Technology and capitalism's existential crisis

Technology and capitalism's existential crisis

Summary: The tech sector is creating wealth without jobs. This is fine for those employed in it, but what does everyone else do?

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Technology companies and mineral extraction have one thing in common: They have the capacity to make huge profits without a massive workforce. Take Exxon Mobil, with profits of well over US$40 billion, but a headcount of less than 80,000 people. It needs just 1,700 people to create a billion-dollar profit. Apple has a similar profit with a few less people.

Look through the records of many big companies, and you'll find that a pattern quickly emerges. Resource and technology companies seem to make their money without many people. At the other end of the table are the manufacturing businesses; Volkswagen needs more than 19,000 people to create its billion dollars, 11 times more than Apple. It would have needed even more employees had technology not stepped in to drive efficiencies.

Number of people required to make a US$1 billion profit
(Image: Phil Dobbie/ZDNet)

Of course, headcount is a reflection of how much you outsource. Apple has hired just 73,000 people, whereas Samsung employs 369,000. They both make devices, but Apple has shipped the work overseas, where it's cheaper. Samsung employs the lower-cost workers directly — their average wage is less than US$20,000.

So what ultimately happens when technology generates wealth without many jobs? Do all those extra people create other technology jobs to create yet more wealth? Or do we just see a rising divide between the haves and have-nots?

Economist Steve Keen, author of Debunking Economics, describes it as capitalism's existential crisis. To date, our economic system has been based on needing workers to produce output and hence profit. He said, "if 3D printing and the like reduce the labour input needed to almost zero, that nexus will be broken. If we don't find another means to distribute income, then it will be a return to feudalism without peasants, with massive social conflict".

Even before machines can create anything at all — his reference to 3D printing — we're seeing massive upheaval. The drop in demand for people in manufacturing is now spreading to retail as we start to shop online, for example. It will hit every industry with similar catastrophic impacts on employment.

Sure, technology companies are growing and recruiting more: Microsoft has come close to doubling its workforce in the last nine years, but it still employs less than 100,000 people. Most of these companies are growing their profits at a much faster rate than they are recruiting at.

Besides, in an economy like Australia, if every employable person could generate wealth at the same rate as Apple, then we'd rake in US$7 trillion — five times Australia's gross domestic product (GDP). Everyone would be five times wealthier, but our houses would probably be five times more expensive.

On the positive side, there's plenty of room for upsides. Perhaps technology will create opportunities for everyone. But perhaps Steve Keen is right — capitalism needs a rethink.

As to what we do with all these extra people, the answer could be for them to join the army. The US Department of Defense is the world's biggest employer, with 3.2 million people. Next comes the People's Liberation Army, which, with 2.3 million employees, is just a bit bigger than Walmart (2.1 million).

Our destiny seems to be that mankind will fight wars, leaving the money making to machines.

Would you like to know more?

Topics: IT Employment, Apple, Microsoft

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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8 comments
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  • Even in military..

    the introduction of drones, unmanned vehicles and the modernization of army (which leads to reduction of army size in most cases) have lead to reduced workforce. Case in point : http://www.defence.pk/forums/chinese-defence/43155-china-reducing-army-size.html

    Nope, even armed forces are not immune to technology's impact!
    ramdasviky
  • Existential moron

    Hmmm, another left-wing kook economist with a doomsday prediction for Capitalism. It must be Tuesday.

    First and foremost, there is no crisis. This same bogus argument has been made about Capitalism for 200 years. "OMG, businesses are investing in labor saving devices, they are not going to need workers anymore! What ever will we do???". In fact, it works just the opposite. The labor saving devices make labor more productive (in fact, it's the only thing that makes labor more productive), so workers make more money. And the fewer workers that company X needs, the more workers are available for company Y to use, which pushes wage rates down for company Y, making allowing the to hire more workers and/or make more profit.

    And all those rich people who own these resource and tech companies want to spend the profits they are swimming in on something other than resource and tech, don't they? So demand is created for other products.

    Secondly, to the extent it's a crisis (which we already know it isn't), it is a crisis created by government. It is the Wagner Act from the 1930's, workers comp, Social Security, unemployment insurance, ObamaCare, and any number of other government programs that have pushed wage rates up so high in the US that overseas manufacturing is so attractive.

    Capitalism has nothing to worry about, Steve Keen nothwithstanding.
    FDanconia
    • Capitalism does have something to worry about, in fact, a lot to worry

      about, and even your comments touched on it a bit.

      The consumer is still out there, and people still want to make purchases, of anything and everything they can afford. But, the corporations out there are being hampered in what they can do, and as the corporations go, so does the employee, and the employee is the consumer. A consumer without a job is one that won't be making very many purchases, and it they do make any purchases, it will be for the bare necessities, like food and clothing and shelter. The bare necessities do not grow an economy, and it's the other extra things that people want (not need), that expand the economy.

