Progress, Technology and Seven Billion People:

A Solution to Save Capitalism

By Jack Buffington, Ph.D.

Copyright by Jack Buffington, 2011

Smashwords Edition

Progress, Technology and Seven Billion People:

A Solution to Save Capitalism

TABLE OF CONTENTS

Introduction: The Permanent Impermanent Job

Chapter One: American Dream to Pitchforks and Torches

Chapter Two: Globalization: A Petri Dish for Technology

Chapter Three: The Evolution of Man and Machine

Chapter Four: 2029: A Technology Odyssey

Chapter Five: Adam Smith and Frankenstein

Chapter Six: An Economic Model for Seven Billion

Chapter Seven: Solutions for Manufacturing

Chapter Eight: Solutions for Services

Conclusion

Footnotes

INTRODUCTION: THE PERMANENT IMPERMANENT JOB

What’s going on here?

This book is about the seven billion people who inhabit the earth, their desire to earn a decent standard of living, and the machines that are being deployed to eliminate work from them. In 1964, the television show, The Twilight Zone presented an episode titled, "The Brain Center at Whipple's" that depicted a CEO who was fascinated with the opportunity to completely automate all facets of the factory operations at the expense of the workforce. The plant manager, foreman, and chief engineer all called upon Mr. Whipple to understand the impact that automation was having on the company and society as a whole. "Nothing personal, it's just progress", Mr. Whipple proclaimed after each ensuing phase of technology was implemented. In the end, it was Whipple himself who was the victim of automation, and the last scene was of a 1960 style robot exacting his mannerisms. Progress or stability? Consistent to the theme of this episode, I guess it depends upon one’s perspective, and self-interest.

Just a generation after this Twilight Zone episode, the collapse of the manufacturing sector in the early eighties began to show its effect: inflation at 14.8% in 1980, mortgage rates of 18.5% in 1981, a gallon of gas was $3.45 in 1981 (in 2008 dollars), and unemployment was over 10% nationwide in 1982₁. Deindustrialization was in full swing: in the 1950s, 35% of the U.S. workforce was in industry, and today it is less than 15%. In my hometown of Baltimore, Bethlehem Steel (the world’s largest steel mill in 1959) employed 35,000 workers in 1959, dwindling to 8,000 in the late eighties, and dropping to irrelevancy today. From the mid-sixties to the mid-nineties, Baltimore lost over 100,000 manufacturing jobs; an astounding statistic given that, at its peak; it had less than one million residents in the city, and less than 2.5 million in the metro area₂! Growing up in the rust belt during this time period gave me the opportunity to see the effects of deindustrialization first hand, and as a result, I did not want anything to do with manufacturing, much like those of my generation from cities like Detroit, Cleveland, and Pittsburgh.

Finding a professional job after college for me was not easy, so I bartended and interned with a bachelor's degree, and even mowed lawns and landscaped while I was completing my MBA. Eventually, I landed a white collar job as an entry level financial analyst/accountant in 1990 with United States Fidelity and Guaranty (USF&G), a large property and casualty insurance company based in Baltimore. One month into the job, the current CEO, a long-term employee named Jack Moseley was replaced with a Mr. Whipple-type leader named Norm Blake, who proceeded to gut the organization through an endless drumbeat of corporate reorganizations. Every Friday for a year, or so it seemed, more employees would walk in the building at the beginning of the day than would leave at the end. After a short period, I realized that seeking stability as a white collar worker would be as futile as a strategy as doing so as a blue collar worker. Yet in white collar work, there were no Japanese to blame for job losses; the culprit was more insidious, and difficult to detect. After all, who would blame the progress of the computer for one losing his job? One man’s progress was another man’s pain.

I remember back then there was a spoof song on my favorite radio station to the Buddy Holly song “Wake Up Miss Susie” titled, “Wake Up and Eat Sushi, America”, identifying Japan as the villain of deindustrialization. While it was fashionable in the early 1990s for pundits and talking heads (like Donald Trump, of all people) to pile on, and blame everything wrong in the U.S. economy on Japan, there was not a word regarding the future tsunami of the personal computer that was beginning to merge. Today, as Americans fret over the Indians and the Chinese, the same holds true: few are discussing the impact of technology on the economy. Statistically over the past decades, more jobs have been streamlined due to automation rather than globalization, yet we don't see protest events like a scene at Whipple's factory when the foreman bashes a computer with a tire iron (before Whipple shoots him with a guard's gun). It was no coincidence that during my seven year tenure at USF&G from 1990 to 1997, when the processing speed of the computer almost quadrupled in speed (Moore’s Law, as is illustrated below in Figure 1), the number of employees fell from 12,600 in 1990 to less than 5,000 in the year that I left₃. The intention of this book is not to call upon citizens to stage massive protests against computers, but rather to understand how technological change is such a silent but powerful variable to the global economy.

Figure 1 – Illustration of Moore’s Law

Most people have never even heard of Moore’s Law, and struggle with a law, so to speak, that is not of the natural world, like Newton’s Laws of Motion. How can the evolution of computer technology be akin to that of gravity and motion (keep reading and you’ll find out!)? For your own benefit, you better believe it: I hypothecated in 1990 that if the computer processing speed is to double every two years, then I better reinvent myself once every two years as well in order to stay marketable. This began the process of my career journey when I continually reinvented myself, from a financial analyst and manager at a financial services company, to a Big Five consultant (in the late 1990s when it was all the buzz), to a leader in electronic business for a large company (again, following the wave of the buzz), and so on, even today. I have and will zigzag my way through my career, seeking to ride the wave of technology, never to fall prey to it. Considering myself to be a fan of complex adaptive systems, I define myself as a survivor of impermanence, and all that it brings being a 21^st century worker.

