ROBERT
M. WHITE ('64) is President Emeritus of the National Academy of Engineering
and Senior Fellow at the University Corporation for Atmospheric Research and
the H. John Heinz III Center for Science, Economics, and the Environment.
Current assessments of technologies that will shape 21st century institutions and their work forces foresee U.S. employment prospects ranging from calamitously poor to rosily encouraging. Given the dynamics of today's rapidly evolving technology and world markets, this is not surprising.
Technological advance has always been a powerful force for good even while disrupting patterns of employment. Changes in agricultural technologies have belied doomsayers' predictions of famine even while reducing the number of farm workers. Progress in manufacturing technologies has improved the availability of material goods while dislocating workers with obsolete skills.
The reach of technological advance is increasingly global--enabling both transnational economic integration and worldwide redistribution of production. But the migration of United States businesses overseas is hardly a new phenomenon. Well before 1914, a number of U.S. firms were operating fully integrated foreign subsidiaries. As Alfred Chandler pointed out in The Visible Hand: the Managerial Revolution in American Business, "By 1914 American direct foreign investment was impressive. It amounted to a sum equal to 7 percent of the United States gross national product."
What is new is the extent to which not only business integration but the coordination of productive activities over vast distances has become possible. While foreign direct investment in the United States today is small in absolute terms (last reported at $47.6 billion, or only 0.6 percent of GNP in 1994), the extent to which international trade is a controlled transaction within individual firms is tellingly large. The Office of Technology Assessment reported that between 1983 and 1992 intrafirm trade accounted for an average of 43 percent of U.S.-Europe merchandise trade and 71 percent on average of all U.S.-Japan trade. The evolution of global economic systems increasingly blurs the importance of national borders, motivates the reallocation of productive resources worldwide and fosters ever more tightly woven fabrics of global interdependence.
Our long democratic tradition has produced child-labor laws, antitrust statutes, and other socially conscious legislation that regulates and restrains the more pernicious exploitation of labor forces still practiced in many countries. For the first time, the specter of seemingly limitless pools of cheap labor in underdeveloped countries appears threatening to large segments of the U.S. population--fears played upon by politicians in election campaigns. Probing more deeply into the implications of this growing global technoeconomic system only serves to deepen the fears.
Highly automated factories with sophisticated robotics are proliferating, radically changing the nature, number and location of jobs. Computer processing in banking, insurance and retail industries, among others, is rendering routine clerical jobs obsolete and making it possible to move labor-intensive activities overseas where wages are one-tenth those in the United States.
Yet, as technology taketh, it also giveth. Almost every technological advance has broadened social and economic horizons. New knowledge-based industries such as software, biotechnology, and computing have been spawned; changes in traditional industries such as health care, communications and transportation have led to new types of jobs that require highly trained and educated workers.
The Global Positioning System using earth-orbiting satellites, first developed for military purposes, offers dramatic new possibilities: automated precision farming, improved mapping and automated navigation of automobiles on safer "smart" highways. New communications media permit doctors to diagnose patients and prescribe medication at a distance. The application of molecular biology to genetic engineering is transforming the understanding and treatment of disease. Improved sensor technology permits precise monitoring of environmental conditions and earlier warnings of impending natural disasters. Better management systems improve productivity, reduce training times, and facilitate more informed decisions.
Given their significant interplay, it is ironic that while economists have long sought to understand the relationships between technological innovation and the economy, there is still no comprehensive, workable economic theory for estimating impacts or focusing private and public investments. There is general agreement, however, that the long-term effects are positive though they inevitably leave in their wake winners and losers among individuals, institutions, and nations worldwide.
Most technological changes such as new models of autos, televisions, telephones, computers and improved medical treatments are perceived as enhancing the quality of life. But the most palpable effects of technological advance is on jobs and on wage and productivity disparities.
According to the 1996 Economic Report of the President, real compensation per hour in the business sector rose only 4.9 percent from 1985 to 1995, barely keeping abreast of inflation while real output per hour for the same period rose 11.2 percent. Economist Lester Thurow points out that during the 20-year period from 1968 to 1988, the earnings difference between the top 20% of wage earners and the bottom 20% doubled. Other characteristics of the work force such as job security, two-tier wage compensation systems, the migration of jobs between nations, and the growth of the home workplace are all linked to the introduction and global spread of new technologies.
