I have just completed Daron Acemoglu and Simon Johnson's brilliant and deeply-researched book, Power and Progress, where they show that ideas and technologies have deep political significance and how agenda-setting shapes the nature of the "progress" arising from these ideas and technologies. I blogged briefly about it earlier here.
The point that the book makes is that there's nothing automatic about technology and broad-based progress. They highlight two essential conditions - the technology should improve the marginal productivity of labour (should complement and not substitute labour); and there should be enabling conditions that allow for fair bargaining between labour and capital. They illustrate the point with several historical parallels from agricultural and industrial technologies, whose initial decades were characterised by the exploitation of labour and appropriation of benefits by the owners of these technologies.
The book makes the point that he who sets the agenda on an idea (and its trajectory of evolution) generally tends to corner the benefits of the idea. Therefore the need for the trajectory of current technologies to be politically determined by society as a whole instead of being narrowly determined by the efficiency and profit maximising incentives of large private companies.
The application of technologies like big data analytics, facial recognition, artificial intelligence, robotics etc have economic, social, political, and even existential ramifications for all of us. It's therefore only natural that their applications and evolution be a set of political choices. To leave them to the economic incentives of a few vested interests is tantamount to civic and political abdication and is certain to have irretrievably bad consequences for the social contract.
This post has a few passages. There are several striking snippets about the historical trajectory of changes in the aftermath of the introduction of new technologies. I'll skip them.
Chapter 8 is the best summary I've come across of the rise of neoliberalism since the seventies. It points to the influential roles played by Friedrich Hayek, George Stigler, Milton Friedman, Michael Jensen, Robert Bork, Michael Hammer etc.
In a short piece published in September 1970 in the New York Times Magazine, immodestly titled “A Friedman Doctrine”, Friedman argued that the “social responsibility” of business was misconstrued. Business should care only about making profits and generating high returns for their shareholders. Simply put, “The social responsibility of business is to increase its profits”... the impact of the Friedman doctrine is hard to exaggerate. At one fell swoop, it crystallized a new vision in which big businesses that made money were heroes, not the villains that Ralph Nader and his allies painted them as. It also gave business executives a clear mandate: raise profits... The Friedman doctrine pushed in a different direction: good CEOs did not have to pay high wages. Their social responsibility was solely to the shareholders...Another economist, Michael Jensen, argued that managers of publicly listed corporations were not sufficiently committed to their shareholders and were instead pursuing projects that glorified themselves or built wasteful empires. Jensen maintained that these managers needed to be controlled more tightly, but because that was difficult, the more natural path was to have their compensation tied to the value they created for shareholders. This meant giving managers big bonuses and stock options in order to focus them on boosting the company’s stock price...The Friedman doctrine, along with the Jensen amendment, brought us the “shareholder value revolution”: corporations and managers should strive to maximize market value. Unregulated markets, combined with the productivity bandwagon, would then work for the common good... The combination of the Friedman doctrine and the lavish stock options to top executives motivated several executives to venture into gray areas and then into the red. The journey of the energy giant Enron, a darling of the stock market, is emblematic. The Houston-based company was selected as “America’s Most Innovative Company” six years in a row by Fortune magazine. But in 2001 it was revealed that Enron’s financial success was in large part a result of systematic misreporting and fraud...Bork’s greater influence was through his scholarship, however. He took Stigler’s and related ideas and articulated a new approach to antitrust and regulation of monopoly. At the center was the idea that large corporations dominating their market were not necessarily a problem that required government intervention. The key question was whether they harmed consumers by raising prices, and the onus was on government authorities to prove that they were doing so. Otherwise, these companies could be presumed to benefit consumers through greater efficiency, and public policy should stand aside.The Manne Economics Institute for Federal Judges, founded in 1976 with corporate funding, instructed scores of judges in economics during intensive training camps, but the economics they taught was a very specific version based on Friedman’s, Stigler’s, and Bork’s ideas. Judges who attended these training sessions became influenced by their teaching and began using more of the language of economics in their opinions. Strikingly, they also started issuing more conservative decisions and ruling consistently against regulatory agencies and antitrust action. The Federalist Society, founded in 1982 with similarly generous support from antiregulation executives, had a similar aim—grooming pro-business, antiregulation law students, judges, and Supreme Court justices. It has been phenomenally successful; six of the current Supreme Court justices are among its alumni.
This is about the rise of the ideology of efficiency maximisation and cost-cutting, and the emergence of management consultants as implementers of this ideology.
