In my last blog, I wrote that some of our nation’s top CEOs are saying that skills matter more than academic degrees, which will only take on more importance in the future with artificial intelligence, automation and robotics.
Some of these very same titans of business now worry about the current state of capitalism. It is clear to them that something is amiss.
They see the rich getting richer and the big getting bigger, and that gives them great pause. They see four decades of largely flat wages for the vast majority of workers, and four decades of meager productivity gains.
“For the past four decades, capitalism has been slowly committing suicide,” wrote Peter Georgescu, former CEO of the marketing and communications firm Y&R, and author of the 2017 book “Capitalists Arise!”
Georgescu argues that short-term thinking spawned by shareholder primacy lies at the root of the problem and that business, more so than government, can save capitalism from itself.
They can do so by paying a fair wage and focusing on building up a business rather than the stock price. If they did these things, shareholders would win out even more over the long run.
A National Emergency
Since writing my last blog, I watched an interview on 60 minutes with Ray Dalio, founder of one of the most successful hedge funds in the world. Dalio, who grew up middle class and now has an estimated net worth of $18 billion, says capitalism needs to be reformed.
“I think the American dream is lost. I think-- for the most part we don't even talk about what is the American dream. And it's very different from when I was growing up,” Dalio said in an interview with Bill Whitaker.
What Dalio calls a “national emergency” has arisen from a system that he says is “not redistributing opportunity. We can call it a wealth gap, you can call it an income gap.”
Dalio warned that creating vast wealth without corresponding broad prosperity leads to political radicalization and social instability.
Mind you, Dalio and Georgescu are not the only CEOs who have professed their concerns about rising income inequality. Warren Buffett, chairman and CEO of Berkshire Hathaway, and Laurence D. Fink, founder and chief executive of the investment firm BlackRock, which manages $6 trillion in investments, have said the same. Add to the list Lloyd Blankfein, Bill Gates, Carl Icahn, and Charles Koch and others.
J.P. Morgan Chase CEO Jamie Dimon recently said that the U.S. economy has been split into those benefiting from thriving corporations and those who are left behind.
“I don’t want to be a tone deaf CEO; while the company is doing fine, it is absolutely obvious that a big chunk of [people] have been left behind,” Dimon said last month at an event to unveil a new $350 million program to boost job prospects for people in under-served communities.
“Forty percent of Americans make less than $15 an hour. Forty percent of Americans can’t afford a $400 bill, whether it’s medical or fixing their car. Fifteen percent of Americans make minimum wages, 70,000 die from opioids” annually.
At the World Economic Forum in Davos, Switzerland in January, CEOs expressed heightened concern over the potential impact of income inequality on social and business environments.
But the issue of a growing income gap has been stewing for quite some time. Back in 2006, Buffett told Ben Stein, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Between 2007 and 2012, aggregate GDP adjusted for inflation rose 3.7 percent, according to the Commerce Department. But the income earned by the top 10 percent in producing that output rose 5.8 percent while it actually, get this, fell 0.4 percent for the remaining 90 percent.
Mark Bertolini, the CEO of Aetna, told the Committee for Economic Development, a business-led public policy organization, in 2017 that the survival of capitalism depends on businesses creating good-paying jobs.
“If we don’t reinvent the capitalist model, we will lose it because it will be changed for us,” he said.
Socialism to the Forefront
During a meeting last week in Dallas between site selection consultants and economic developers hosted by Consultant Connect, I noted that we are at a critical juncture in our history, a time in which the word “socialism” does not carry the same stigma with young people as it does with my generation.
Gallup found last summer that, "Americans aged 18 to 29 are as positive about socialism (51%) as they are about capitalism (45%)."
Of course, the views of millennials and Generation Z may very well change as they grow older (mine certainly did). Still, their current distrust of capitalism as being a rigged system and their support for socialistic policies (and candidates) may be indicative of a coming attitudinal sea change.
Avoiding the word “socialism,” serial entrepreneur Andrew Yang, a fringe presidential hopeful and author of the 2018 book "The War on Normal People," is campaigning on a platform that every person in America should receive a $1,000 monthly check, paid for by a European-style value added tax.
The concept is called a basic income and his response to the market forces that are driving automation, which he says will inevitably create a coming tsunami of job destruction, making most people essentially irrelevant.
Tax the Bots?
Another idea is to tax the robots and use money raised from companies carrying out automation to help retrain or support people who lose their jobs because of it.
Among the robot levy's most improbable supporters is Microsoft CEO Bill Gates, who said robots should be taxed "at a similar level" to the humans it replaced, even if that slows the speed of automation.
The Information Technology and Innovation Foundation says a robot tax amounts to a tax on innovation, which would slow GDP and wage growth. Instead, ITIF President Rob Atkinson says companies should be given a tax credit for investing in robots, calling predictions of job loss from automation overblown.
Create or Destroy?
It is clear that we’re in a very different time, a period of great disruption, where our lives and work are being transformed by artificial intelligence, automatic and robotics. Admittedly, I have gone back and forth on whether these digital technologies will create more jobs or destroy more jobs. I have read numerous reports saying both.
(I still subscribe to the contradictory belief that AI and robots can both decimate human work and improve it at the very same time.)
It’s probably safe to say that most corporate and think-tank studies contend that robots will produce more jobs than they destroy. But two leading U.S. labor economists say in three new papers that is not how automation has played out since the 1980s.
MIT's Daron Acemoglu and Boston University's Pascual Restrepo say automation has worsened inequality, depressed the wages of workers, and has eliminated more jobs than it has created, resulting in a declining share of the economic pie for the middle class and more inequality.
Unlike the early 20th century, when the spread of the assembly line created new jobs for line workers, engineers, machinists, AI and robotics do not require lots of human labor. Specialized skills, absolutely, lots of bodies, not so much.
Shrinking Middle Class
Study after study has noted the de-industrialization that has resulted in the loss of millions of jobs. It has devastated certain communities, particularly in small town America, particularly in the industrial Midwest. And with that, the American middle class has shrunk to about half of all families, from about 60 percent in the early 1970s, according to Pew.
Consider this, in 1972, the average American union carpenter earned the current equivalent of $33.55 an hour — about $70,000 a year. Today, a carpenter earns $20.23 on average, about $42,000 annually, according to Indeed. You may want to read that again.
It explains why so few Americans believed the economy was faring well in the years after the Great Recession. It also explains why people are still hurting today in a "good" economy.
Here's what I think: Advances in automation, along with an overriding focus on short-term shareholder interests, and extending “permanent normal trade relations” with China in 2000, have all contributed to destroying jobs, growing income inequality and a shrinking middle class.
It’s capitalism all right, but will it get the support of future generations, or will they want to kill it? That's a question that should concern us all very much.