May we please work on a new social contract?

In the old, old days, I would wander in the library and read whatever interested me.  The key word is "interested"--because there were plenty of occasions when I was interested in what I read but had no idea what the author was writing about.  It is like watching an avant garde movie, La Sapienza for instance, and then later reading up to understand the subtext.

These days, I don't aimlessly walk around in libraries.  I browse from home.  Saves me a whole lot of walking, but my fingers ache! ;)

It is through browsing that I came across this interview in the Harvard Business Review.  I got excited because it features everything that I talk and write about: Globalization, labor, robots, footloose corporations, welfare safety net, gig economy, college education, ... Aren't you, too, impressed with what the interview covers?

HBR's editor interviews some guy who was the head of some firm that I had never heard about.  Let's be honest here; I can't know it all! ;)  The guy is Jeffrey Joerres who apparently " led ManpowerGroup for 15 years before stepping down in 2015."  I had to check with Wikipedia (more achy fingers) to find out how big a firm that is.

I want to focus on a couple of observations that Joerres offers in that interview:

Companies are doing more “micro footprinting,” and that takes a nomadic mentality: You’re ready to pick up and move when required. Large footprinting, on the other hand, means you’re committed to a community for better or worse. More and more, companies will need to take a dual approach, establishing large locations and more-temporary, smaller operations at the same time.

Did you also catch that sentence? "Large footprinting, on the other hand, means you’re committed to a community for better or worse."  In the old days, companies were committed to the communities that were their home.  GM in Flint, Michigan, was that classic model.  But, those days ended almost all of a sudden.  Gone.  Which means that local governments and people can/should never, never, never, assume that a corporation will come to stay for the long haul.

Elsewhere, Joerres says:

In many ways, what we have now in the U.S. is similar to the early 19th century, when the Luddites first worried that machines were going to steal their jobs. We must deal with the reality that when full-scale robotics and AI arrive in a broad-based, affordable, easily justifiable way, we’ll see enormous waves of workers put out of work and ill prepared to take on very different jobs. This is going to create challenges that our institutions are not ready for.

It is one thing for a semi-baked nutcase like me to keep saying that.  As my old grad school professor made sure we understood, it is not what you say but who you are when you say that.  In this case, plenty will/should listen to what Joerres says.

We are not ready for the changes that are coming.  Not only are we far from ready, the existing system is terribly broken:

Our institutions are inadequate. Look at unemployment compensation, welfare, Social Security—these were all put in place in the middle of the past century. And they were based on certain assumptions: that when you lost your job, you would go through a process and on the other side find a job that you’d then have for a long time. Today that’s not going to happen. Look at the gig economy, look at parsed work—all these models just allow us to move faster. My dad had a second job. He went to a gas station after he got home from his first job, and he ate his dinner in between. Well, second jobs look different now. Uber is a second job. So what do you do when someone is collecting unemployment and takes a job with Uber to moonlight while he’s in training for a new full-time job? Should he lose food stamps or health care because he’s earning a little extra money to get by? Our systems look broken because they’re trying to fit things into the way the labor markets worked in the past.

Ahem, how long have I been saying this by yelling all the time about the need for an updated social contract?

Ok, are universities the panacea?

The same goes for broad-access universities. They’re built on the old labor models. They’re not turning out graduates with the skills companies need. So we have to refashion these institutions that are so important to our society.

In case you are wondering what a "broad-access university" is, well, those are the overwhelming majority that are not the elite research universities and liberal arts colleges.  The "broad-access university" description includes the university where I teach.  Again, in how many different op-eds and blog-posts have I been complaining about the old-fashioned higher education structure?

I love a solution that Joerres offers:

I think we need an iterative model. Why does it have to be all in or all out? Why can’t someone be on partial welfare? Or on partial unemployment compensation? If a worker loses her job that paid $50,000 a year but can only find a new job for $40,000, her unemployment compensation goes away, but she has lost $10,000. Why don’t we make up the difference for her for another six months because she had what it took to go out and find a job? Some people might see that as a giveaway. It’s not. It’s a small price to pay to encourage that worker to get back into the market. I’d rather pay someone to be in the market than out of the market.

Exactly!  If only we could talk about such important issues, instead of the wasted time and energy on crap!

US recovery creates jobs .... but, in India :)

Footloose capitalism at work:

India’s top three outsourcing companies are ramping up hiring and increasing pay as global corporations, mainly from the U.S., send more work offshore to cut costs as they emerge from the downturn.