To cut labor costs, US businesses needed a new vision and new technologies, which came, respectively, from business schools and the nascent tech sector. The main ideas on cost cutting are well summarized in a 1993 book by Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution. The book argues that US corporations had become highly inefficient, especially because there were too many middle managers and white-collar workers. The US corporation should therefore be reengineered to compete more vigorously, and new software could provide the tools... Hammer and Champy emphasized that reengineering was not just automation, but they also took the view that more effective use of software would eliminate many unskilled tasks: “Much of the old, routine work is eliminated or automated. If the old model was simple tasks for simple people, the new one is complex jobs for smart people, which raises the bar for entry into the workforce. Few simple, routine, unskilled jobs are to be found in a reengineered environment.” In practice, the smart people for the complex jobs were almost always workers with college or postgraduate degrees. Well-paying jobs for noncollege workers became scant in reengineered environments...The high priests of the emerging vision came from the newly burgeoning management-consulting field. Management consulting barely existed in the 1950s, and its growth coincides with efforts to remake corporations through “better” use of digital technology. Together with business schools, leading management-consulting companies such as McKinsey and Arthur Andersen also pushed cost cutting. As these ideas were increasingly preached by articulate management experts, it became harder for workers to resist... Just like the Friedman doctrine, Reengineering the Corporation crystallized ideas and practices that were already being implemented. By the time the book came out, several large US corporations had used software tools to downsize their workforces or expand operations without having to hire new employees. By 1971, IBM was prominently advertising its “word-processing machines” as a tool for managers to increase their productivity and automate various office jobs...
In 1981 IBM launched its standardized personal computer, with a range of additional capabilities, and soon new software programs for automation of clerical work, including administrative and back-office functions, were being developed... Where Microsoft and Bill Gates led, much of the rest of the industry followed. By the early 1990s, a major part of the computer industry, including emerging household names such as Lotus, SAP, and Oracle, supplied office software to big corporations and were spearheading the next phase of office automation.
On the role of Business Schools in perpetuating this ideology,
The 1970s were the beginning of the professionalization of managers, and the share of managers trained in business schools increased rapidly during this period. In 1980, about 25 percent of CEOs in publicly listed firms had a business degree. By 2020, this number exceeded 43 percent. Many faculty at business schools embraced the Friedman doctrine and shared this vision with aspiring managers. Recent research shows that managers who attended business schools started implementing the Friedman doctrine, especially when it came to wage setting. They stopped wage growth in their firms, compared to similar companies run by managers who did not attend business schools. Managers in the United States and Denmark without an MBA share with their workers about 20 percent of any increase in value added. For managers inculcated in business schools, this number is zero. Somewhat disappointingly for business schools and for economists from the Friedman-Jensen school, there is no evidence that business school‒trained managers increase productivity, sales, exports, or investment. But they do increase shareholder value because they cut wages. They also pay themselves more handsomely than other managers.
The period from 1945 to 1973 is considered the high-noon of broad-based economic growth. The importance of government regulatory involvement in the sharing of prosperity is not well known.
Several iconic government regulations resulted from consumer activism. The National Traffic and Motor Vehicle Safety Act of 1966, which set the first safety standards for automobiles, was a direct response to the issues that Nader publicized. The Environmental Protection Agency was launched in 1970, with an explicit remit to prevent pollution and environmental damage by businesses. The Occupational Safety and Health Administration (OSHA) came into existence in December of the same year to protect the health and well-being of workers. Although some of these problems were previously monitored by the Bureau of Labor Standards, OSHA gained much greater authority over businesses. The Consumer Product Safety Act, enacted in 1972, was even more far-reaching, giving an independent agency authority to set standards, recall products, and bring lawsuits against companies to protect consumers against the risk of injury or death... Equal Employment Opportunity Act of 1972, tasked with going after individual employers for discrimination against Black Americans and other minorities... The Food and Drug Administration (FDA), which had been around since the beginning of the century, significantly increased its powers because of the Kefauver-Harris amendment of 1962 and the US Public Health Service reorganizations of 1966‒1973... The year 1974 also witnessed the beginning of the Department of Justice’s action to break up AT&T, which had dominated the telephone sector in the US..."These changes reflected a new, more muscular regulatory approach. Many were implemented under a Republican president, Richard Nixon. Nixon’s embrace of regulation was not a sharp break with the postwar Republican establishment. Dwight Eisenhower had already moved in the same direction, defining himself as a “modern Republican,” meaning that he was going to maintain most of what was left of the New Deal... The 1960s witnessed the success of the civil rights movement and greater mobilization among left-wing Americans supporting civil rights and further political reforms. Lyndon Johnson initiated the Great Society program and the War on Poverty, adapting some key tenets of a European-style social safety net to the US context.
This is a great point, highlighted in numerous posts in this blog, about the inevitable corrosive political economy impact of large corporations.
