The techno-pessimism meme has come in for some polite pooh-poohing of late, despite the best efforts of the usual suspects to insist that we've run out of ideas and no longer value innovation. What's prompted this has been two separate observations. First, the rise of the robots has now been given credibility by Apple's announcement that it plans to join the growing band of companies who intend to repatriate some manufacturing (onshore is the new offshore). Details are few, but the suspicion is that this means replacing labour in the Far East with even more advanced fabrication technology in the US, so it certainly doesn't promise an increase in manufacturing jobs outside of a small number of high-wage machine-minders. The second observation is the trend that sees the division of GDP between profit and wages (i.e. capital and labour) shifting in favour of the former. The link between the two is capital-biased technological change - i.e. investment is going on machines, which increase productivity and profit margins, rather than on better-educated workers (skill-biased technological change), which would increase wages.
The profit/wages split is a murky area, partly because it is affected by the other elements of GDP, such as tax and rents, and by the balance of trade. There is also the problem that the categorisation of certain economic activities is questionable and can change over time. For example, bankers' bonuses count as wages while hedge fund managers' bonuses count as profit. Similarly, the income of a contract IT bod, who works through a personal services company, is counted as profit as it is taken in the form of dividends. The rise of the PSC since the 80s has undoubtedly contributed to the growing share of GDP attributed to profit, and, by virtue of this "tax dodge" being biased towards higher-paid workers, has probably also helped depress average wages. A further problem is that an aggregate shift may simply reflect economic activity migrating from sectors with low profit margins to those with higher profit margins, such as (for most of the last 30 years) the financial sector. Even if those sectors have higher than average wages, if the comparative wage advantage is smaller than the comparative profit advantage, then profit will grow relative to wages over all.
Economists traditionally divided production into three factors: capital, labour and land. Capital here is constant capital, that is plant and equipment funded out of profit, plus finance capital, i.e. credit that can be used to create more constant capital. Land represents unimproved natural resources, aka raw materials. Rent, as a production cost, is a charge levied for access to those resources. In the twentieth century, entrepreneurship was separated out as a fourth factor, though it's worth emphasising that in this context a better word would be innovation, i.e. the ability to achieve greater production through better use of the other three factors. This extends from more efficient management techniques through to technological invention. The use of the word "innovation" in respect of financial instruments in recent decades is not mere pretension. In this context, CDOs were genuinely innovative because they allowed for the creation of more credit. The problem was that this was then spunked on existing houses rather than the expansion of production.
Though capital has had the edge over labour since the 80s, the returns to constant capital have actually been in relative decline (this in part explains the attraction of the finance sector before 2008 - i.e. too much capital chasing high yields caused a bubble in high profit debt). The chief reason for the decline is that the cost of technology has plummeted while its impact on production efficiency has been enormous (think of containerisation and ICT). Paradoxically, this fails to expand profits because it makes competition easier - i.e. the cost of entry to an industry is much lower and maintaining a de facto monopoly is that much more difficult. Offshoring can be seen as a defensive move by capital, harnessing the very technology that is driving down prices to maintain profit through wage repression.
As wages rise in China and other developing nations, profit margins are eroded once more. Onshoring is not about "bringing jobs back" but the next stage in the redundancy of labour. It's about dark factories, i.e. production facilities with little or no direct human involvement. If labour is a small factor in your production cost, then it makes sense to site your production as close to your customers as possible, as this reduces transport and storage costs. The eventual logic of this trend is the Star Trek replicator, a universal production facility in every home. Consumption then becomes a transaction in which a royalty is paid for the creation of an object. Capitalists (intellectual capitalists, if you prefer) are then people who own patents rather than the means of production. The creation of profit through competition is replaced by the extraction of rents through monopoly.
The suspicion that monopoly may already account for some of the shift between profit and wages is gaining ground, while the habitual abuse of monopoly power is now taken for granted. It is worth noting that Google and Amazon have declined to follow Starbucks's lead in "making a contribution" in respect of dodged tax. Starbucks operate in a competitive market, while the other two are near-as-damn-it monopolists and presumably feel they have little to fear from Margaret Hodge "putting away" her Kindle (not binning it, you'll note) or trying another search engine. Calling for a boycott is simply a demand that a particular company behave better; it is not an attack on monopoly power. Antitrust initiatives, such as the EU's long-running case against Microsoft, have proved to be little more than an inconvenience. The implicit acceptance of monopoly appears to have reached a watershed with the "new economy" of the last 15 years, in which a single business secures the degree of dominance that a century ago led to the forcible breakup of Standard Oil. Notable too is how often this monopoly is based on intermediation (funny how the Web was once thought to herald disintermediation), such as that of Google, Facebook and Amazon. It seems almost redundant to point out that the advocates of "open" are delivering "closed".
In the modern economy big capital struggles to find enough opportunities to invest in making stuff. Though profit margins can be maintained through automation and offshoring, turnover declines as commodities become cheaper and product cycles briefer (the impending disappearance of the Kindle will solve Margaret Hodge's ethical dilemma). Capital is then increasingly diverted to non-productive but high-yield sectors, such as finance and property, and into the service sector. Labour-intensive services are attractive precisely because they offer scope to repeat the automation and offshoring that have been almost exhausted in manufacturing, hence the neoliberal push to privatise health and education. In those sectors where automation is already high, further productivity gains become more challenging. This encourages a shift towards rent-seeking, which means that land (i.e. natural resources) becomes more dominant as a factor of production. Consider the growing significance of rare-earth metals in discussions about the price of manufactured goods. The geopolitical ramifications of the grab for agricultural land, water, energy and minerals are obvious, but the local implications are just as notable, from the ideological opposition to property, inheritance and land value taxes to disputes over wind turbines.
In such an economy, innovation becomes a more significant factor as well, not simply because it is then the only game in town as far as productivity growth is concerned, but because the patenting of techniques and inventions creates a form of resource that is equivalent to land - i.e. it produces a rent and is a tradable and inheritable asset. Recent years have seen the patenting of things we'd never previously have thought of as inventions, such as gene sequences, and now no one bats an eyelid when Apple seeks to patent a basic geometric shape. The parallel growth of the "patent troll" industry is less an issue of parasitism and more a reflection of the hospitality of the host, i.e. patent law. The recent "smartphone wars" between Apple, Google and Samsung are significant because they show both the speed at which technological advances are adopted by competitors and the determination to enforce patents and thus preserve monopoly power.
The conclusion one can draw from these trends is that labour is becoming less valued. Even if we were not suffering austerity and low growth, we would need less labour year-on-year to maintain production, so high unemployment is here to stay. Though our remaining labour needs will require increasing skills at the top-end of the income scale, the growth of educated labour forces in developing countries means that the wages premium commanded by a college degree in developed countries will erode due to global competition (this, together with increasing fees and large student debts, will return further education to being the preserve of the rich). At the bottom-end, the growing pool of the unemployed, and the erosion of the welfare state, means that wages will fall in real terms.
The winners in such a scenario will be those that already own assets and those that can secure access to rent-extracting jobs, such as government and the law. For a while, this latter camp will include the supernumeraries that occupy the corporate ecosystem, such as accountants and HR types, who are in effect extracting a form of rent as "management overhead", but sooner rather than later they will find their own roles under threat as capital moves from corporations that manage people to trusts that manage assets, and as technology continues to automate labour everywhere. We don't need Star Trek replicators to envisage a future in which HR and Accounts no longer exist. There will be little role for them in dark factories, and those are already being built.
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