For sure, growing up in Baltimore taught me early on how to survive in the face of uncertainty and impermanence during these days of deindustrialization when everything seemed to be crumbling down. Despite this early on training, I would be foolish to suggest that what happened could have been predicted by me or Nostradamus. Who really predicted in scale and scope that electrons would be imported to India for processing, allowing this third world nation to leapfrog a conventional development path (agrarian to manufacturing to services) and become a direct threat (or so it seemed) to the American white collar workforce? At its onset, I saw it firsthand, working closely with Indian programmers and business managers, and American programmers who were affected by competition working for 10% of their wage. One of those initial business managers in India, Nandan Nilekani, the past CEO of Infosys (a leading Indian IT service firm) during the early 2000s, coined the term, “the world is flat” to describe the transformation of the world from one of inequality to an environment of a level playing field for commerce. A few years later, American author Thomas Friedman popularized the term, selling millions of copies of his book in numerous languages, leading those from the third world to believe that globalization brought forth endless possibilities. In his book, Friedman told the developed world that everything would be alright, don’t worry, yet globalization was happening very fast, with roughly 5 billion people in the developing world who were living on less than $10 a day₄ believing that their time has come.

In the U.S., Friedman was ridiculed by pundits and politicians who disagreed that globalization was equitable and good for the U.S. In his 2006 book that can largely be seen as a rebuttal to Friedman’s The World is Flat, Senator Bryon Dorgan’s book Take This Job and Ship It, blames corporate greed and brain dead politicians in an attempt to classify any entity that moves jobs away from the United States to be a Benedict Arnold. Identifying CEOs and those who offshored to India to be akin to the worst traitor in U.S. history was intended to stroke the fears of the disenfranchised who were already looking for someone to blame. When my first book, An Easy Out was published in 2007, I sought Senator Dorgan for a debate on the topic of the U.S. economy and offshoring; while I doubted that he would ever accept my invitation (he did not). Yet if he did, I was prepared to show up to the debate with copies of books written in the 1980s that were followed a similar format of blaming the Japanese for our economic woes, as he was blaming the Chinese and Indians. Whether we would like to admit it or not, history has repeated itself once again.

Technological change, in fact, is the primary driver of the permanent impermanent job, the jobless recovery, or whatever you would like to call it. It has been the foundation for the global economy over the past few centuries (if not millenniums), and its trend line exponentially accelerates. Yet, automation is impacting labor in local environments much greater than any act of globalization. Harvard Business School professor Pankaj Ghemawat found that 90% of the phone calls and traffic over the Internet is local₅, leading to even greater disintermediation at home than is occurring from India or the Philippines. Self-check-out lines in your supermarket and Home Depot, self-banking, automated post offices, travel sites, and so on, leading to greater disruption than those from China and India. Demagogues like Bryon Dorgan and Lou Dobbs have not connected the dots back to technology, with it being the common denominator both home and abroad. Whether local or twelve time zones away, our economy is on a technology trajectory that cannot be effectively controlled or stopped, and rather must be understood. As technology continues to accelerate in capability, affordability, and ubiquity, the labor model of every economy, from every nation will be increasingly disrupted. This statement is not a matter of opinion, but rather an established rule of law in modern economics, which I will discuss to be the problem outlined in this book.

I confess at this point that the strength of this book is not intended to bring forward a myriad of epiphanies for you to be amazed by, but rather to show you the evolutionary, slow path of progress over decades in the U.S. economy. The trends that we are seeing today are not new, and have been emerging for some time. Noted futurists of the past such as Alvin Toffer (The Third Wave) and even Thomas Friedman (The World is Flat) have been speaking of this amalgamation of technology, society, politics, economics and culture for some time now. While it may feel to us as if this technological impact has come from out of the blue, the technological progress pattern that we are on today has been inevitable since the advent of Adam Smith’s classical concept of economics from 1776. I will discuss this point in great detail later on in the book. For now, understand that technological change has been on a path for centuries to eliminate the labor function in the economic growth equation of modern economics.

Geeky Economic and Techie Stuff

Warning: this book will include some geeky economic and techie stuff to build the case that our permanent impermanent jobs are the result of an acceleration of technology that is eliminating the role of labor in the development of economic growth. Let me start this short trip through the field of economics by identifying a traditional economic production function between capital and labor. In 1957, noted economist Robert Solow concluded that a residual or unexplained portion of economic growth in the U.S. stemmed from technological advances, and that this residual far outweighed changes in capital or labor₅. This made sense: technological change (from the first tool to the computer) has always powered growth throughout the ages, even if not in the form of capitalism. With computer technology doubling in processing power every two years, automation is increasingly replacing workers, and capital becomes labor. While certainly an efficient process through the ages, technology has lately created an unhealthy balance in the economic production function, with workers being eliminated from the equation. As technology continues to advance, the adoption of its use becomes easier and cost becomes cheaper than labor, leading to a workerless business model, with productivity driven by automation. This is a normal economic phenomenon: falling prices (and labor) occurs in a strong economy, not a weak one. From the onset of the U.S. as a nation until the beginning of the 20^th century, there has been only one instance (Civil War) when prices were not falling, due to progress. However, with economic growth, this has today led to what is being called a jobless recovery arising from each ensuing economic downturn. Therefore, employment is becoming permanently impermanent, and no matter how much we demand for our politicians to do something about it, there is little that they have been able to accomplish in the face of this problem. Therefore, we have reached the first time in our economic history where technological progress has not led to prosperity, but instead, a jobless recovery.