US Supreme Court justice Louis Brandeis nailed this when he stated, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” He was opposed to large corporations not just because they increased market concentration and created conditions of monopoly, undercutting the market mechanism. He maintained that as they became very large, they exercised disproportionate political power, and the wealth they created for their owners further degraded the political process. Brandeis did not focus as much on social power—for example, whose ideas and vision we listen to—but his reasoning extends to that domain as well. When a few companies and their executives achieve higher status and greater power, it becomes harder to counter their vision.
This is about the difference between how the US and continental European companies have taken to today's technologies,
Robots increase productivity. However, in US manufacturing, rather than launching the productivity bandwagon, they have reduced employment and wages. As with the automation of white-collar jobs with office software, the elimination of blue-collar jobs by robotics technology was swift. Some of the best jobs available to workers without a college degree in the 1950s and 1960s were in welding, painting, material handling, and assembly, and these jobs have steadily disappeared. In 1960 almost 50 percent of American men were in blue-collar occupations. This number has subsequently fallen to about 33 percent...Although they had access to the same software tools and robotics technology, other countries made very different choices than their American counterparts. For example, German manufacturing firms still had to negotiate with unions and explain their decisions to worker representatives on their corporate boards. They were also understandably wary of laying off workers who had gone through years of apprenticeship in the company and developed a range of relevant skills. They thus made technological and organizational adjustments to increase the marginal productivity of the workers they had already trained, blunting automation’s impact.Consequently, even though industrial automation has been faster in Germany, with the number of robots per industrial workers more than twice that in the United States, companies made efforts to retrain blue-collar workers and reallocate them to new tasks, often in technical, supervisory, or white-collar occupations. This creative use of worker talent is also visible in how German companies use new software in manufacturing. At the center of programs such as Industry 4.0 or Digital Factory, which became popular in German manufacturing in the 1990s and 2000s, was the use of computer-assisted design and computer-aided quality control that enabled well-trained workers to contribute to design and inspection—for instance, by working on virtual prototypes or by using software tools to detect problems. These efforts ensured that worker marginal productivity increased, even as the German industry rapidly introduced new robots and software tools. Tellingly, following robot adoption, the reallocation of blue-collar workers to new, technical tasks is more pronounced in German workplaces, where labor unions are stronger...Japanese firms, also facing a declining labor force, have been even faster in adopting robots. But they too combined automation with the creation of new tasks. With the emphasis on flexible production and quality, Japanese companies did not automate all of the jobs on the factory floor, instead creating a range of complex and well-paid tasks for their employees. They also invested as much in software for flexible planning, supply-chain management, and design tasks as software tools used for automation. Overall, during the same time period, Japanese automakers did not reduce their workforces in the same way that their American peers did... In Finland, Norway, and Sweden, where collective bargaining remained important and a large share of the industrial workforce is still covered by collective agreements, corporations have continued to share productivity gains with workers, and automation has often been combined with other technological adaptations more favorable to labor.
Public policy too has supported the direction that US businesses took,
The US tax system has always favored capital relative to labor, imposing lower effective taxes on capital earnings than labor income. Starting in the 1990s, the asymmetry of capital taxation and labor-income taxation intensified, especially for equipment and software capital... Starting in 2000, capital tax cuts went into overdrive with increasingly generous depreciation allowances on equipment and software capital... Overall, whereas the average tax rate on labor income, based on payroll and federal income taxes, remained over 25 percent for the last thirty years, the effective tax rates on equipment and software capital (including all capital gains and income taxes) fell from around 15 percent to less than 5 percent in 2018. These tax incentives meant that businesses had even a greater appetite for automation equipment, and their demand fueled further development of automation technologies in a self-reinforcing cycle.