Job displacements make headlines. Layoffs in the four-year period from 1992 to 1995 on the part of some of the nation's largest corporations are well known. IBM laid off 63,000, Delta Airlines 15,000, Sears Roebuck 50,000, and Digital Equipment 20,000. In January 1996, AT&T announced plans to lay off 40,000 workers.
It is easy to gain the impression that technological advance and employment are antithetical, but, historically, technology has been a net job creator--a result of the formation and expansion of new industries and new markets. The software industry barely existed 25 years ago. Employment in computer and data services increased from 610,000 to 1,267,000 in the decade 1986-1996. This story is repeated endlessly. In contrast to the significant layoffs catalogued above, growing corporations have significantly increased the size of their work forces. Since 1985, MCI has expanded from 12,445 employees to 47,500; cable operators and those responsible for conceiving and producing television programs have increased their work forces from 23,538 in 1978 to 112,239; since its inception in the 1980s, the cellular telephone industry has grown to employ 300,000 workers, directly and indirectly. As if to emphasize the job creation power of technology, AT&T reported that as 1996 drew to a close, all the job cuts it made in that year were balanced by job growth in its Internet division, customer service, and local telephone activities.
The message? Not surprisingly, social dislocation is a natural concomitant of technological advance. The United States' post-WWII experience confirms that such change need not lead to net employment loss, and the growth of new firms demonstrates the constructive effects of technological innovation in the marketplace. In all, from 1991 to 1996, net job growth in the United States has been 11.2 million, largely in services, with a large percentage of these of the high-skill, high-wage variety.
Among the most important forces driving the redistribution of jobs worldwide are advances in telecommunications technologies that permit the global integration of markets. Capacity for international communications continues to grow explosively. Within a 7-year period from 1988 to 1995, the capacity of submarine cables grew from 278 megabits/second to 5 gigabits/second, a 20-fold increase. Constellations of satellites in low-earth orbit to provide worldwide cellular communications capabilities are being launched. The novel uses of the Internet, growing at an estimated 1.5 million subscribers per month, overlays the power of telecommunications with a new dimension of integration. According to Matthew Gray at MIT, the number of World Wide Web servers has grown from 130 in 1993 to over 230,000 today. During the same period, the number of Internet server hosts with addresses has increased from 1.3 million to 9.5 million.
These and other capabilities enable managers anywhere in the world to oversee globally dispersed production and service activities. A harbinger of the future: Nike Inc. does no manufacturing in the United States. The same is true of Mattel Inc. and mostly true of Apple Computer. Their work forces abroad continue to grow at a fast clip.
We are witnessing the creation of a new kind of international corporation which is geographically dispersed yet functionally integrated. Technology makes it possible for the Boeing Aircraft Company to manufacture for its new 777 fuselages in Japan, the rudders in Australia, the landing gear in Canada and France, portions of the flaps in Korea, and the primary flight computers in the United Kingdom. Such moves are essential to Boeing's survival as a global supplier of passenger aircraft, and, consequently, as an employer of highly skilled workers both here and abroad. It is now increasing its domestic work force in Seattle to enable it to cope with a rush of orders for aircraft. Boeing's move to merge with the McDonnell Douglas Aircraft Corporation was in part motivated by the need for additional experienced workers. In this case, growth in corporate offshore employment may also lead to increased U.S. employment as the overall size of markets served also grows.
As continued transnational integration continues, it becomes less and less appropriate to view production activities and the associated jobs simply as geographically static pyramids of companies engaged in assembling components and parts and delivering services. Within global production regimes, research, development, and design activities are continuously redistributed within and among firms in many different countries to take advantage of technical specialties of the different internal components or external participants. Industrial activities become grand endeavors cutting across national boundaries. They seek competitive advantages by utilizing the lowest-cost and highest-quality production, regardless of geographic location. Firms that do not won't survive in the global marketplace.
While technological advance drives globalization, the actual geographic distribution is largely determined by the responses of national and corporate entities. The present global technological network is but a preview of much more complex technological and economic interdependencies in the future. Today private-sector decisions have the greatest influence on the geographic distribution of production and jobs. In the pursuit of profits, firms must take full advantage of new technologies and rapidly adapt their organizational, management, and employment practices to remain competitive.
