Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Tuesday, February 04, 2014

Middle class, social cohesion may be at risk: David Crane

TORONTO—Both the NDP and the Liberals have made the plight of middle-class Canadians a focal point for their campaigns in next year’s federal election, and deservedly so. But neither party has yet shed much light on what it sees as the real threats to middle-class life, nor on what can be done to make a real difference.

Unless they get the analysis right, they won’t get their remedies right. Yet there are many different explanations on why middle-class jobs are disappearing and incomes stagnating. These range from offshoring, weak domestic demand and a skills gap to a relentless drive by corporations to drive down real wages to maximize shareholder value and exponential technological change which is making it increasingly easier to substitute machines for people.

The budget debate next month should provide the opportunity for each of the parties to begin fleshing out their positions for next year’s election, though whether they will remains to be seen.

The past year’s job creation was dismal— employment grew by just 0.6 per cent, or 102,000 jobs, and of those, 82,800 were part-time jobs and only 17,200 were full-time jobs.

Manufacturing lost 41,600 jobs, which is where many middle-class jobs are found. And in the core employment group—males 25 and over—34,200 part-time jobs were created while 500 full-time jobs were lost. The participation rate and employment rate of working-age Canadians were both lower.

Larry Summers, the former economic adviser to U.S. President Barack Obama and secretary of the treasury in the Clinton administration, fears we are in a period of what he calls “secular stagnation,” with economic growth doomed to operate below its potential. As he wrote earlier this month, the U.S. economy was operating nearly 10 per cent or more than U.S.$1.6-trillion below what was judged to be its potential growth path in 2007, despite five years of near-zero interest rates (negative rates after inflation).

Three approaches, he says, have competed for policy attention to overcome stagnation. The first is the supply side approach—invest more in education, skills, research, and innovation. While these are important for long-term growth, increasing the capacity to produce more, he said, will not mean more output and jobs unless there is also more demand for goods and services. Moreover, supply side policies lead to longer-term, not immediate, benefits.

The second approach is the one that we have relied on in recent years, which is to pursue low interest rates and easy monetary policy.

“But a growth strategy that relies on interest rates significantly below growth rates for long periods of time is one that virtually insures the emergence of substantial financial bubbles and dangerous build-ups in leverage.”

Think Toronto housing prices from ultra-cheap mortgages.

The third approach, and the one that Summers contends holds the most promise, is “a sustained commitment of policy to raising the level of demand at any given level of interest rates through policies that restore a situation where reasonable growth and reasonable interest rates can coincide.”

To start—Finance Minister Jim Flaherty take note—“this means ending the disastrous trends towards less and less government spending and employment each year, and taking advantage of the current period of economic slack to renew and build out our infrastructure.”

So raising the level of demand in the economy, along with supply-side measures to boost skills and innovation, can help. But there is a looming scare and that is the potential of exponential growth in technology to displace many jobs by substituting machines and software for people, lowering wage levels in the process.

This was a major issue at this year’s World Economic Forum in Davos, where Google  Inc.’s executive chairman, Eric Schmidt, captured headlines with his pessimistic warning that many jobs that were once thought to be beyond the reach of automation were now in danger of being eliminated by technology. This, he argued, will be the defining problem that the world will face for the next 20 to 30 years.

Technology eliminated many jobs over the past 100 years or more, but these were quickly replaced by other jobs, the move from the farm to the factory being the best-known example. But technological change today may be coming on too fast for workers to adapt.

“There is quite a bit of research that middle-class jobs that are relatively highly skilled are being automated out,” Schmidt said. The auto industry is one where robots have eliminated many assembly jobs. What we are getting now, Schmidt said, is lots of part-time work and jobs in caring and creative industries.

This could lead to an hourglass economy—with growth in jobs for those at the top and the bottom, but with those in the middle squeezed out. One consequence will be even greater inequality. This has important implications for the overall economy since middle-class families tend to be the largest spenders in the economy—with a squeezed middle class, there will be less demand in the economy.

The challenge to jobs is from exponential growth in technology—Moore’s law says that computing power will double roughly every two years with no increase in price—so that five to six years from now computing power could be eight times more powerful for the same price.

Two Oxford University researchers—Carl Benedikt Frey, of the Martin School, and Michael Osborne, of the Department of Engineering Science—contended in a recent report that up to 47 per cent of U.S. jobs were at risk from advances in computerization, with office and administration jobs, transport, and logistics among those most at risk.

The future of the middle class and the social cohesion of our society, then, may be very much at risk. Ultimately, how we address these challenges has to end up in the choices we make as a society and these must be determined—in a democracy—at the political level. But are our politicians up to the task? The evidence so far is not encouraging.

David Crane can be reached at

crane@interlog.com.

news@hilltimes.com

Original Article
Source: hilltimes.com/
Author:  DAVID CRANE

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