Endless Curiosity

July 13, 2010

The Rich are Happier and More Content

Filed under: Economics, Politics, Psychology — Alec @ 6:07 am

I got this title from Jeffrey Goldberg’s posting, where he adds:

I, for one, am breathing a sigh of relief that the rich are happy. I imagine you feel the same way. How could you not?

Of course, it’s just possible that not everyone might feel the same way, especially since this great nation is increasingly becoming a nation of haves and have-nots, with an increasingly small, or perhaps decreasingly large, middle class. Not good news for the middle class perhaps.

I’m writing this after reading a comment made in Aspen by Bharat Balasubramanian, an Indian living in Germany, in the blog of James Fallows, an American who has spent a lot of time in Germany. A certain globalish perspective perhaps? (Ok, not a real word but I rather like it. And no, Balasubramanian is not living in Fallow’s blog; I read about his comments in the blog.)

Below are the comments and here is the link to Fallow’s posting.

“I will state that there will be a polarization of society here in the United States. People who are using their brains are moving up. Then you have another part of society that is doing services. These services will not be paid well. But you would need services. You would need restaurants, you would need cooks, you would need drivers et cetera. You will be losing your middle class.

“This I would not see in the same fashion in Europe, because the manufacturing base there today can compete anywhere, anytime with China or India. Because their productivity and skill sets more than offset their higher costs. You don’t see this everywhere, but it’s Germany, it’s France, it’s Sweden, it’s Austria, it’s Switzerland…. So I feel Europe still will have a middle level of people. They also have people who are very rich, they also have people doing services. But there is a balance. I don’t see the balance here in the US.”

Now, of course there will be knee-jerk in this country by the über-“patriots” who believe we can do nothing wrong, so let’s look at this picture from a few other perspectives.

First, a link that Fallow’s gives to an article by Andy Grove, one of the founders, then Chairman and CEO of Intel from 1987 until 2005, so perhaps someone who has some insight into U.S. high-tech business?

Grove’s main point is that we’ve lost our ability to manufacture.

How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing—the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs.

Expanding on this a bit, Grove says:

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

The March, 2010 issue of Harper’s Magazine has an well-worth-reading article called “Consider the Germans” (if you can’t read it at that link, try here – also note that this pdf is actually a little more complete).  The article starts with the following:

For here’s a strange fact: since 2003, it’s not China but Germany, that colossus of European socialism, that has either led the world in export sales or at least been tied for first. Even as we in the United States fall more deeply into the clutches of our foreign creditors—China foremost among them—Germany has somehow managed to create a high-wage, unionized economy without shipping all its jobs abroad or creating a massive trade deficit, or any trade deficit at all. Sure, China just pulled slightly ahead of Germany, but that’s mostly because the euro has soared, making German goods even more expensive, and world trade has slumped. Meanwhile, the dollar is dropping, and we still can’t compete with either nation. And even as the Germans outsell the United States, they manage to take six weeks of vacation every year. They’re beating us with one hand tied behind their back.

Of course there have been attacks on the article from the free-marketers, but I’m sure the million of unemployed in this country would be prefer jobs and six weeks of vacation to the fear and lack of security that they currently experience.

You’ll notice that I’m not saying that Germany is better than the U.S., just that the focus on jobs, and especially manufacturing jobs, is better than our short-term focus on making money. It’s worth reading the two articles that Fallows references: How the World Works, for a description of the different economic beliefs of the Anglo-US world and the German-Asian world; and How a New Jobless Era will Transform America, for one person’s view of how our lack of focus on jobs will change the country.

Update: In today’s NY Times, Bob Herbert, the “guy who is always right”, talks about the job situation in this country. Sample quote:

What a country. We’ll do whatever it takes to make sure the bankers keep living the high life and swilling that Champagne while at the same time we’re taking books out of the hands of schoolchildren trying to get an education.

Now, he’s not talking about manufacturing, but manufacturing is what created the American middle class, and it’s what is keeping a thriving middle class in Germany. Food for thought.

Update 2: There are two more paragraphs I loved in Consider the Germans, which I want to quote. I love the first one because I think Ayn Rand’s stories are wonderful for teenagers, but contain a terrible philosophy for the real world.

They have kept a tool-making, engineering culture, which our own entrepreneurs, dreamily buried in their Ayn Rand novels, have gutted. And now, thanks in large part to these smart structural decisions, Germany is not only competitive, it’s rich.

All my life as a labor lawyer I have read the same thing in The Economist, about the United States and its wonderful labor-market flexibility. What they mean is: Unlike the Germans, U.S. working people are completely powerless. But it’s precisely because of our labor-market flexibility that we can’t compete. Our workers have been flexed right out of their high-wage, high-skill jobs and into low-wage, low-skill jobs. That’s bad for the workers, of course, and it’s also bad for the economy.

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