Obama, Florida, Hanauer

In an extended interview with Bloomberg editors about America's economic future and role in the global economy, Obama hewed to a simple principle: embrace global trade, but adjust current rules to increase labor's bargaining power while investing in education and skill development. He struck a couple of  notes that recalled things I've read that have resonated with me, about why, where and how wages have to rise. 

First, with respect to manufacturing vs. service jobs:

I think that as we move toward an economy where, because of automation, you need fewer and fewer people to make more and more stuff, more and more of us are going to have to move into the service sector. The service sector historically has been a low-wage sector. And in order for us to make sure that we don’t see this growing divide between haves and have-nots, with a middle class that’s shrinking, we’re going to have to make sure the service sector pays better.

Yes, the U.S. can create some good new advanced manufacturing jobs, in ways that James Fallows has illustrated in his travels around the country for the American Futures project, but the share of those jobs in U.S. employment won't match the totals of yesteryear.  The notion that service jobs are not inherently inferior to manufacturing jobs is one that Richard Florida has been advancing for some time, e.g., in this 2010 essay:

Reminder: manufacturing jobs were not always 'good' jobs

At a Netroots Nation plenary panel this morning, labor leaders Ai-Jen Poo of the National Domestic Workers Alliance and Richard Trumka of the AFL-CIO each made variants of a fundamental point about the current American labor market.

As Trumka put it, manufacturing jobs -- steel jobs, auto industry jobs, etc. -- were not always "good" jobs.  Collective bargaining made them good. In the 1920s and 1930s, the position of factory workers was  analogous to that of service workers today.

Poo added that service jobs and "care" jobs are where the growth is  The demographic shift toward the elderly is as important as shifts in the country's ethnic makeup (and, she might have added, or may have implicitly, growing numbers of relatively young nonwhites are making their living caring for elderly whites.  The status and dignity of those jobs needs to be raised.

Richard Florida does a nice job putting these points in context.  Here's one iteration from a July 2010 op-ed:

The problem is that on average, service workers earn only half of what factory workers make – and only a third of what professional, technical and knowledge workers are paid. The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.

It has happened before. Yet the blue-collar jobs we pine for were not always good jobs: we made them good jobs. When my father came back from the second world war, his poorly paid factory job had been transformed. He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.

If service workers are to be well paid, the country has to keep generating wealth by selling goods and services abroad. Seems like we don't have a problem with that; the problem is that our successful companies don't generate as many jobs at home as they used to, and their profits flow mainly to the top.  Can that wealth be shared without killing the golden geese?  That is, can the wealth generated by American companies be better distributed to benefit not only their own workers, but the growing number of service workers we all seem to require?

Food for thought, and occasional light rations, in Richard Florida's The Great Reset

Credit Richard Florida putting forward a satisfying -- and I think mainly sound -- conceptual framework for understanding our current economic woes in The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work.  Florida argues that major economic slumps correspond with major economic 'resets', in which new ways of generating wealth demand -- and ultimately shape -- new organizations of community, workspace and living space -- and new means of transportation that tie the new "spatial fix."  From this perspective, to extrapolate a point that Florida leaves implicit, the bubbles that precede major economic contractions are more symptom than cause -- a kind of giddy last fling at priming the legacy infrastructure that's reached a kind of natural limit.

According to Florida, the two main examples of "reset" in U.S. history are 1)  the urbanization of the late nineteenth and early twentieth century, which developed during and followed the "long depression" of 1873-1896; and 2) suburbanization, for which the way was "literally paved" by the New Deal and postwar infrastructure investments. Florida argues that we are in a third reset now -- an accelerating shift from a manufacturing to a service economy, demanding an "infrastructure fix" centered largely on high-speed rail tying together "megaregions" - clusters of large cities that strengthen their economic links and so pool resources.

Our future is not in manufacturing

As U.S. unemployment remains stubbornly, dangerously, high, calls mount for a manufacturing revival.  Hence James Fallows, blogging today from Aspen, puts forward a critique of the U.S. economy by Bharat Balasubramanian an engineering executive from Daimler AG in Germany, linking income inequality in the U.S. with a dearth of good manufacturing jobs:

"I will state that there will be a polarization of society here in the United States. People who are using their brains are moving up. Then you have another part of society that is doing services. These services will not be paid well. But you would need services. You would need restaurants, you would need cooks, you would need drivers et cetera. You will be losing your middle class.

"This I would not see in the same fashion in Europe, because the manufacturing base there today can compete anywhere, anytime with China or India. Because their productivity and skill sets more than offset their higher costs. You don't see this everywhere, but it's Germany, it's France, it's Sweden, it's Austria, it's Switzerland.... So I feel Europe still will have a middle level of people. They also have people who are very rich, they also have people doing services. But there is a balance. I don't see the balance here in the US."

Also today, Joe Klein, grudgingly admitting that increased hiring on Wall Street is good news of sorts, indulges in a prescriptive wish:

I guess I'm an economic curmudgeon, but I'd be a lot happier if the headline was: Green Energy Hiring Boom or Auto Industry Rebounds Strongly. But what we may be looking at is a continuation of the disease that forced the bailout in the first place: a distorted economy, where too many of the profits come from making deals and too few come from making things.

Making deals, bad; making things, good: that reminds me of the late-80s complaints that while Japan's Ministry of International Trade and Industry focused Japanese resources on vital industries, U.S. government planners didn't distinguish between production of microchips and potato chips when distributing government largesse.

Doubtless, it's good policy for the U.S. government to stimulate/incent development of "industries of the future" such as alternative energy and biotech.  Doubtless, the growth of such industries would stimulate some good, high-skilled manufacturing jobs -- for a while at least, though technological development tends over time to destroy manufacturing jobs rather than create them.  And yes, the U.S. financial sector has grabbed a bloated share of profits and has been a brain drain from other occupations demanding intense mental labor.

Still, I doubt that rising income inequality in the U.S. can be traced to a failure to generate good  manufacturing jobs. And I doubt that increasing the proportion of the U.S. labor force engaged in manufacturing is either a likely or desirable means restoring income growth, reducing income inequality, or raising job and life satisfaction levels in the U.S. In his 2010 book Rebound: Why America Will Emerge Stronger from the Financial Crisis, Stephen J. Rose shows that the steady shrinkage of the manufacturing sector over the past half century has on balance benefited U.S. workers.