By tracking technological change and economic progress over the past 100 to 150 years, today’s patterns and trends look routine, and even predictable. In fact, over a hundred years ago in 1909, Henry Adams, a famous historian of the time (and great grandson of the 2^nd President of the United States, John Adams), began to document the rapid pattern of the development of science and technology occurring during his day. His work, “A Rule of Phase Applied to History” was perhaps the first to theorize of this inevitable acceleration of technology in relation to humanity, showing qualities consistent to the physical sciences₆. In this work, Adams uses a simple “law of squares” to demonstrate the duration of each new phase in its development process.

Figure 2 – Henry Adams “The Rule of Phase Applied to History” (1909)

To demonstrate the acceleration of technology from the early 20^th century, Adams built a mathematical calculation that is surprisingly accurate today. Using the technological trajectory in Figure 2, and other noted works that discuss how technology is impacting the role of labor, the concept of technological singularity can be explained in rather layman’s terms as the point of which the trajectory of technological change reaches a vertical asymptote (a phenomenon in analytic geometry), leading to a dysfunctional impact on labor, or the worker. So even though we are finding the first instance of technology not leading to progress and prosperity for our workforce, we have always been on a trajectory to reach this point, understood as early as 102 years ago!

Today, technological change is becoming so rapid and profound that it is creating a rupture (or discontinuity) to history. Technology will be superior in intelligence (capacity and emotional) to that of humans, and by definition, should be able to replace virtually any human labor function in its path. When this phenomenon occurs, the labor chaos associated with the potential five billion impoverished job entrants will become less critical to the developed world, and a sense of equilibrium will take place where technology is in a dominant role in business – low cost labor will not be able to be cheaper than automation. Advances in robotic technology will, without mercy, work through the elimination of labor until it is successful in its tasks. Brute force algorithms will process until greater machine efficiency is achieved. As Stephen Hawking noted in his famous work, A Brief History in Time, “computers will overtake humans in intelligence at some point”₇. Ideas and innovations will exponentially accelerate, and this will lead to profound and disruptive change. Scoff if you may, but this the path that we are presently following (whether we reach the end state or not). It is not an idea that only belongs to science fiction.

Therefore, the notion of technological singularity will unlikely lead to dancing in the streets through an establishment of a workerless workforce overtaking today’s permanent impermanence in the labor market. Having a job that is always under threat of being eliminated is better than having no chance at work at all due to the capabilities of robots! If technology continues to improve in its ability to automate (not outsource) increasingly complicated functions, could it eventually lead to virtually every job being automated in the process? And if so, what does this mean for the worker/citizen? Obviously, unemployment and job insecurity is today’s greatest concern for any family (according to practically every poll), much greater than tax rates, globalization, public deficits, and so on. Therefore, the prospect of a workerless workforce in a capitalist economy presents an even scarier proposition than the turbulence of today, as hard as that may be to imagine! Yet our politicians and the talking heads on television and radio are talking about budget deficits rather than this.

Let me be clear right now at the beginning of this book: I am not against technology, and you will not read one word in this book that promotes an anti-technology or anti-capitalist solution. Throughout the course of history, technological change has improved and lengthened the quality of life through seemingly unimaginable inventions. Therefore, labor chaos must be a problem met head on instead of being reversed. The degree of disruption that technology causes to the economy is not a direct result of itself, but rather a function of our response to it. Dealing with an environment of permanent jobless recoveries will need to be addressed through a new economic system of growth development and sustainability. Until then, we must embrace this uncertainty and chaos because we cannot avoid it.

Furthermore, unlike those who predict an 21st Century Asian economy as if capitalism was some sort of nationalist horse race, I predict that the growing economies of the world will be equally burdened with this instability: the acceleration of technological change will not only disrupt stable, mature economies like the United States, but dynamic, growing ones as well, such as China and India. The jobless recovery will be permanent and global, rather than cyclical and local. Work activities that are being offshored today will be automated tomorrow, placing an even greater degree of pressure on developing nations than developed ones. For example, China’s path to continued economic growth is a race against technology (as I will discuss in Chapter Two), a race that it cannot sustainably win in a conventional economic system because its expansion is built upon lower cost labor that cannot outrun an accelerating path of technology. One can argue that this technology shock will hurt developing economies even worse given the delicate nature of their societies as they seek to bring millions from out of poverty into middle class. Politicians all around the world will seek to change this flow through artificial means, as we are seeing today. There is no doubt that the ballooning public debts being amassed are compensations for not knowing how to grow private opportunities. In the U.S., our amassed debt is $75 trillion, over five times our gross domestic product, a scary proposition. In developing and developed economies, the path is a troubling one; like Joseph Schumpeter, I predict this meltdown of capitalism, not because I want it to happen, but rather because I want it to be avoided.

