08.03.15

Planning for a World Without Work

Posted in Uncategorized at 10:08 pm by Administrator

I have read a couple of articles recently that have crystallized my thoughts about a topic that has me concerned about the future faced by my sons and daughter.

The article I read yesterday had the title The Raise that Roared. It is about an entrepreneur in Seattle that decided that he was not paying enough to his employees for them to live a middle class lifestyle. He came to the conclusion that the wage gap between himself and his employees was too large and as a result he lowered his own salary and made the minimum wage within his firm $70,000.

This move has been heralded as visionary and lambasted as cynical and/or socialist. But to my way of thinking it simply highlights the yawning gap between the rich and everyone else that has been growing for more than a decade (recall the “occupy” movement that started in 2011).

One of the contributors to this gap has been the increasingly obscene amounts being paid to corporate executives.

When I started working for Gulf Oil in the 80’s (one of the most profitable oil companies in the world at that time) the CEO of the company made something like 30-40 times the lowest paid worker stocking shelves in a warehouse or answering the telephones at the reception desk.

In the world of 2015 someone performing the lowest paid jobs for a company like that makes about $20,000 (or less) and CEO’s now regularly make $10,000,000 or more. That’s a multiple of 500.

Just last year Yahoo paid out a record $110 Million to executive Henrique De Castro. What incredible feat did he accomplish to deserve such a generous award? He was so bad at his job that he was fired after just 15 months.

I would attribute this rampant escalation in executive compensation to the growth of Mutual Fund ownership of the economy.

Mutual Fund managers rarely look past the last few quarters of results and really don’t have much interest in the long term viability of a company. They have been completely “hands off” when it comes to senior management. At some point the boys in the executive suite figured this out and started giving themselves massive raises and bonuses.

Initially they were probably somewhat surprised that there was no push back but now it is simply accepted that precedents set by the last insane salary increase at one company should be replicated by any company that wants to remain “competitive”. Sort of like elite athletes salaries except that in the world of sport athletes actually have to perform to keep getting their contracts renewed.

The other and perhaps even more disturbing trend is that increasing automation in every field is putting more and more power and control into the hands of those that can afford the tools that are used to replace human labour.

The story that got my attention in this regard was the recent announcement regarding the development of a robotic brick-laying machine. It is not surprising that such a machine could be built. In fact it was inevitable. But what this demonstrates is that even skilled labour jobs are not immune to automation.

It has often been said that technology does not eliminate jobs but in fact creates even more jobs. In my experience that is only because technology when first introduced doesn’t really work very well. Once it becomes mature there are very negative impacts on employment levels.

My father was an underground miner working for INCO in Sudbury Ontario. In the 1960’s INCO employed 17,000 workers. Today that number has dropped to less than 5,000 and the company produces more nickel than ever. Automation and robotics have replaced more than 7 out of 10 workers. Is that is a bad thing? I don’t think so. Those jobs were dirty, dangerous, and dull. But it makes you wonder what jobs will be left when robotics and artificial intelligence reach their true potential in perhaps 30-50 years.

Does anyone doubt that self-driving cars will be the norm within 20 years? There go all the taxi, bus, and truck driving jobs. The result should be more efficient and significantly safer travel and transport – that’s a good thing, right?

If you can imagine self-driving cars then isn’t it realistic to think that airline pilot jobs and many similar highly skilled jobs will also disappear.

You might counter that there will always be jobs where human intelligence and analysis will be required. Maybe that’s true. But back before computers were mainstream could anyone have imagined that a machine could defeat the most talented chess players in the world? And what about that 2011 episode of the game show Jeopardy where IBM’s Watson easily defeated two former champions.

I foresee the day where you walk into a neighbourhood medical clinic and stand in a booth where you are subjected to a full body scan involving multiple sensors. Within seconds a computerized diagnosis would be provided that will be much more accurate than human doctors could possibly come up with.

The widespread deployment of these advanced technologies will require energy – a lot of energy. I have written about many energy storage technologies on this blog and I am absolutely certain that one or more will become economical within the 30-50 year time frame. At that point it will be possible to generate all the energy we need and more from wind, solar, hydro, hydro-kinetics and geothermal sources at very low costs. Abundant energy will also mean abundant water because desalination of seawater will become viable.

In a world where robots and artificial intelligence have come to dominate large parts of the economy how does a social structure based upon humans earning a living by “working” continue to function? The short answer is “it doesn’t”.

Over the next 30 years structural unemployment will creep continually upward. Unemployment rates of 20%, 30% or more will become the norm. It will make no difference how well educated, motivated, skilled, or industrious young people are. They will not be able to compete with either automation or older, more experienced workers. The inevitable result will be social unrest at a scale not seen since the 1930’s. The “Occupy Movement” was only a dress rehearsal.
I don’t think this is a disaster in the making. Society will evolve in order to adjust to the new reality. But evolve it must and the sooner we accept that and start heading in the right direction the better. Allowing the wage disparity to continue to grow is exactly the wrong direction.

As the work available for humans decreases there must be a corresponding reduction in the amount of time that each individual is expected to work. A shorter work week, a higher minimum wage, and better benefits for part-time workers are not luxuries that we as a society cannot afford. These are evolutionary changes that must take place in order to maintain social order.

Personally I feel that shared ownership provides one opportunity to address both the executive compensation issue and the more equal distribution of wealth. Democratically controlled organizations, be they credit unions, co-ops, or not-for-profit organizations such as auto clubs providing insurance and even car-sharing services would never put up with outlandish executive compensation packages. And the one member, one vote structure of these organizations allows individuals to share equally in the responsibilities and the economic benefits that are the reason these organizations exist.

I’m sure that some people will consider this vision of the future to be radical and alarmist. It certainly will be different. I just don’t see any other way that things can turn out over the long run. And organizations as credible as the World Economic Forum and Oxfam seem to agree.


19-Oct-15: Update – Apparently $10+ million severance is “standard in almost every public company in every industry”

The proposed purchase of Hawaiian Electric Industries (the electrical utility for most of the Hawaiian islands) by NextEra will trigger a payment of $11.6 Million to Connie Lau, the CEO of HEI.

Maybe I’m crazy but it would seem to me that a “golden parachute” of that magnitude would be a very compelling incentive to do the deal whether or not it is in the best interest of Hawaiian utility customers. When this payment was questioned at a Public Utility Commission hearing Ms. Lau made the comment that this type of severance was “standard in almost every public company in every industry”.

I believe that many, many decisions impacting our economy are now made purely for the personal gain of executives. The poster child for that contention is Joseph Cassano who many analysts have identified as the architect of the speculative derivative trading that resulted in the financial crisis of 2008. During his 21 years with AIG he received compensation of $315 million and even after the dire consequences of his actions became apparent and he was forced to retire he continued to receive a consulting fee of $1 million per month.

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