      Right now, and like you mentioned, government is getting in the way of capitalism, and as long as there are people who believe that government should be the driver of any economy, and as long as there are people electing those people who believe in bigger government, then capitalism won't be able to produce as it should, and the economy will continue to downsize.
      adornoe
  • Surely this is untenable?

    The idea that capitalism is so bad at adapting, that it will blindly charge into a situation where almost no workers are required, is not in accordance with its history. With so a huge proportion of the population on low disposable incomes, there would be a vanishingly small market to sell things in, and consumerism would fail.
    But the change is coming, for sure. Rather than just say; "this is a crisis", it is surely more interesting to consider what the adaptations might be that capitalism might make?
    War has certainly been a resolution of past crises in capitalism, but as Buckminster Fuller observed long ago, countries that share things like electricity grids and telecommunication systems tend to avoid going to war with each other - its just too darned messy. And the idea that future wars will be fought by grunts on the ground is receding as fast as the idea that car bodies should be welded together by factory floor workers. wars don't seem like the way it will go (no, I'm not predicting a peaceful future - just that mass wars between developed economies seem a long way off).
    Factor in another impending crisis, which is defined by the nexus of climate change/resource depletion/peak population, and the question becomes even more murky.
    Capitalism 2.0 is coming, for sure. I don't believe that its characteristics can be predicted at present - it could go a number of ways. but the key area of contention, for sure, will be humans vs. corporations.
    Silicon Valley and the Internet have provided us, over the past 30 years, with a great wave of new businesses that are run by charismatic and able individuals - bucking the trend of the 20th century, which saw ever increasing corporatisation.will the MSFTs and AAPLs and GOOGs become faceless monoliths like IBM, GE? Or will the accelerating pace of technological change continue to favour the agility that small groups of smart committed people alone can display?
    Such individuals tend to do interesting things once they have become wealthy - look at the explosion in private space enterprises, developments in electric vehicles, Bill Gates' investment in attacking malaria - none of these could possibly have come from GE, or Walmart, or Exxon.
    My hope and optimism is with humans, who will need to remember that the idea of a corporation is a human invention, made to further human ends, and that the rules that govern what corporations can do and be are under our control.
    We may need to start sooner than we think.
    dilgreen
    • You're not looking at the reality on the ground,

      and the reality is that, no matter how "entrepreneural" or inventive and ambitious one is, he/she can't make any headway in an economy dominated by government, especially where the people in charge of that government and insistent on taking that economy towards socialism. Where socialism exists, capitalism can't triumph, and thus, the economy crumbles.
      adornoe
  • The premise that people will run out of things to do...

    Is an entertaining one for science fiction pieces but will ultimately be proven wrong as it has been wrong in the past. Human labor is the most adaptable form of labor and the only one which other humans find monetary value in. People do not "pay" machines to work they pay other people for their labor. The monetary value of labor done by machines and software is ultimately valued at it's "raw cost", i.e. the value is in the HUMAN labor used making and servicing that software or machine. The final monetary value assigned to the work the machine is doing (minus human input) is zero.

    The wrong conclusion to make is that this process drives the need for human labor to zero. No, it drives the "perceived monetary value" of those things that require no human labor to make or support them to zero. Think about it, you do not pay your computer for it's "work" you pay for the human labor that went into manufacturing the computer and the human labor needed to deliver electricity to run that computer. You pay someone to sit at that computer and do some kind of work that the machine cannot do itself.

    Ultimately, new uses for human labor comes about. The "challenge" for capitalism is not finding alternate uses for this labor, that's what it does best, the challenge will be in avoiding excessive political do-gooder tinkering.
    oncall
    • You said a mouthful

      "the challenge will be in avoiding excessive political do-gooder tinkering."

      Amen, brother. The other, perhaps more daunting, challenge is undoing all of the excessive political do-gooder tinkering that has taken place over the last 90 or so years.
      FDanconia
  • There is an economic crisis, but not because of the reasons mentioned in

    the article above.

    This statement from above: "If we don't find another means to distribute income", is missing the point about what's really happening out there.

    The economy is producing, although not at the level it was 5-7 years ago, but, even the lower economic level is "distributing" the income. That income that is produced by "our" economy, is being split, and it's not all being kept within our borders. It's being distributed to other countries and other economies. "Our" manufacturing is distributing the labor, and thus, they wages and income to other shores. The distribution is now global, and many countries, like the U.S., are now mostly service oriented and spending oriented. We consume, and others produce. We create products, and other countries do the actual production.

    However, because of the government intrusion which has occurred for decades now, and which is being felt more lately, all middle and lower-income levels will have been lowered, and spending levels will also have been hurt.

    Companies are very hesitant to spend money to grow their businesses, and that fear gets manifests itself throughout the economy, and we end up with less economic output, and less spending, and more unemployment. That is easily apparent throughout all economies, including most of Europe and in the U.S., and in Japan, and a lot of other areas.

    But, regardless of how much economic activity there is, or lack of it, income distribution is still happening, but, not as economists and governments and businesses and people would hope.
    adornoe