Everything’s a Toaster

Here’s a good example of this storyline in the U.S. auto industry, starting off with Henry Ford’s influence in the early 20^th century. In the early days of the 20^th century, an automobile was prohibitively expensive, and largely impractical, only reserved as a novelty for the most affluent members of society. As is shown in Adams’ graph in Figure 2, an acceleration of technological advances in mechanical and electrical systems during the Industrial Revolution, alongside process improvements and design changes allowed Henry Ford to usher in a new model of economic system called welfare capitalism. Production of the Model T pushed workers’ wages up to $5.00 a day₈, and the cost of a Model T became affordable for the masses, leading to a new production equation that increased consumer demand that was driven by improvements to the labor variable. This led other captains of industry during the period to label Henry Ford a traitor who “misapplied biblical principles₉”. The Wall Street Journal labeled Ford’s approach “an economic crime”, demonstrating that technological change has always been more of a problem of adoption than invention! But eventually, they understood this to be the new model of economic growth, enabling the worker to be a more powerful consumer.

Through the model of welfare capitalism and technological change, the economic production equation of capitalism showed the benefits of a multiplier effect. Consumers were paid a higher wage, and used it to purchase more products, which fueled the businesses to pay the workers! As technology continued to accelerate, improvements to the design of the product further fueled consumer demand, but also led to workforce automation that began to lead to reductions in the workforce. As the marginal benefit of a product began to decline and the consumer market became saturated, the U.S. market matured, and resources were redeployed to other markets. With international markets becoming more lucrative business opportunities, labor relocated as well due to lower wages, first in blue collar, then in white collar work. In a nutshell, this is the process of deindustrialization that is an impact of our present economic system, and the acceleration of technological change.

Today, the automobile has largely become a commodity, and robots continue to proceed in taking over even the white collar labor associated in the process (regardless of whether the work is shipped overseas). Welfare capitalism, from the days of Henry Ford, is all but dead as capitalism itself has matured, and is antithetical, if anything. A smaller market opportunity of fewer excited consumers, with fewer workers, leads to a falling demand, in turn leading to a downward spiral. Professor Bruce Greenwald of Columbia University facetiously stated that, “in the long-run, everything’s a toaster”₁₀, suggesting that every product will eventually be commoditized (both in production and consumption), therefore decreasing in marginal utility to the economy. Of course, market growth opportunities can still be tapped in developing markets, but revenue and profit opportunities in Asia, for example, will be much different than that which was seen in the 20^th century in the U.S. Today, virtually everything is becoming a toaster, with demand reduced because the consumer is not finding a material degree of value in product innovations that become more of a novelty (see Figure 3). Also, purchasing power is falling as a function of production automation, thereby reducing wages in the process. Therefore, as much as a company may wish to excite the customer with creative designs, there comes a point in time where toast is just toast, and a machine can almost entirely manufacture the toaster without help from labor – and let’s face it, robots do not eat toast!

Figure 3 – The Novelty Toaster

As you can see through this example of the auto industry, the product lifecycle process of the current economic system leads industry to ruin through an exponential pace of technology. A 21^st century environment of jobless recoveries and meaningless policy programs is as depressing as it is inevitable, at least in the current system of capitalism. However, if we turn this problem inside out, with an understanding of the technological trajectory, we can begin to map out a different course of direction, of how labor can be stabilized within a new economic system. This is an optimistic course of direction, as opposed to obsessing over flat worlds, government policy and trade wars, leading to more of the same. That is the beauty of this book – anyone can attest to what is happening with respect to a jobless recovery, but the trick is to explain it within the context of a solution – a new solution.

You’re No George Jetson

To interject a little humor, perhaps the answer to all of our problems in the 21^st century is to recall the wisdom of the 1960s animated television show, The Jetsons. At some time in the future, George Jetson lived with robots, computers, and flying saucers – you could probably categorize them to be living in a mythical period of technological singularity. George worked for Spacely Sprockets, and his job was to push a button or two once a week, of which he complained to his boss (Mr Spacely) for being overworked. In this environment, George appeared to be living the good life (he had a nice flying saucer, all of the modern conveniences of this era, and a happy family life), as opposed to being eliminated and marginalized, the pattern that we are seeing today. Whether through regulation or benevolence, Mr. Spacely redistributed the marginal utility of the benefits of automation back to the worker, as opposed to at the expense of the worker. Of course, this was just a fictitious cartoon, and you are no George Jetson: productivity benefits from technology have been given to consumers and investors, but not the workers. This has created an environment that has been disharmonious to the worker, and any sign of offering workers the benefits from productivity has been frowned upon by the investment community (e.g., Costco offering to pay a higher percent of worker’s health care costs was ridiculed by investment analysts). Therefore, a George Jetson-type solution may have made for good entertainment, but a policy of unproductive labor has not been proven as effective to economic growth (such as in communist countries in the 20^th century), and is therefore shunned. It is very likely that in the 21^st century, there will calls to protect the worker through protectionist or even anti-technology policies, and there have already been papers and books written on how to address and cope with the end of work as we know it. We should be careful about desiring a George Jetson in a capitalist economy; instead, a new economic system must be developed.

In this book, I will emphasize the important role that labor has played in economic development. Perhaps the United States has become the most successful capitalist system in history due to the connection between the worker and consumer in the labor model. Yet during the Industrial Revolution, work became regimented and specialized almost to the point of fusing man and machine through the process of mass production, leading to economic growth and prosperity – through this came significant economic growth. During the post-industrial era (i.e., my days as a kid in Baltimore and my zigzagged career path), automation and globalization led to a new model of labor – for everyone to become a knowledge worker, leading to economic growth through a bastardized interpretation of Ricardo’s comparative advantage that assumed an economy will be more productive if a nation specialized to its advantage. Ricardo’s comparative advantage concept eventually morphed into a flat world concept where level playing fields led to this concept of free trade that is more myth than reality. In the midst of these assumptions, and with technology accelerating, both for white and blue collar industries, labor became less relevant in the economic equation, leading to a divider effect (rather than a multiplier effect). Labor has become a variable that is either increasingly automated or commoditized.

