Digitalization: Mode of Production and Working Conditions: A Primer


(written Version of a lecture delivered at the Waldviertel Summer Academy 2016)

Keynes‘ Vision

In 1930 the great British economist John Maynard Keynes wrote the essay „The Economic Opportunities of Our Grandchildren“ in which he forecast that in 100 years for the first time in history mankind (he mainly referred to industrial countries) would be able to easily produce enough to fulfil the basic necessities of life. We would have to work only 15 hours a week for that. Thus, a major problem would arise how to use the time not necessary for the reproduction of laborpower in a way which would make possible a „good life“ for all.

Today, we know that this dream has not come true, that the distribution of labor time is very unequal, some work 70 hours a week, too many cannot find work (around 10% of the labor force in the EU), in spite of the fact that the amount of goods and services produced has risen many times faster than the population.

In what follows, I draw attention to the relationship between the dominant „business model“ of societies and the conditions of labor, i.e. its remuneration, its autonomy, its quality.

The Age of Tayloristic Mass Production

During Keynes‘ time and also during the reconstruction phase after World War II, the dominant „paradigm“ (Kuhn) was that of mass production, of separating individual steps of the production process into specific, often minute, tasks, each performed by another person, ideally along a conveyor belt. Autonomy over work pace was zero, since the belt moved along and each worker had to perform his/her task in an uninterrupted manner. Stopping the conveyor belt was impossible for the individual worker. Mass production resulted in many products becoming much cheaper, and thus available to many people, as long as they did not want individualize products (which only very few could afford). Henry Ford who had invented the conveyor belt for his Model T production, was following the „scientific management“ ideas of Frederick Taylor, who had perfected Charles Babbits‘ and Adam Smiths’s idea of increasing productivity by ever increasing division of labor.

Union Power on the Rise

Production usually took place in large factories, designed to house several conveyor belts, optimizing work flow. The labor force was relatively uniform, it was easy for labor unions to organize labor, since it was rather homogeneous, collective bargaining was introduced, negotiating power of labor increased, the modern welfare state with social security was introduced (after many struggles), weekly working time was reduced to 44-48 hours, and wages rose with experience. The share of labor income in national income increased to above 70%. In Austria, Germany and the Northern Countries, as well as in the Netherlands and Belgium models of „Social Partnership“ arose, where labor unions and business negotiated wages and working conditions. Austrian prime minister Bruno Kreisky called the prevailing Social Partnership „mitigated class struggle“.

Fighting Union Power: Flexible Specialization

At the end of the 1960’s workers in large factories began labor action against ever increasing work pressure, business fought back and massive strike action occurred in Northern Italy, in France, but also in Central Europe. Business-friendly politicians, prominently Margaret Thatcher in the UK began a massive and eventually successful effort to break the power of the Labor Unions.

At the same time, numerically controlled machine tools went into operation which enabled large advances in productivity and precision, while at the same time consumer tastes started to differentiate. The reconstruction of the after-war years had finally led toa certain degree of affluence for many. Many people now desired products different from their neighbors‘, and businesses also needed specialized machines for a more varied portfolio of products. It was recognized that high productivity was not only to be achieved by economies of scale (mass production), but also by economies of scope, where individual steps of the production process (each wider than before on the conveyor belt), each performed by small enterprises, are combined in an optimal manner to produce a whole product. In Northern Italy (Emilia Romagna, Veneto, also Tuscany), many of the highly skilled workers who had lost their jobs during the labor struggles in the large factories of Lombardy, returned to their home towns. City councils, together with labor unions and business organizations, set up combined industrial parks/living accomodations, where these skilled workers/craftsmen with intimate knowledge of working materials (metals, wood, fabric, tiles) employed CNC machine tools in order to produce whole segments of a finished product. Being located tin close vicinity to each other in these parks, they created veritable production chains, each performing his specialty task. Similar modes of production arose in France, but also in the typical Mittelstand enterprises of Baden-Wurttemberg and Bavaria, if with different history and motivation. In these enterprises, the division of labor is less than in the traditional mass-production factories, the skill level higher. CNC equipment enabled the owner/workers to quickly change specifications, thus individual products (for machinery) or small series of highly specialized investment and consumer goods were produced, both fort he domestic and the international markets. This mode of production has been dubbed „flexible specialization“ and during the 1980‘s and early 1990‘s produced excellent results (and incomes) in the areas where it was adopted. The specific organization in Italy enabled each of these enterprises to concentrate on its core business, since business services, like design, R&D, accounting, acquisition and marketing were delegated to again specialized firms who each served a number of production units. Much of what is shown at Milan fashion events comes from such production chains, much of the furniture industry in Italy comes from there, many highly specialized parts for the Large Electron Collider in Geneva, or for aircraft production originate around Modena. Workers in these enterprises were frequently the owners, but also employees. The flexibility and survival of this model was aided by the Italian social security system which helped making the transfer from dependent work to entrepreneur, and, if necessary back into dependent employment, very easy and cheap. Since each of these enterprises (this is true especially of the successful German high-tech Mittelstand) has a number of purchasers for its products, it becomes less dependent on one assembler.

