Technology Drives Wealth Up

Throughout history technological changes have driven the distribution of wealth upward. What I mean by this is that new technologies often displace lower skilled workers and put more money in the hands of the owners of business, or what Marx called “the means of production.” Here are a couple of examples.

Once upon a time farms employed many dozens, if not hundreds, of people. Animals required care, fields had to be prepared, crops planted and tended, and then harvested. It typically took dozens of people to reap and gather a harvest on just a few acres of land. Until about 1870 a majority of Americans lived and worked on farms, and this was probably the norm across the world. But then farms began to use machinery, at first horse drawn threshers and reapers, but then mechanical tractors, and more and more things became automated. Agricultural employment decline inversely as automation increased. Today farms employ very few people. Most farmers operate huge complex combines that can till the fields and plant the crops in the spring, spread fertilizer and pesticides in the early summer, and harvest the crops in the fall. (I’m talking hear of the large agribusinesses that I grew up around in central Illinois.)

Once upon a time the farmer had to share part of the proceeds from the sale of crops with all the people who worked on the farm. But now the farmer gains all the income from farming and doesn’t have to share with “field hands.” This is not to say that farmers are getting rich, because they still have to pay for equipment, and farming is notoriously fickle and weather dependent. But my point is that money from farming is no longer shared among the farmer and many workers. It all stays in the farmer’s pocket. So the technological change has shifted the money generated from farming up.
Another more recent example – and one that I have personal experience with – involves lawyers and legal secretaries. When I began practicing law virtually every lawyer had a secretary. A lawyer would typically draft a document by hand on a legal pad and give it to the secretary to type. He would then review and revise the document and send it back for final editing. The law is very word and writing intensive, so secretaries were vital to the success of a law firm. Many large firms had more secretaries than lawyers. I worked at a large Seattle law firm where each attorney had a secretary, each section had a secretary, and there was both a day and night secretarial pool. I would estimate that there were just over twice as many secretaries as lawyers.

I began practicing law in the mid 1990’s, just as personal computers came into widespread use. All of my fellow law students used computers and did their own typing. When they got jobs they didn’t have the same need for a legal secretary as an older attorney. And so law firms began to trim secretarial staff. Now it’s common for one secretary to work for two or three attorneys, and they are now called a legal assistant since they no longer spend much time typing. According to one report I found, the legal secretary market has decline by about 10% per year since the mid-1990’s.
Now lawyers do all their own typing and don’t have legal secretaries. They have been replaced by Microsoft Word. And lawyers no longer have to share the money they get from a client with a legal secretary. Granted they have to buy a computer and software, but that’s a fraction of the cost of a legal secretary. So more of the money received from a case or a client goes to the lawyer than the staff. So the wealth accumulation shifts upward. According to studies, lawyer income has been increasing steadily since the late 1990’s.

My final example involved large scale industrial manufacturing, like making cars. There was a Jeep TV commercial from a few years back (I think it was shown during the Super Bowl) that began by showing jeeps being made during World War Two. The factory floor is covered with people, bolting and welding parts onto the vehicle on the assembly line. The ad then shows some scenes with jeeps over the years, then shows the exact same plant, outside of Toledo Ohio, where Jeeps are made today. There are a number of huge industrial robots, but not a single person in view. American automakers make roughly the same number of cars they did in 1950, but with a fraction of the workforce. There are fewer line workers, so more of the money received from each vehicle goes to people further up the line in the company. This is a trend that has played out across the manufacturing sector. Improved automation has been going on for years, but accelerated in the 1980’s with the increased use of industrial computers and robots, and the trend has only accelerated with improved computers and industrial machinery.

In the United States real wages have been stagnant since the late 1970’s, while corporate profits have grown, reaching near record highs in the last decade. One is clearly a product of the other. Fewer workers mean higher income up the corporate ladder, and more profits for shareholders.
The common counter argument is that when one industry fades another takes its place. When, for example, cars replaced horses, far more jobs were created than were lost. People lost jobs working in stables, but new jobs were created in auto plants and auto repair shops. In fact there were probably far more new jobs dealing with cars then old jobs dealing with horses. But there are two things to consider. The first is that there is a time shift. A worker who loses a job in a stable doesn’t walk down to the auto assembly line the next day and take a new job. (A few might, but most won’t.) Second, and perhaps more important, many of the new jobs are at a different skill level than the old jobs, typically a higher skill level. A car mechanic is far more skilled than a stable boy. And not every stable boy can master the skills of an auto mechanic. So everyone who loses their jobs might not find a comparable new job.

Similarly, people argue that as computer programs replaced secretaries, clerks, and bookkeepers, new jobs were created for programmers. But a computer programmer is at a much different skill level than a secretary, book-keeper or clerk. And unlike the transition from horse to cars, only a few hundred computer programmers created software that eliminated millions of secretarial jobs. So even those legal secretaries with the skills to become programmers could not find new jobs in that field.

This trend raises a number of very interesting questions, which I will raise here, and hopefully answer later.

What happens if this trend continues? Will it mean the “end of work” for millions of people? And what to do with those people who are displaced by technology and can’t find new jobs?

What does this mean for income inequality? This trend continues to drive wealth up, further exacerbating income inequality. Is there a point where there needs to be structural changes to deal with this?

I hope to answer these and other question sin the near future. Stay tuned.

Author: Mike

I am a patent attorney in Lexington, Kentucky. My law firm web site is http://www.coblenzlaw.com. I ran for State Representative in 2010 and lost in the primary. Many of these posts are based on writing that I did for that election. Rather than delete it all, I decided to dump it onto the internet.

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