Friday, November 4, 2011

Another Tragedy of the Commons

The original phrase Tragedy of the Commons was based on a paper by Garrett Hardin. The idea is that when people use resources from a common area, there's nothing to keep each person from maximizing their own takings, until the resource and area are degraded and everyone loses. As humans, we don't seem to be able to manage resources in the long run without a rush to depletion.

As Garrett Hardin acknowledged later, we have historical knowledge of many well-managed commons that continued for many hundreds of years without depletion. But it takes a community, firm rules and penalties, and close attention. Shaming was pretty effective then. During the Middle Ages, commons were, well, "common", in such realms as woodlots, pasture for animals, and forests for collection of mushrooms and other wild foods and herbs. It was only when the aristocracy decided they could make more money selling the wood and using the resultant land for sheep rather than human needs that commons became "uncommon".

Commons appears now in a modern variant, the homeowners association, which may be well or poorly managed, but the principle is the same. The modern tragedy is the commons of the ocean, where factory ships are crashing one fish stock after another. We're eating lower and lower in the oceanic food chain, because we've nearly killed off all of our favorite fish. This is a particularly hard harvest to manage, because the only "owner" of the ocean is all of humanity, and it's hard to assess the status of fish populations. Shaming certainly doesn't work in this situation. The fishing regulations have no teeth and are generally ignored.

It is especially tragic in that once a fish species has been removed from its habitat, the habitat closes around it, with other species occupying its niche. Example: the codfish. Codfish will never recover. They were so thick 400 years ago that fishermen said you could almost walk on the codfish in the water. Now there's no way it can insert itself back into the North Atlantic.

The exception to fish species destruction that I know about is the wild salmon fishery in Alaska, very carefully managed and pretty much honored, since there still IS a wild salmon fishery in Alaska.

I read an excellent article recently about Wal-Mart's problems. Their same-store sales are flat to declining over the last eight quarters. Wal-Mart the Latest Victim of Global Labor Arbitrage. I got to thinking that this is an example of the Tragedy of the Commons.

The Unspoken Rules of Labor

American industry really got going in the 20th century. After WWII, the U.S. was the top manufacturing nation on the planet. How the mighty have fallen! Now almost all manufacturing jobs have been offshored to places with cheaper labor, much cheaper labor. During the heyday of U.S. manufacturing, there were two unspoken rules for labor.

1. If you did your job well and showed loyalty to your employer, you would have a job for life, barring unexpected catastrophes. Your employer showed loyalty to you.

2. If you worked hard in this economy, you would make enough money to support your family and buy the products of this economy. Note that up until the 1970s, this was generally ONE wage-earner per family. Henry Ford doubled the wages of his factory labor back in the 1920s, so that they would have enough money to buy the Model T they were assembling.

What goes around comes around, in other words. Manufacturers didn't try to abuse, lay off, and short-change their workers, since it was their workers as a population that kept the cash registers ringing with their purchases.

So how is this a commons? What is the resource of this commons? It's Purchasing Power. Manufacturers put purchasing power into the commons by paying living wages. Workers used the purchasing power to buy whatever they needed for themselves and their families.

Wal-Mart formed its business model with very cheap products and very low labor costs due to low wages and no benefits except for managers. This means, of course, that the government IS paying for health benefits for Wal-Mart employees, and often food stamps as well. So we're all subsidizing Wal-Mart's cheap labor.

And Wal-Mart violates both of the unspoken rules, but in particular the second rule. Almost all goods sold in Wal-Mart are imported, most from China. The purchasing power that you spend there goes only minimally back into the common pool of U.S. purchasing power, through the low wages of the employees. Most goes to foreign companies and into the pockets of workers and managers in China or Bangladesh.

This doesn't matter so much when manufacturing, jobs and wages are strong in the U.S. It's just a little bite, even if Wal-Mart is a huge entity. They get the free ride by short-cutting the system. But plenty of other companies noticed that they could also cut their labor costs significantly by off-shoring. This means laying off most of their U.S. workers.