During the 1980’s and 1990’s there was talk of this paradigm of flexible specializtion possibly becoming the dominant mode of production, after mass production (Sabel-Piore). However, at least in Italy, the success of this model did not survive the first generation of entrepreneurs, because their heirs no longer possessed the intimate knowledge of working the materials which their fathers had gained as skilled workers in Lombardy’s mass production units. In Germany the model persisted, as did a reduced number of enterprises in Italy. As far as labor relations go, this mode of production culminated in a heyday for the workers: autonomy increased, work content was extended and interesting, incomes were good because of high reliability and quality of products. However, on the downside, since many workers were also owners, they had to bear market risk.

Work Intensification through Globalization and Automation

One trend that continued was that for many enterprises the separation between production and industrial services became blurred. At the same time, during the late 1980’s in the major industrial countries the power of labor unions has been broken, aided also by incipient globalization which increased the pressure on wages. Now many low-skilled, labor intensive parts of the production chain were transferred to low-wage countries, in many industrial countries collective bargaining was limited, individual labor contracts arose, and wages began to fall. The share of labor income in national income has been falling ever since, in spite of increasing GDP levels. Life-long labor contracts were out, „precarious“ contracts, capacity-dependent labor contracts were introduced, overtime pay reduced. In many countries, median family income has stagnated since the beginning of the millennium, or even longer.

Today: Digitalization as the New Paradigm?

The big discussion todayis what will be the effects of further digitalization of production processes on labor, both on the required quantity of labor and on its content. Some forecasts predict that around half of the existing jobs will fall away, others maintain that there will be major shifts in the composition of the labor force, but that the overall net effects on labor demand will be minor.

Let us first look on the mode of production side. Most experts maintain that today’s products contain much more „knowledge“ than material content (Mason). Since knowledge in principle is reproducible at near-zero costs, theoretically, the price mechanism, the prime regulator of the market economy („capitalism“) will cease to function as a regulator of supply and demand. This will be true only, if, and this is a very big if, regulatory policy will be able to break the monopoly of the largest knowledge providers, respectively the providers of the platforms which trade in information and knowledge. In this case, everybody will be able to access all the knowledge produced anywhere in the world for free and will be able to produce. In this „grassroots mode“ platforms exchanging things, and knowledge, will become the pinions on which the future economy will turn. The sharing economy in its manifold forms, from barter exchanges, to crowd financing, to knowledge sharing might become the major, or one major, mode of production. This would enable the participants, who are both producers and consumers at the same time, to have much larger control over their scheduling of time for „gainful activity“, for leisure and for „community work“, remunerated or not. This gain in autonomy, however, would be counterbalanced by commercial and market risks which the „new sharing workers“ would have to accept, since they would be both entrepreneurs and workers at the same time.

In some respects, this mode of production and its concomitant labor conditions would resemble the „flexible specialization“ model which arose during the 1980’s, but it would be much more diverse, much more dispersed, but also much more widely shared.

In many countries, especially in those hit severely by the financial crisis and its aftermath, as a result oft he breakdown oft he „regular“ economy, hundreds of platform-related entities have sprung up as alternatives for cash-strapped households, organizing barter exchanges. It takes electronic platforms to enable this.

In the „traditional“ industries, slogans like „Industry 4.0“ abound. „Smart factories“ will need to redesign technology space where workers will be able to combine the latest technology with the needs of consumers and investors. On a commercial scale, the new companies makes the most radical use of digitalization, have no fixed capital: Uber, the largest car provider, owns no cars; AirBnB the largest accomodation provider, owns no rooms; the world’s largest retailer (Alibaba) has no warehouse and no inventory; the world’s largest moviehouse (Netflix) has no films; the largest phone company (Skype) has no telecom infrastructure; the most popular media owner writes no content, and so on. They all own the platforms. Platform-supported AirBnB has become the world’s largest provider of temporary accomodation within four years (no hotel chain has been able to achieve that), on a different level, Wikipedia (the online encyclopedia fed by free-of-charge contributions by millions of persons) has eradicated the market for printed encyclopedias (Brockhaus, Encyclopedia Britannica).