So long as international connectivity intensifies, trading regimes remain permissive and managements adapt to changing circumstances, the current trend towards independence from national borders will continue. The result is unavoidable tension between political leaders seeking to advance national interests and private sector managers seeking to maximize return on investment. One of the most important national interests is domestic employment. Politicians seek to increase jobs for constituents while corporate managers seek to maximize profits irrespective of where the jobs are located.
Employment dislocation is socially disruptive and very difficult for the vast majority of workers who dream of steadily growing incomes, job security, and recognition of their self-worth. An important consequence of dislocation is that workers are no longer able to count on a lifetime of work for a single corporation. In connection with a planned layoff of 40,000 employees, James Meadows, an AT&T vice president for human resources said, "People need to look at themselves as self-employed, as vendors who come to this company to sell their skills.... We have to promote the whole concept of the work force being contingent." The social ramifications of job insecurity are poorly understood, but for corporate managers the measure of success is not the number of employees retained but the improved bottom line achieved by pursuing new opportunities. We are giving rise to a society that is increasingly "jobless, but not workless."
As a nation, we are confounded by the desire to continue a postwar legacy of open trade to promote overall global economic prosperity, and the potentially negative social implications arising from accompanying global economic challenges. These implications are profound. On a global basis, a single world marketplace leads to the emergence of two-tier compensation systems: one tier provides high-paying career tracks for technologically adept workers while the other offers relatively low-paying jobs for low-skilled workers.
Unskilled jobs are not the only ones migrating abroad because of wage rates. Skilled workers are also facing increased competition from abroad. The jobs most at risk are white-collar, high-tech positions in computer programming, design, and financial services. These jobs are going to China, India, Singapore, and Taiwan as well as to low-wage countries in eastern Europe at a fraction of U.S. wages. The salary of a computer programmer in India or Bulgaria ranges from $10,000-$20,000 per year as compared with $120,000-$150,000 in the United States.
Set against the migration of jobs overseas, there is a counter flow as foreign-based corporations employ workers at all levels from production to design and research in their U.S. plants. Foreign automobile companies now employ tens of thousands of U.S. workers. Ten percent of all industrial research and development in the United States today is conducted by subsidiaries of foreign corporations.
Intellectual knowledge diffuses and leaks. Laws may slow it, but cannot stop it. Technological know-how migrates from countries with high know-how to countries with low know-how. The success of Japan and the other Asian countries demonstrate that technological comparability can be achieved in less than a half century. The competition among nations for intellectual advantage is fierce.
Not only does global wage rate competition feed the job losses, so does the mobility of technology. It is transferred through the movement of scientists and engineers. What one nation educates and trains is soon available worldwide. Such transfer is facilitated by international corporations that may confine mobility within the company but their international reach means benefits are conferred globally.
Technological advance also means that, except for natural resources, the preconditions for production can be replicated anywhere. Particularly in the case of large multinational entities, this means that productive activities may be relocated to take advantage of changes in exchange rates, government policies, labor, and markets. Compared to the mobility of factors of production such as capital, technology, productive enterprises, and material inputs, labor is relatively immobile. The well-educated and trained worker in the United States is in competition with knowledge workers worldwide with lower standards of living. Other considerations being equal, if quality labor is cheaper in India or Bulgaria than in the United States, then the choice of location will not be the United States. It is clear that while education is a necessary condition to attract economic activity it does not have the broad impact usually attributed to it. Rather, it provides a benefit where the choice of location is likely to be tipped at the margin.
The employment problems generated by the global technological system need to be continuously monitored and managed. The United States and its workers should prosper in the developing global technological and economic systems if policies shaping public and private actions include the following goals:
ROBERT
M. WHITE ('64) is President Emeritus of the National Academy of Engineering
and Senior Fellow at the University Corporation for Atmospheric Research and
the H. John Heinz III Center for Science, Economics, and the Environment.
Richard
H. White is a research economist at the Institute for Defense Analyses. The
opinions and conclusions in the paper do not necessarily reflect those of the
Institute or its sponsoring organizations.
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