With labor less relevant in a production equation, Americans and those of other developed nations felt the pain of unemployment or underemployment, and lashed out in anger toward the pain. Instead of letting the anger build, we have an opportunity today to address these societal problems through appreciating the fact that an accelerating pace of technological change has and will continue to adversely affect the worker and the economy, in the current economic system. Simply throwing up the moniker the world is flat, or artificially stimulating the economy won’t help much at all. The intention must be to avoid both an elimination of labor in totality, and a world where labor is forced, and innovation and growth are stunted as a result. This is the model that I will develop in this book. I think that it is possible to develop a new production equation that allows capitalism to drive economic growth, both through productivity and providing a utility to the labor variable – something in between a jobless recovery and George Jetson.

What this book is about

I suspect that my critics will consider this book to be hypothetical in nature, (it is, in a sense) given that I’m proposing the solution to be a new economic system of capitalism. For those who consider these solutions to be too conceptual or lofty, I have always countered by asking for a solution that keeps the present system intact, assumes that technology will continue to accelerate, and endorses capitalism. I believe that the realities and possibilities of a potential 21^st century economy is the focus of this book. As the author, the burden of proof rests in my hands, not just in what I develop as the problem, but, more importantly, in the solution. This book would not be worth your money or my time if it simply spit out the problem, or as it is called in many books, the economic crisis. Certainly, any author who challenges the tenets of capitalism that rests as a foundation of our current system since 1776 is asking for trouble. But then again, we are in trouble today, big trouble!

In Chapter One, I will begin with an acknowledgement of the growing anger that exists in society over this economic crisis. In the United States, and other developed nations, there is a growing discontent and unrest related to the economic problem at hand, and it is spilling out in very raw and irrational manners. To some, a growing disenchantment with globalization is the cause of this problem, while others blame the ineffectiveness of the government system in relation to the free market. In this chapter, I will seek to explain why these frustrations related to the 21^st century economy is neither good nor bad, yet have become a distraction from real solutions. On one side, we cannot discount this growing and raw anger that is building within society, but on the other side, we must not be sidetracked by these frustrations, as is increasingly the case today.

After diagnosing the symptoms and frustrations spilling from the problems for what’s happening in the economy today, Chapter Two provides a different view of globalization than is normally presented in the media: the focus is not on offshoring or the emergence of developing nations, but rather the race against time that all markets (both developed and developing) face in light of this accelerating path of technology. Similar to the conclusion of Chapter One, I consider these competitions to also be a distraction away from the fundamental problems at hand, noted in this book. Next, Chapter Three will focus squarely on the overriding factor of technological change. In this chapter, technological change is not characterized as the problem because it is not – it cannot be defined as a benefit or a hindrance given that its acceleration is inevitable. Perhaps technology being considered as intrinsic and inevitable is part of the problem; the role of technology in a post-industrial economy is articulated in more detail in this chapter. Also, technological change is not presented in a technical sense, or even in terms in economic terms of good or bad, but rather as it pertains to its influence with and to workers, which is often an overlooked collision point.

Chapter Four will develop this concept of technological singularity in which change is so rapid and disruptive that our economic system is unable to cope. Admittedly, this chapter may be a bit controversial, as I will define a 2029 odyssey that will predict what the future looks like 18 years from the time of the publication of this book. The point of this chapter is to establish a line in the sand to give the reader a fair illustration of what a future era of technological singularity may look like. My definition of this era is not as sensational as the futurist theorists (I don’t predict that man and machine will fuse in 2029, nor does it matter), but probably more radical than the reader is ready to consider. The purpose of this chapter is to allow us to fill in the space between today and 2029 to develop solutions for the future.

After going into the future to 2029, Chapter Five brings us back to the year 2011, and a 21^st century model of economics is reviewed. Despite the beauty of the principles of economics that were developed by Adam Smith 235 years ago, this system is becoming obsolete, and a cause for technology to become a Frankensteinian monster. In this chapter, I will identify the root cause of the problem, and what must be fundamentally mixed in the capitalist economic system to enable both the worker and the accelerating path of technology. Building upon this Chapter six introduces the concept of Nano-Economics, which is the basis of this new economic system to solve for today’s problems of the 21^st century. In Chapters Seven and Eight, solutions in both manufacturing and services related to a Nano-Economy will be proposed. A key reason for this book is not simply to identify a problem, or even to develop complex conceptual solutions, but rather to also define these solutions in working terms. This is what I hope to accomplish in this book.

Lastly, the concept of technological singularity is not to assume that an elimination of work is inevitable, but rather than the automation of our existing labor tasks is, given the current trajectory of technology. This idea may seem to be an academic discussion (and it is very likely as a Ph.D. that I will be accused of this), but the purpose of this book is to delve into certain topics in order to develop innovative solutions that are not being considered appropriately today. Our economic crisis today is the result of decades of market evolution, and we must respond in an appropriate manner, understanding technology’s path. Regardless of what we may consider to be the environment, and the culprits, and regardless of what we are angry about, we are facing an unusual situation that must be handled different from the past. We must force ourselves to consider a new economic system that does not damage any of the variables that have been critical to society in the past without limiting the future, a difficult task indeed.