Whether application of these technologies can flourish in the „old“ large halls designed for conveyor-belt-production, or need specially designed „spaces“ enabling intelligent software and connectivity, is still under discussion. Within the framework of mass production, digitalization will enable assemblers (who have control over access to the final customer) to exert even stricter control over their suppliers (both their technology level, their modes of production, their production costs), and these, in turn, will be able to turn their workers into fully transparent dependents, whose every step, every picking-their-nose, every visit to the toilet and every conversation with their co-workers can and will be monitored. This is the horror vision foreseen by labor unions and privacy experts. If this became the dominant model (and there are many signs that this is being brought on the way), workers‘ autonomy could approach zero, as quasi-appendices to the machines Collective bargaining would become a thing of the past, since each labor contract would be „individually modelled”. The government’s and labor unions‘ role would be limited to attempts to set minimum conditions (difficult to monitor). Fully flexible working times, zero-hour labor contracts, extensive outsourcing are facets of this development.

A more positive assessment (e.g. Rifkin) foresees worker symbiosis with robots and hopes for the full democratization of labor relations through digitilization. A similar hope was pinned on the penetration of „social media“ for enhancing access to information and thus the creation oft he „fully informed political man“. However, reality shows that anonymity and real-time access has led not to interchange of informed opinions, but rather to one-way accusation, slander and selective communality. The digital potential oft he „global commons“ has turned into rather less than more „public space“.

However the assessment, it is clear that further digitalization will bring about significant (disruptive?) changes in customer – firm relationships, in value chain networks, in individualization of consumer demand, in business models and embedded systems. Keypoint is the manner in which a vast variety of data are used: every contact of business and business, between business and customer establishes another data point which will be used commercially. How many people will be able to exploit these possibilities, who controls the data and whether they will democratize or make society more autocratic, is the key question to be explored and answered in a (hopefully) democratic process.

 

Policy Requirements for Promoting a Positive Digitilization Paradigm

It may be too early, or even misguided, to proclaim the advent of „Post-Capitalism“, as Paul Mason does in his eponymous and fascinating book. His vision is based on the same trends as Jeremy Rifkin’s „Zero Marginal Cost Society“, but is less optimistic about the emancipatory elements. But it is important to recognize the eminently disruptive potential of the price mechanism becoming obsolete for probably the most important part of the production of goods and services. If economic policy wanted to promote this model (maybe also side-by-side with the existing „neo-liberal“ paradigm), it would have to make major changes in the following areas:

  1. Competition policy would have to step up its pace, in order to break the monopoly power of the large knowledge producing and distributing (platform) enterprises, such that open access becomes the norm and not the exception.
  2. Patent policy would need to be revised, in order to find the appropriate balance between enabling research and development and the widest possible distribution of the knowledge generated. This applies especially to applied research which is frequently undertaken by private firms (often with public support).
  3. Financing would need to be restructured, in order to make more private equity financing and all forms of crowd financing possible, and especially find forms beyond venture capital financing to support start-up firms on the basis of their future potential, supplanting material and financial collateral.
  4. Social Security would have to be revamped, since its present financing out of labor remuneration will no longer suffice. During the heyday of Italian „flexible specialization“, the social security system was changed to afford the same degree of social protection tot he new worker/entrepreneurs by charging them a flat fee of 4% of turnover. In this way, they could move in and out of diverse modes of supplying their labor without losing their rights to pensions, health insurance and unemployment insurance.
  5. A new taxation system would have to be designed, since traditional labor contracts would disappear. Total taxation of added value, or a return to the pre-VAT turnover taxes, taxation of network services, plus much stronger taxation of social „bads“, such as environmental pollution, use of environmental resources, addictive substances and the consumption of luxury items have been brought into the discussion.
  6. The financing of research and development which produces knowledge relies already now on heavy public support (see e.g. the EU Horizon 2020 Program, the national R&E-support programs, tax privileges for R&D) and much more. At the present time, in many industrial countries, the state contributes heavily towards R&D, whose proceeds, in terms of profit, however are acquired privately. One could imagine some of these profits to flow back into the public coffers, in order to finance new R&D.
  7. If the „sharing economy“ model were to persist, a more generic discussion of what constitutes the appropriate tax base to support this model would become necessary. In the event, this would be the opportunity to wean our politicians and policymakers from their restrictive addiction to Gross National Product as the objective to be maximized (or optimized). The policy objective should be a much wider „Beyond GDP“ conception of societal wellbeing, combining material“ and non-material objectives towards Aristoteles‘ conception of a „good life“ for all (Skidelsky/Skidelsky).