There is very little manufacturing being done in the U.S. these days. I used to try to avoid items with "Made in China" on them. It has become impossible. The latest I saw was "Hecho in China", perhaps an attempt to hide the origin by using Spanish? The manufacturing jobs that were plentiful in the U.S. in the 1950s are gone now. Are those jobs coming back? Just think about it.

If you are a CEO, and you have no notion of the commons, and your outlook is no further than the next quarter's earnings, are you going to hire a $40k U.S. worker, or a $4k Chinese worker? Easy answer. It doesn't matter if corporate taxes are reduced; it doesn't matter if your personal taxes as CEO are reduced, it doesn't matter if your wages go up by 50% per year, you aren't going to hire U.S. workers when you can hire cheap foreign labor.

It doesn't matter if the President is Democrat, or Republican, or Tea Party, or Socialist, or Green. It doesn't matter who controls Congress.

U.S. companies have broken both employment rules. The very concept of loyalty to employees is antiquated, almost laughable. For a few years, the companies expected loyalty, but did not give it. Now they don't even expect it. But the worst fault is breaking the expectation that working wages will provide a living. Just who do they think will buy their goods? The workers they just laid off? The workers who they hired at half the wages of their previous workers? The workers in China? (no, they buy Chinese goods).

It is a Tragedy of the Commons. A few companies could get away with it, relying on the rest to keep pulling the load and filling up the Purchasing Power commons. When they are nearly all trying to cheat the system, the system stops working.

What Would It Take to Bring the Jobs Back?

How could we get meaningful jobs in the U.S. again? Here are some possibilities:

1. The cost of transportation goes so high due to peak oil that it overcomes the wage differential between U.S. and foreign workers. But if that happens, we're in a world of hurt in other ways.

2. Wages in the U.S. descend to par with third world countries. In other words, $4k per year per family, or perhaps $10k. All workers are below the poverty line, except for management. I don't think we're prepared to go through the pain of that.

3. Corporations finally see the light: oh, if nobody has a job, nobody is going to buy from us. That's a fantasy. Even a few cheaters with cheap foreign goods will put a stop to that, as their profit margin increases relative to the good citizens. Apparently the reward of doing the right thing is laughable compared to the reward of making a fortune.

4. Tax rules are changed, rewarding companies for using U.S. labor and punishing them for using foreign labor. Tariffs are a blunt instrument for accomplishing this, and generally cause reprisals from those tariffed-against. But taxation rules can accomplish this. And it is well within our power. We'll have to listen to the tantrums of the CEOs. But since the rules MUST MUST MUST apply to all companies equally, they'll decide at some point to live within the rules rather than scream about them.

The OTHER Problem--Automation

I've always felt uneasy reading the rah-rah "jobs of the future" articles, where everybody in the labor pool needs to learn to develop software and snazzy computer graphics and games. It's not going to happen. Not everybody has those kind of skills. And there are not very many of that kind of jobs even if by some miracle you created 60 million experts in that field. There is NOTHING WRONG with making things. Supervising a bunch of robots isn't much fun, and there aren't very many jobs left in a fully-automated factory. Actually making something with hands and tools is rewarding.

We've been focused on the wrong kind of efficiency. We've focused on saving labor, and saving money on labor, by off-shoring and automating. Now we have a huge oversupply of labor in the U.S. with nothing to do. The wheels of economic growth are grinding to a halt. The pool of purchasing power, the commons, gets smaller day by day.

We need less automation, and more actual work to do. We need more loggers and fewer logging machines, more factory workers and fewer robots, more customer service people and fewer automated
phone trees, more Americans answering the service calls and fewer Pakistanis. Our fields and orchards need more care from humans, and fewer herbicides, insecticides, and artificial fertilizers sprayed on from expensive equipment by a few bored operators.

So the next time you hear about restoring growth by short-term projects on roads or bridges, or American consumers putting themselves farther into debt to buy cheap foreign goods, just think. With two changes: reduced automation, on-shoring American jobs, we can bring back employment. Without those two changes, no amount of government spending and private debt will bring back the jobs.