This book is called Progress, Technology, and Seven Billion People because the solutions to the problems of today’s business environment of accelerating technological change and chaos is the power of the individual – who is 1/7^th of a nano (one billionth of a unit) of the entire world’s population. Defining today’s problems within a nano, or individual, peer to peer unit may seem radical given the importance that institutions play in today’s local, national and global economic activity. In this book, I acknowledge this to be true, but unacceptable for the future: a new economic system must allow for the nano to drive the future of business, allowing both technology and the worker to thrive. Therefore, I dedicate these solutions that I will propose to find a balance in a time of serious economic crisis all over the world.

CHAPTER ONE: AMERICAN DREAM TO PITCHFORKS AND TORCHES

Pitchforks and Torches

"It's not surprising, then, they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations." – Senator Barack Obama, 2008

On February 6, 2011, Super Bowl XLV was played in Arlington Texas between the Green Bay Packers and the Pittsburgh Steelers. A record setting 111 million Americans watched the game, not only to witness an epic battle between these two storied franchises, but also to be entertained by the advertisements, which were sold at a beginning price of $3 million per pop. One notable ad was the longest commercial in Super Bowl history – a two minute ad (at a cost of $9 million) by Chrysler to introduce one of its new cars, the Chrysler 200. Amidst all of the ads seeking to tickle our funny bones, this one was different: not only was the purpose of this ad to make us believe in Chrysler’s comeback (after accepting bailout money again), it seemed to be selling us on a revival of the city of Detroit as well. Taking this message one step further, we may be led to believe that Chrysler is marketing the “American Dream”, perhaps the greatest ethos of all time. A commercial shot in Detroit that exclaims that a manufacturing city that has been “to hell and back” is your best bet when it comes to a luxury vehicle. As an American, you are bound to believe.

In a jail cell in 1963, Dr. Martin Luther King wrote about an American Dream for blacks. Forty five years later, a dream was fulfilled for many blacks, as the first African-American President of the United States was elected into office. Whether it is a romantic vision of a downtrodden city of hard working class Americans, or an African American community organizer with a funny name, Americans are still addicted to the ethos that anything is possible, of opportunity for each according to ability of achievement. Probably, this is why Americans are getting so pissed off today: many Americans do not think that this truly American concept of the American Dream is possible as it once was. It does not matter if you are old or young, rich or poor, Americans want to believe in this, and those in power (whether it be politicians or marketers) love to romantically link the American Dream to everything, be it politics or automobiles.

Realistically, it is questionable today whether the American Dream can any longer be considered a legitimate element of our culture. As is shown in Table One, prosperity was gained by all through the 1940s to the 1970s, with “a rising tide lifting all boats”. Between 1947 and 1973, real income doubled as did the value of what the worker produced₁. Back then, science and technology was a catalyst for the U.S. worker, and America struck an unprecedented balance between capitalism and democracy. In 1913, the United States was producing about 1/3^rd of the world’s industrial products. Five years later, with Europe a disaster zone after World War I, this percentage increased to over 50%₂, and in 1950 to 60%, it was equal to the total output of the seven largest capitalist countries₃. Therefore, while the American Dream has certainly been driven by the spirit and entrepreneurship of the American people, the unprecedented nature of this success can also be attributed to the geopolitical state of the rest of the world during this period of dominance.

Figure One – Loss of Middle Class

Despite this economic power, I believe that Americans were largely uncomfortable with its post World War II status as the world’s only military and economic power. Back to the colonial days, our founding fathers craved an escape from the endless turmoil that embroiled Europe at the time. George Washington in his Farewell Address made note of a need to avoid “political connections” with Europe that are not in our best interests. Thomas Jefferson called for “peace commerce, and honest friendship with all nations, entangling alliances with none." In 1823, the Monroe Doctrine clearly stated an avoidance of the wars of Europe. Even after World War I, a war that America got pulled into, the Senate repudiated the Treaty of Versailles and failed to join the League of Nations despite President Woodrow Wilson’s efforts. With World War II, the era of U.S. isolationism was over and yet many Americans associated the American Dream with a romantic land unencumbered by politics, where a hard working man can make a good living. Today, that unencumbered individualism is marketed and associated with the American Dream, including how the economy affects the individual worker.

The new world of America represented an opportunity to develop and expand separate from the rest of the world. America's first Secretary of the Treasury, Alexander Hamilton, wrote the “Report on Manufactures”, seeking to protect America's "infant industries" from the entanglements of mercantilist Europe. Over the next 150 years, American industry developed largely as a function of high tariffs and protections, into the 20th century. In fact, it is fair to state that this concept of free trade was only accepted by the U.S. after World War II when the nation was essentially the only economic power left standing. During this post-war period, America's manufacturing might rebuilt much of the free world, right up to the 1960s when foreign competition began to be relevant in world markets once again. Through the next three decades (1970s/1980s/1990s), the American Dream as we defined it from the early 20^th century until the 1960s began to decay through deindustrialization; what Americans called "deindustrialization", the rest of the world considered to be "catching up". As automation became in fashion (alongside deindustrialization), and the replacement of manufacturing to a knowledge economy, most Americans did not take as much notice (as they do today), given the "creative destruction" from blue to white collar employment. From this, nobody can really define what free trade is, or is not, and why it is good or bad for America.