 

At present, the new possibilities for sharing knowledge widely have only begun to appear. More developments are happening at commercial enterprises. We are at a crossroads on how to proceed: either to remain within the „neo-liberal“ work-intensifying mode of generating productivity and well-being, or to enter a new phase of a sharing and digital economy which has the potential to involve many more people as „knowledge workers“, to distribute the socially relevant time for dependent of community work more evenly – and to match the increasing demands for a „good life“ which includes non-material benefits with the demographic, cultural and environmental needs which are before us. It is clear that further digitalization will occur. But politics is able to shape ist development and labor relations. So far, in Austria, this discussion has hardly begun.

It might be interesting to speculate, how: John Maynard Keynes would have viewed these developments. Maybe he would have seen more room for his vision for his grandchildren (i.e. us and our children) than the past 40 years revealed.

 

Some Relevant Literature:

Kurt Bayer. Aspekte betrieblicher Strukturanpassung, WIFO 1985

Paul Mason. PostCapitalism,   Allen Lance, 2015, ISBN 9781846147388

Mariana Mazzucato. The Entrepreneurial State, London 2013

Jeremy Rifkin. The Zero Marginal Cost Society. New York 2014.

Charles Sabel, Michael Piore. The Second Industrial Divide, New York, 1984.

Robert Skidelsky, Edward Skidelsky. How Much is Enough? Money and the good life. New York 2012.

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2 Comments

Filed under Socio-Economic Development

2 responses to “Digitalization: Mode of Production and Working Conditions: A Primer

  1. Marcus Heinz

    Dear Kurt,

    this is an extremely interesting, thought provoking lecture. It does not really lend itself to a a “drive by” comment (as it would certainly not do justice to the quality of the arguments).

    Nonetheless, there are some things I would find interesting to know in addition to the questions you raise.

    I still remember a Gary Larson cartoon from the 1980s where a young boy is playing an Atari video game while his doting parents lean over him, dreaming of multiple ads offering six figure salaries to top players. It was meant as a joke at the time. But considering that some of the highest earners on youtube are now video game players and you can earn more from competitive video gaming than a professional tennis player it does look rather more prophetic. This begs the question on the labor supply side of what skills will be required from my son when he enters the workforce (if there will still be such a thing)? Can we really know?

    When Keynes wrote his piece in the 1930s, his view of the “good life” for the grand children was based on an intellectually interested country gentleman and his needs and wants at the time. He did not e.g. foresee my 2 year old’s urgent demand for an ipad (one of his first words).What will the model of a “good life” be for my son in a mostly digital world? Will it maybe even be work identity based (like having a job at all or being an entrepreneur playing video games)?

    And finally, you mention demographic challenges. How is a dynamic phenomenon like ageing playing into these scenarios? Isn’t the kind of digital disruption that will e.g. make millions of truck drivers unemployed because of self driving cars the kind of development that could help us tackle the problem of an ageing society?

    Best from Brussels

    • Dear Marcus, I certainly appreciate the woes of the father of a 2-year old and his worries about what the future has in stock for him and for the parents. I would say that nobody knows, but that right now we, as a Society, are at a crossroads to either more digitalized workd stress, Job loss and supervision, or a more liberated, work-sharing Situation where everybody has a better Chance to define what her or his “good life” is going to be. Digitalization is an opportunity, but can turn into a curse, as has e.g. the conveyor belt: opportunity for the entrpreneur and the many People who suddenly could afford a car, a curse for the workers whose Timing and sequencing was determined by a machine. I see in my own children (mid-thirties) that the many more choices they have to determine their lives, does not necessarily lead them to a happier life. Choice can also turn into a curse, especially when you have difficulty deciding.
      Clearly, we will see very significant changes in the composition of the future Labor force, we will also see much Change in how to define “work”, be it dependent work, self-employment, Family work, charity work, Investment in oneself. As the Chinese say: Beware of things that are interesting! (my own rendition).
      Let me know when you come to Vienna, I would like to see you again some time.

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