Of Gaps and Grass-Eaters

Are the American people obsolete? Salon argues that because of globalisation and technology there is now a increased separation between capital and labour. The activities that generate wealth have both been outsourced to cheaper shores, and become more efficient because of technology. As a consequence the social contract in Western society between rich and poor – the rich provide the capital while the poor provide the labour – is breaking down. The rich still have capital, but they can now move the production of goods to the East, creating a shortage of jobs in the West.

Philip Greenspun wonders if unemployed people are 21st Century equivalent of Draft Horses after the Industrial Revolution. Is it far more expensive to keep people in work, than automating their jobs, or outsourcing?

Finally; DailyFinance has a story of how the disappearance of the middle class and the increasing gap between rich and poor has affected Japan. Apparently those that have given up on ever breaching that economic chasm and who retreat from society are termed “Grass-Eaters” by the media. Is this a taste of what will happen in the West if this trend continues?

3 Replies to “Of Gaps and Grass-Eaters”

  1. Outsourcing wealth creation is only cheaper while the standard of living “over there” is low. If technology-driven efficiencies happen in the poor world, then a middle class is formed and outsourcing gets too expensive. If technology-driven efficiencies do *not* happen in the poor world — maybe because the efficiencies are not all that easy to transfer — then the poor world does not produce all that much wealth. Either way, I think outsourcing high skilled work will be the debacle of the naughties. To me Japan’s middle class is gone because of no internal labor mobility, simple demographics, and a few decades of cleaning up the keiretsu clusterf*ck.

  2. Yes, the hope is obviously that the outsourcing will improve the lot of poorer countries until they reach parity with the West. My guess is that this will happen fairly gradually over the next 20 years.

    From what point of view do you think that the outsourcing of highly skilled work will be a debacle?

    I agree that there are a large number of factors which contribute to the situation in Japan, but to some extent those are being mirrored in Western countries. Interestingly, I was reading an article recently about the effect of the housing crisis on labour mobility in the US. Apparently mobility has decreased as people are locked into paying down mortgages. Also interesting is this article: http://www.economist.com/blogs/democracyinamerica/2010/07/unemployment as well as the current chatter on Economics blogs of the Beveridge Curve http://ftalphaville.ft.com/blog/2010/08/10/311246/whats-in-this-beveridge/

  3. So “debacle” was probably too strong a word. But I still think we will look back on the trend of outsourcing knowledge work as a well-intentioned, gradual f*ckup. Outsourcing is not about M&A, but there is probably a comparison here worth making:

    Conglomerates were a buzzy trend that peaked in the 1980’s. Though C-level types talked about “synergies” and fixed capital redundancies making conglomerates efficient, there was a systemic misunderstanding of how hard it is to make an acquired business culture play nicely with the buyer’s culture. Therefore acquisitions generally wasted shareholder value, and actually still do in 2010. However inorganic growth of a conglomerate played to *personal* biases, but putting C-level types at the top of ever larger pyramids.

    This is the same way I believe we will look back at outsourcing knowledge work. Yeah it lets leaders claim to be improving efficiency because of relative labor costs, and yeah C-level types love to get rid of the overpaid geeks, but there are fundamental problems under the hood. Knowledge labor is only relatively cheap while “they” have no middle class, and/or importing knowledge labor is actually expensive because of communication gaps. (See above.)

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