So perhaps let’s rephrase what some politicians and intellectuals are calling “clinging to guns and religion” as more of a reaction to the closing of the American Dream, a dead-end defeatism embodied through pitchforks and torches. During the earlier days of the American experience, small towns would gather at a town center in the middle of the night with pitchforks and torches to seek an evil doer who threatened the well being of the locale. These Americans were tribal, living in small towns spread across a large continental landmass. As a people, Americans are fiercely independent, consider themselves to be hard-working and honest, with a desire to work hard and keep what they earn through the ethos of the dream. Any attack on these principles has led to anger, bitterness, and populism. A politician who does not understand the psyche of the American culture may not fully appreciate the spirit of the values of this landmass that led to its ascension. Perhaps a primer to this is embodied through the seventh President of the United States, Andrew Jackson (“Old Hickory”), who spoke populism in the interest of the common man, establishing the persona of the American way of life. These are truly elements of America that must be understood to know how people feel, and what must be done; also note, that this is an apolitical statement (neither as an endorsement of any party affiliation).

Through understanding the pride and cultural values associated with a continental nation, it becomes more understandable as to why many Americans may mistake globalization as a singular event rather than an evolutionary process of commerce that has spanned over thousands of years. Through technology, globalization has followed a steady continuum, flattening the world, and colonizing previously unknown lands, such as America itself. Over its history, America has largely been successful as a function of emerging technology, leading into the 1960s and 1970s that seemed to come from out of nowhere, and a new paradigm of global competition. This may seem to have been discontinuous to America’s history, as a negative punctuation, only to be followed by the proliferation of the personal computer, Internet and the dot-com craze in the 1990s, driving unprecedented economic growth in America. Therefore, the globalization and technological change that led to the deindustrialization in the 1970s and 1980s may seem to be very separate from its earlier unprecedented success and the ensuing boom of dot-com in the 1990s and 2000s. Of late, Americans may feel as if technology and globalization are not on a continual path, and therefore, something must be done to change this, leading to feelings of anger of losing the American Dream.

In a recent Pew Research Center study, developing nations are more confident that their nation is headed in the right direction (87% Chinese, 50% Brazilian, 45% Indian) than are those from developed nations (31% British, 30% Americans, 26% French)₄. Of course progress is a relative term, with a developing nation worker feeling optimistic about what an American or Frenchmen may find to be concerning. Today, with only 30% of Americans feeling confident, the pitchforks and torches come out, and culprits are identified. Rush Limbaugh, perhaps the most popular radio talk show host of all time, told his audience on July 2, 2010 that President Obama is intentionally tanking the U.S. economy because he “hates America and is giving it payback for 230 years of racial oppression₅”. On the other side of the political spectrum, Huffington Post columnist Donnie Fowler noted in 2009 that “no one since the era of slavery has done more damage to the free market than George W. Bush”₆, obviously quite a strong statement in itself. Fiercely proud Americans, shielded from the rest of the world, are often too quick to take the bait of these demagogues in their anger, but this is part of our nature as well. This at the same time where those who we vilify (namely China) is funding our consumption binge through their own under consumption and savings!

In the absence of real solutions, and the same ineffective platitudes of the past, citizens will lash out at institutions, finding them to blame for what has not been explained or mitigated. Politicians who scoff at what appears to be crude behaviors of its citizens, of “Americans clinging to religion and guns” have themselves to blame for not articulating what’s happening; do they even know? I have not found many economists and politicians articulating a technological trajectory, and the profound impact that it is having on our lives. Our leaders have also been unable to provide an explanation of 8-10% unemployment, why our gross domestic product (GDP) still continues to rise despite 70% of the number is our own consumption, and how inflation can be statistically shown as 1-2% when they see such a rapid ascension of prices at the supermarket. A lack of an explanation or even understanding around this accelerating and continuous path of technology has led many Americans to feel powerless. Perhaps if empowered citizens and institutions were able to articulate solutions to these transformations, Americans would not be dressing up in tri-cornered hats, and dumping tea into the Boston harbor in modern day protests. Simply mocking the voices of the disenchanted without an answer is not a sign of leadership. Very few people lash out when their expectations have been met relative to their quality of life. Or at the very least, they understand what is wrong.

Why we feel flattened

As Bernstein noted in his chronicle of the history of trade, A Splendid Exchange, “the world did not abruptly become flat with the invention of the Internet, and commerce did not suddenly, at the end of the 20^th century, become dominated by large corporations within worldwide reach”₈. Yet, Thomas Friedman’s bestselling book, The World is Flat, grabbed the attention of the world, identifying the awakening of the sleeping giant of Asia. Yet, it is not as if history was forgotten, and the Sumerians and the Greeks from the period B.C., the Romans, Mongols, Portuguese, Spanish, Dutch and Brits were all lost from memory₇. Furthermore, Americans do not even have to go that far back, or even neglect their own history as a world trading partner. For us to understand the nature of global trade, and not to feel flattened by it, perhaps we must better examine history as a vivid example. During this history, globalization and technology have been intertwined in their impact on the world economy, for better or worse. As such, I will describe technology as a flattener of the world, rather than creating a flat playing surface: automation will equally and adversely impact all labor markets of the world.