The book argues in favour of replacing the AI paradigm of the quest for machine intelligence with that for machine usefulness (MU). It offers four examples of MU,
First, machines and algorithms can increase worker productivity in tasks they are already performing. When a skilled artisan is given a better chisel or an architect has access to computer-aided design software, their productivity can increase significantly. Such productivity increases need not just come from new tools and can also be accomplished by improving machine design. This is the aspiration of the fields known as human-computer interaction and human-centered design. These approaches recognize that all machines, and in particular computers, need to have certain features to be most productively used by people, and they prioritize designing new technologies that increase human convenience and usability... Because this approach puts machine capabilities at the service of people, it tends to complement human intelligence... Virtual- and augmented-reality tools hold tremendous promise to increase human capabilities in tasks such as planning, design, inspection, and training...The second type of MU is... the creation of new tasks for workers. These tasks were critical for expanding the demand for both skilled and unskilled workers even as manufacturers such as Ford automated parts of the production process, reorganized work, and transitioned to mass production. Digital technologies have also created various new technical and design tasks over the last half century... Asimov noted the problem of our current system of education: “Today, what people call learning is forced on you. Everyone is forced to learn the same thing on the same day at the same speed in class. But everyone is different. For some, class goes too fast, for some too slow, for some in the wrong direction"... Today, we have the tools for making personalization a reality in many classrooms. Indeed, it should be possible to reconfigure existing digital technologies for this purpose. The same statistical techniques used for task automation can also be used for identifying in real time groups of students who have difficulties with similar problems, as well as students who can be exposed to more advanced material. The relevant content can then be adjusted for small groups of students. Evidence from the field of education research indicates that such personalization has considerable return and is most useful where exactly society has the greatest need: improving the cognitive and social skills of students from low socioeconomic backgrounds... the right type of MU can significantly empower nurses and other health care professionals, and this would be most useful in primary health, prevention, and low-tech medical applications...
The third contribution of machines to human capabilities may be even more relevant in the near future. Decision making is almost always constrained by accurate information, and even human creativity relies on accessing accurate information in a timely fashion. Most creative tasks require drawing analogies, finding new combinations of existing methods and designs. People doing this work then come up with previously untried schemes that are confronted with evidence and reasoning, and are subsequently further refined. All these human tasks can be helped by accurate filtering and the provision of useful information... the World Wide Web is a milestone in human-machine complementarity: it enables people to access information and wisdom that other humans have produced to a degree essentially unparalleled in the past... MU can enable many more applications that provide better information to people in their capacities as workers, consumers, and citizens. Recommendation systems, at their best, have this ability: they can aggregate masses of information from others and present relevant aspects to users to aid in their decision making...The fourth category, based on the use of digital technologies to create new platforms and markets, may turn out to be the most important application of the Wiener-Licklider-Engelbart vision. Economic productivity is inseparable from cooperation and trading. Bringing together people with different skills and endowments has always been a major aspect of economic dynamism and can be powerfully expanded by digital technologies.
So why are tech companies not developing tools that help humans and at the same time boost productivity?
There are several reasons for this, all of them informative about the broader forces we are confronted with. Consider the teaching example, and recall that new tasks, as in this example, are useful in part because they increase productivity by generating meaningful and high-paying jobs for humans—in this instance, for teachers. Yet new teaching tasks imply greater costs for schools already strapped for cash. Most public schools, like other modern organizations, have to focus on containing labor costs and may struggle to hire additional teachers. Consequently, new algorithms for automated grading or automated teaching could appear more attractive to them... The same is true in health care. Despite the $4 trillion that the United States spends on health care, hospitals also face budget pressure, and a shortage of nurses became painfully evident during the COVID-19 pandemic. New technologies that increase nurses’ capabilities and responsibilities would mean hiring more nurses for higher-quality health care. This observation reiterates a key point: human-complementary machines are not attractive to organizations when they are intent on cost cutting...
Under the shadow of the Turing test and the AI illusion, top researchers in the field are motivated to reach human parity, and the field tends to value and respect such achievements ahead of MU. This then biases innovation toward finding ways of taking tasks away from workers and allocating them to AI programs. This problem is, of course, amplified by financial incentives coming from large organizations intent on cost cutting by using algorithms... The tech community did not have to be mesmerized by machine intelligence instead of working on machine usefulness.
The last chapter of the book has some useful suggestions (mostly a consolidation of known ideas) about steering technology in the direction of broad-based progress. In particular is leadership in exposing the problems, popular mobilisation, and articulation of the alternative.
Consider the exposes that laid the ground work to change the public mood, the anti-thesis,
The United States today would be a very different place if the economic and social conditions of the Gilded Age had endured. But a broad Progressive movement formed to oppose the trusts’ power and demand institutional change. Although the movement had its roots in earlier rural organizations, such as the National Grange of the Order of Patrons of Husbandry and later the Populist Party, Progressives built a much broader coalition around urban middle classes and had a momentous impact on the history of the United States. Central to their success was a change in the views and norms of the American public, especially the middle classes. The transformation was in large part the result of the work of a group of journalists who came to be known as the muckrakers, as well as the writings of other reformers, such as the lawyer and later Supreme Court justice Louis Brandeis. Upton Sinclair’s The Jungle revealed horrible working conditions in the meatpacking industry, and Lincoln Steffens reported on political corruption in many major cities...Perhaps most influential was the work of another muckraker, Ida Tarbell, on Standard Oil. In a series of articles in McClure’s Magazine starting in 1902, she exposed the company’s and Rockefeller’s alleged intimidation, price-fixing, illegal practices, and political shenanigans. Tarbell had personal knowledge of Rockefeller’s business practices. Tarbell’s articles, collected in her 1904 book The History of the Standard Oil Company, did as much as any other to transform the American public’s perception of the trusts’ and robber barons’ pernicious effects on society... In a series of articles titled “The Treason of the Senate” in Cosmopolitan magazine in 1906, David Graham Phillips shone the light on shady deals and corruption in the Senate. Brandeis’s Other People’s Money and How Bankers Use It did the same for the banking industry, and especially for J.P. Morgan... Also important was the work of community activists such as Mary Harris Jones (known as Mother Jones), who played a leading role in the organization of the United Mine Workers and the more radical Knights of Labor. Mother Jones was the key instigator of the 1903 Children’s Crusade, a march of children working in mines and mills.
