done by a hundred sanitation workers?

Rewarding people on the basis of the value of their work to society is certainly not the rule today in the US. It never was, but we have clearly been moving further away from this ideal every year.

Most rich people were born that way. What about the others? Some achieved wealth by virtue of great talent, in performing arts, as great athletes, a few as best-selling authors. Others struck it rich in the world of business. Some of these by exploiting technological developments they may have contributed to. More commonly, the mechanism was via a rise to the upper ranks of corporate management. In recent years, Wall Street stock traders and hedge fund managers have swelled the ranks of the very rich. Regretfully, many very able, well educated, people, capable of doing really useful work, have been lured by high compensation into wasting their talent enhancing and facilitating the operations of Wall Street casinos.

Wealth cannot be acquired by an isolated individual operating without inputs produced by others. Every invention represents a combination and extension of ideas produced by others, and its implementation and exploitation depends on an infrastructure developed, operated, and maintained by others over many centuries.

A Thomas Edison, or a Claude Shannon, stranded on some primitive tropical island with a small number of companions, assuming a benign climate and ample edible vegetation, would be able to survive without much difficulty. But, lacking the infrastructure of modern society, they would be limited to devising and constructing only simple devices and structures to make life a bit more pleasant and interesting. And, whatever they did accomplish would depend heavily on their knowledge of basic science and technology developed by others in the past.

I doubt that a strandee selected from a bunch of hedge fund managers, bankers, and advertising executives would win any popularity contests on the island. If several such people were stranded together, cannibalism might be a serious problem.

Whatever the validity of claims for great compensation made by top rank engineers, or scientists, or other creative people, or claims by others who organize the production of useful goods or services, the claims of the Wall Street types, who do nothing of real value, are clearly bogus.

But even the most creative or productive people do not merit annual incomes exceeding a million dollars [Unger-1]. Their accomplishments can best be considered as relatively small appendages to the intellectual and physical structure of civilization erected by hundreds of generations, which is the heritage of all humanity. But, in any event, very few of the super-rich are in this category. What is truly outrageous is the appropriation by a small fraction of the population, most of whom have done little or nothing especially useful, of virtually all productivity gains over the past three or four decades.

We are now seeing—at last!, in the Occupy Movement [Unger-4], the rise of resistance to what amounts to a massive theft (accompanied by a variety of other crimes). Nobody can reliably predict the extent to which such resistance will succeed, but it does appear that there are real grounds for hope that it will continue to gather momentum and free our country from domination by a small, greedy minority.

#### References

Charles V. Bagli, "Cuomo Gains an Ally for a Looming Fight With the Public-Employee Unions", The New York Times, December 10, 2010

Alexander Eichler, "Corporate Taxes As Percentage Of Profits Now Lowest In Decades", The Huffington Post, 2/ 3/2012

Michael Greenstone, Adam Looney, "The Great Recession May Be Over, but American Families Are Working Harder than Ever", The Brookings Institution, July 08, 2011

Fred Kaifosh, "Why The Consumer Price Index Is Controversial", Investopedia, Oct 17, 2009

Rex Nutting, "Corporate profits' share of pie most in 60 years", MarketWatch, July 29, 2011

Sudeep Reddy, "Overtime, Not Wage Increases, Drive Income Growth", WSJ.com, July 11, 2011

Stephen H. Unger-1, "The Rich and the Rest of Us: Gross Inequality Versus Democracy", Ends and Means, January 13, 2009

Stephen H. Unger-2, "Immigration: Who wins? Who Loses?", Ends and Means, February 27, 2010

Stephen H. Unger-3, "Are Americans Obsolete?", Ends and Means, May 31, 2011

Stephen H. Unger-4, "The Occupy Movement: A Ray of Hope", Ends and Means, November 29, 2011

Comments invited. Send to me at unger(at)cs(dot)columbia(dot)edu

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