The notion of continuity and discontinuity is important to this discussion. Because technology’s path is exponential, it sneaks up upon us, even though it’s on a continuum, so it seems discontinuous. It also seems discontinuous because certain events (Great Depression, World Wars I & II, Oil Shock of 1973, Dot Com Boom, Great Recession of 2007) punctuate in society amidst the large discontinuous events. Instead, while the path of progress is universal, its impact on nations is discontinuous, and dynamic. Yet overall, the impact of technological growth to the conditions for the worker continues to be favorable, accelerating the aggregate standard of labor across the world. Mindful of Adam's graph, as was presented in the Introduction, it is not mathematically possible for this positive correlation between technology and labor to continue in perpetuity. What the conventional economist has not quantified, the worker has addressed, feeling a loss of security and purpose amidst this definition of progress. Therefore, technology evolves from improving the fate of labor to eliminating labor altogether. And yet, despite the message of demagogues, nothing is intentional, there is no class warfare being waged: it's just the inevitable nature of our present model of capitalism, as Schumpeter predicted many decades ago.

In a universal model of accelerating technology, and discontinuous benefit to the labor of nations, politicians and pundits should be careful to not choose the wrong villain for the story. Certainly, it is true those jobs have been shipped to lower wage, developing markets at the expense of some Americans, and that the economic system forces institutions to move in this direction. Friedman's promise of a flat world, and the concept of free trade can either be a myth for some nations while totally valid in others (as Ha Joon Chang notes in his book, “23 Things They Don’t Tell You About Capitalism”), leading economic impact to be relative, not absolute. Furthermore, what most Americans don’t understand is that a loss in U.S. middle class jobs will probably not lead to proportionate gains in Asia, at least not in the present economic system. In fact, in these low wage nations, accelerating technology is also a factor that is detrimental to the labor function, leading to employment loss even during a time of expansion. Capital costs for technology are falling, providing cost benefit for automation over global offshoring. This is an even more difficult pill for developing nations to swallow, as they are dependent upon high growth percentages to address lower living standards. Therefore, Americans should not protest a faux villain in this story.

Think of the problem that exists in China: in a nation of 1.3 billion people, with a goal of a proportionate middle class as the United States (700-800 million, 2.5 times larger than the entire population of U.S.). A double digit growth pace for decades is necessary as a starting point, but in itself is not sufficient to achieve middle class parity with the U.S. In my lifetime, it is highly unlikely that the balance of wealth and economic activity that occurs in the United States will ever reach China, or India, for that matter, even despite the economic rollback happening in the U.S. With capitalism comes an expectation, both in the U.S. and China. While growing resentment occurs in the U.S., as previously middle class Americans fall in socioeconomic standing, what will happen in China where hundreds of millions of Chinese are enraged to have never reached the middle class in the first place? In the current global model of economics, Friedman’s flat world is not just a fantasy for us, but it’s also a fantasy for the developing world. We all seem to be in the proverbial place between a rock and a hard place.

Therefore, it is likely that an era of global mercantilism is upon us, where nations seek to win at another's expense in a zero sum ballgame. Americans are angered by currency fixing and unfair manufacturing processes by the Chinese, who are beginning to tire of our irrational financial state (even though much has been at the benefit of its own economic growth). At the same time, the Chinese are beginning to feel threatened by lower cost economies such as Vietnam and Cambodia, who will soon be threatened by nations in Africa. As labor opportunities shrink, citizens complain, and governments feel compelled to act. Lately in my travels, I have found more anger toward America’s economic behaviors than most Americans could fathom (although done very respectfully) – even in spite of the role of globalization in an apparent flattening of economic conditions around the world. Income inequality is growing around the world, but it is more glaring of a problem where things were not so equal in the first place, like China and India. While every nation puts a different face on the problem, the problem is all the same: does it make you feel better to know that everyone else in the world is pissed off as well?

Commoditized Labor, Commoditized Technology

In this book, I will articulate to the reader that the problem we face is not the acceleration of technology, but rather the obsolescence of the capitalism model after 235 years. Unlike Schumpeter and Marx, I do not believe that socialism, communism, or any hybrid form will be the replacement, as these methods have been proven to be even greater failures to the concepts of technology, globalization, and evolution. To Marx, technology is an enemy of the people, and a tool for the bourgeois. Instead, the commoditization of technology has been a good thing for consumers (and workers) as its cost of entry is lower, leading to benefits for the consumer, as conveniences of the Internet, mobile technologies, and so on, make our lives more convenient and bearable in many circumstances. Personally, I cannot fathom what it would be like to find a street address without a GPS device, and technology continues to achieve many benefits for the world’s poor. The Internet can assist remote places in matters of health and education that would not be possible otherwise. In general, technology has made our lives better and more exciting in many ways, and the future holds a similar promise for us as well. Putting technology on the same path as evolution, we should say that the technology of evolution has allowed for our specie to crawl from the dirt to the cave to the comforts of life that we possess today. To me, the more the better.

From a commerce standpoint, technology introduction and adoption typically follows a similar path, as has been famously illustrated in the illustration shown below in Figure 1. However, what used to be a bell curve of adoption₈ (shown in Figure 1) is becoming flattened across the x-axis, and the market share movement becomes vertical across the y-axis, showing a much more rapid increase of introduction and adoption of a technology. For you, the consumer, this is a great thing, as it means that you get new gadgets sooner, and then something new comes after that to amaze you again – every time you go to Best Buy, you see a new technology that is better than cheaper than the prior. If you are a technophobe, you may feel uncomfortable with this transformation, but most of us get excited as consumers when we are given greater, cheaper, quicker options. Again, more widely available and lower priced technology has historically been a sign of progress.

Figure 1 – Rogers Model of Innovation Diffusion