Tata Consultancy Services, Infosys and Wipro expanded their global workforces by an average of 5.1 per cent last quarter, together adding 16,701 employees, company documents show - an early sign that the Great Recession may ultimately benefit India as cost-conscious companies outsource more work, just as they did after the dot-com bust.

So, is this good for the US?

cost savings from off-shoring has helped U.S. companies survive - and that’s good for the American worker.

“You might say jobs in the U.S. are getting displaced by jobs in India, but because of the value provided by Indian companies and lower costs, there are firms who are able to keep their heads above water and continue to employ their existing employees,” he said.

And how is this working for the financial bottom line of the corporations and employees in those firms in India?

After about a year of hiring slowdowns, all three companies are sweetening compensation as the fight to hold on to talented employees in India heats up.

Infosys offered its Indian employees an average 8 per cent pay hike in October, their first raise since April 2008, and executives said last week they are considering another raise to combat rising attrition.

“The market is heating up and we want to retain talent,” human resources director Mohandas Pai told reporters.

The footloose economy

In our economy, industry is here today, somewhere else tomorrow
For The Register-GuardPublished: August 10, 2008 12:00AM

Hynix shutting down operations is yet another reminder, a painful one, about the “footloose” characteristic of modern economic activities.

Economic geographers have noted for quite a few years now that multinational businesses are footloose, and that they are not necessarily tied to specific locations. Instead, firms, and sometimes an entire industry, can close down operations in a geographic area in practically no time at all, and open up new ones in other parts of the country or the world.

The footloose nature is, obviously, related to competition in the marketplace. As firms face competition from others all over the world, which is the case in the global economy, there is enormous pressure to figure out the lowest cost possible. In order to continue to be competitive in meeting the demand, if the location that offers the potential for the lowest cost is a city in far away Vietnam, as opposed to neighboring Ohio, then the economic logic forces the relocation of the activity to Vietnam, everything else being equal.

We were forced into understanding this during the decade after the first oil crisis in 1973, when economic calculations led to a rapid de-industrialization of the old industrial economic core of the United States in the Northeast and the upper Midwest. Iron and steel mills, for instance, were hit hard because they could not compete against the more efficient and low-cost producers in Japan, and later in South Korea. In a short period of time, this industrial core came to be known as the Rust Belt — a reference to the collapse of the once-mighty steel industry, and to manufacturing in general.

The Hynix story is similar: Memory chips are less costly if produced from 300-millimeter wafers, as opposed to the 200-millimeter wafers from which chips were mostly manufactured at the Eugene plant. If customers had to pay high prices as a result of transporting chips manufactured elsewhere, then the Eugene plant might have continued to operate. However, even with the slight additional cost to transport the memory chips from, say, China, the 200-millimeter wafer production won’t offer any price advantage. Further, as the Wall Street Journal pointed out, the elimination of tariffs on Hynix’s exports from its facilities outside the United States might also have contributed to this decision.

Thus, the Hynix decision is a reflection of a question that practically every firm now constantly faces: Is there a location from where the widget can be provided at a price lower than that of the competitor, even after accounting for any transportation cost? If the Magic 8-Ball responds with “yes,” then it is only a matter of time before the operations are relocated.

There is, however, one major difference between now and the 1970s economic crisis. Now, it is not only manufacturing that is footloose. Many activities in the service sector, too, are not tied to specific locations anymore. Which is why, for instance, customer support — a service activity — is increasingly located in India and not here in America.

Customers, too, are beginning to be footloose in the search for lower prices for services. For example, patients from America and European countries go to hospitals in Thailand and India that almost exclusively cater to such “medical tourists,” because medical, surgical and dental treatments are far less expensive there, even after factoring in airfare and lodging.

Outsourcing pregnancy to India used to be one of my standard jokes in the classroom — but not anymore, with commercial surrogacy having grown beyond mere anecdotal evidence to almost an industry status.

So, in such a global economy, where businesses and customers are always in search of better and cheaper locations, what is the bottom line for a community like ours?

The unfortunate reality is that we do not know what industry will be prosperous in the future so that we might entice those firms to locate here in Eugene. Further, the recent Hynix story and the older Sony story are reminders that it is always possible that a firm that comes here might leave after a few years in response to the global marketplace.

All these mean that our collective — and individual — motto ought to be the same as that of the Boy Scouts: Be prepared!