... the popular mobilisation led by the Progressive,
In the 1892 election the Progressive Party won 8.5 percent of the total votes. Urban middle classes built on this early success, and a wide variety of politicians such as William Jennings Bryan, Teddy Roosevelt, Robert La Follette, William Taft, and then Woodrow Wilson brought Progressive politics into mainstream parties, winning elections and paving the way to reform... Progressives had an ambitious reform agenda, including the regulation and breakup of trusts, new financial regulations, political reform directed at cleaning up corruption in the cities and the Senate, and tax reform.
And the articulation of policy alternatives, the synthesis,
Key policy reforms of the age were the outgrowth of the ideas that muckrakers, activists, and reformers had popularized. For example, Sinclair’s exposé directly led to the Pure Food and Drug Act and the Meat Inspection Act. Ida Tarbell’s research and writings inspired the application of the 1890 Sherman Antitrust Act to industrial and railway conglomerates. This was reinforced by passage of the Clayton Act in 1914 and the creation of the Federal Trade Commission for further regulation of monopoly and antitrust action. Progressive pressure was also instrumental in the formation of the Pujo Committee, which investigated misdeeds in the financial industry. Even more consequential institutional changes included the Tillman Act of 1907, banning corporate contributions to federal political candidates; the Sixteenth Amendment, ratified in 1913, which introduced the federal income tax; the Seventeenth Amendment of 1913, which required the direct election of all US senators by popular vote; and the Nineteenth Amendment of 1920, giving women the right to vote. Progressives laid the foundations for the New Deal reforms and for post–World War II shared prosperity.
Acemoglu and Johnson summarise it well
THE PROGRESSIVE MOVEMENT provides a historical perspective on the three prongs of a critical formula necessary for escaping our current predicament. The first is altering the narrative and changing norms. The Progressives enabled individual Americans to have an informed view about troubles in the economy and society—rather than just accepting the line coming from lawmakers, business tycoons, and the yellow journalists allied with them. Progressives transformed what was viewed as acceptable for companies to do and what ordinary citizens thought they could do about injustices... The second is cultivating countervailing powers. Building on the change in the narrative and social norms, Progressives helped organize people into a broad movement that could oppose robber barons and push politicians to reform, including via labor unions. The third prong is policy solutions, which Progressives articulated based on the new narrative, research, and expertise.
This historical trajectory of change points to the questions that liberals should be asking. Who are doing the exposes and who are the public intellectuals creating the counter-narratives? Where's the political mobilisation? Where are the policy alternatives?
For sure, there are people and groups at the margins doing these. Some like in anti-trust are struggling to sit at the top of the table. But most others are far from the mainstream. Their efforts to break out into the mainstream get co-opted and blunted by entrenched interests. The mainstream liberals have been co-opted into being compradors of the larger establishment.
I have three earlier posts in this regard. The first one, from the left, points to an interview with Roberto Unger where he lays down what he thinks should be the progressive agenda. The second one, from the right, points to a similar agenda laid out by Gladden Pappin who writes about reining in the markets and cultural progressivism gone too far. The third one is a synthesis that tries to frame the agendas of the New Right and New Left. I had blogged in this context
Where are the meaningful proposals on addressing issues like business concentration, executive compensation excesses, anti-competitive behaviours, low minimum wages, pro-rich and pro-capital tax codes, declining labour bargaining power, health and housing markets and policies which favour the rich, unaffordable tertiary education, and so on? Where are proposals to this effect from the mainstream intellectuals whose opinions ring loud in the oped pages? When one looks around at the mainstream progressive agenda in the US, one cannot but not get the feeling that it skirts around all deep-rooted structural issues and is confined to tinkering at the margins. It is all about safety valves and pacifiers to buy out the handful of the vocal among the vast mass of discontented.
