Green Room

The Mythical Social Contract of Job Creation

posted at 12:34 pm on January 16, 2012 by

The “King of Bain” has caused no end of woes for some Republicans, but while largely discredited, it has also given progressives a straw to grasp in this year’s presidential contest. Democrats should note, however, that straws rarely provide much in the way of being serviceable flotation devices. The underlying premise of people arguing against Romney (and Bain) in specific and capitalism in general is found in the oft repeated talking points of Ed Schultz and Elizabeth Warren. The accusation they level runs along these lines: “There is a social contract. You created a factory or a business but you took all the money and failed to create the jobs for everyone. You tricked us.”

The flaw here is the frequently repeated but totally fabricated idea that job creation was ever the chief goal – or even one of the goals – of industry. It never was. Job creation was simply a happy side effect of industrial activity and capitalism in general. (And when I say “happy” I mean happy for the working public at large and the government whose existence relies on keeping the unwashed masses quiet and content.) The purpose of industry, or any capitalistic activity, is and always has been to make money and generate wealth for those who established and invested in those endeavors.

Let’s say you operate a factory which makes widgets, and one step in the widget creation process requires two pieces of metal to be welded together on an assembly line. Given a choice between a human being – or potentially several human beings working different shifts – and a robot which is capable of performing the welding, which would you opt for? If you have one shred of honesty left in you, you’ll admit that you’d take the robot every single time. Why? Because human beings are, by nature, expensive, messy and inconvenient tools to accomplish any such goal. You have to give humans paychecks, provide them with healthcare and other benefits, arrange to take care of their taxes and monitor their performance. They go on vacation. They get sick sometimes and miss work. They get in fights with their boyfriends or girlfriends, become distracted and make mistakes. They see a better job and quit, taking their skills with them. Sometimes they die and you have to retrain someone else from scratch. But the robot sits silently in your factory and welds one widget after another, 24/7, and doesn’t need time off for holidays.

If we look far enough back in time, the Luddites were correct. When they saw the machine which could do the job of many men, they foretold their own doom in terms of the working class. Businesses have always chosen and always shall choose the path which reduces costs and increases profits. When one of the options is to reduce the number of employees (or, failing that, to move the jobs to cheaper locations) they’re going to wind up making that choice in order to fulfill their mandate of remaining competitive and maximizing their profits. Every… single… time. And whether the business is engaged in manufacturing or services, they must strive to be as competitive and profitable as possible, leading to the need for the services of companies like Bain Capital, who assisted many of them in reworking their business models to achieve that maximum efficiency. And, yes, that often involved eliminating or relocating large numbers of workers.

I completely understand how cold and brutal that sounds, but it’s also the absolute truth. This notion that there was ever some sort of social contract between industry and labor in which capitalists had some warm and fuzzy obligation to provide jobs in exchange for the opportunity to succeed is a fantasy. And it was one which I myself subscribed to for years until many spoonfuls of the harsh medicine of reality were shoved down my throat. The only reason businesses used to hire more people is because we hadn’t figured out ways to operate without them yet.

And even though the Luddites were correct, the system still managed to stagger along and function fairly well to the benefit of workers for a long time. This was largely due to the repeating pattern of The Next Big Thing. When workers with scythes were no longer required to harvest the wheat, somebody had to build, maintain and operate the tractors and combines which replaced them. When automation and cheaper foreign competition overtook our ability to profitably produce radios, we invented television and spawned a fresh industry to create those modern marvels. By the time the television manufacturing market had moved to Japan we were cooking up computers. There was always The Next Big Thing to blunt the damage to the working class as industry developed ways to make money with fewer human laborers.

But with technological advances in efficiency moving forward at the speed of light, assisting the ease of globalizing the labor market as they go, those Next Big Things on American shores have become fewer and further between. And those operating businesses responded to those opportunities. This doesn’t explain all of our current employment woes, but it adds to the general climate where the supply of workers exceeds the demand of available jobs. In our anger at these losses of jobs and the perception of a growing disparity in wealth, we seek out someone to blame and find a convenient scapegoat in organizations like Bain, corporate raiders and the Vultures of Capitalism.

The only problem with this argument is that the vultures were always there. It just seems worse to you now because they’ve become much more efficient flyers.

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Of course the left’s answer to this is to have the state own the means of production and thus control the number of workers required.
It won’t work in a competitive world but if the whole world was under the same banner well….
The true, ultimate goal of any leftist. Total control. Total contentment.
And, due to human nature, a total failure in the end.

Capt Blasto on January 16, 2012 at 1:05 PM

Wow Jazz. Great piece here. And I mean it. :)

gryphon202 on January 16, 2012 at 1:05 PM

There’s another aspect of this that you’re missing, Jazz–it’s the positive impact that such cost-cutting measures have on consumers, including those workers who got displaced. If you’re able to sell refrigerators at a lower cost, consumers have more money to spend on other items. That increase in demand in turn creates demand for workers such as those that were recently let go.

The net result is that the consumer has more buying power, the producer has more money, and there are still plenty of jobs. The only ones who end up not benefiting are those who are unable or unwilling to learn new skills to find new employment.

Mohonri on January 16, 2012 at 1:41 PM

One of my favorite books about just this subject is called “Sacred Cows Make the Best Burgers”. All about businesses that failed by not being more efficient and figuring out “what they do” and many who were great successes because they figured out how to operate better.

dentarthurdent on January 16, 2012 at 1:46 PM

A good example from the Sacred Cows book (see above) was a tire manufacturer, where a new floor manager noticed they were still wrapping tires in paper tape “to protect the whitewalls” – even though none of the tires coming off the line had whitewalls. Saved several hundred thousand $$ per year by eliminating that useless step. Granted, a couple guys probably lost their jobs, or maybe got moved to something more usefull, and I’m sure the union fought it…..

dentarthurdent on January 16, 2012 at 1:51 PM

What I’ve always wondered about the “social contract” is what are the obligations on the other party? It’s got to be the most one-sided contract in history, with the possible exception of the Roommate Agreement on the Big Bang Theory.

malclave on January 16, 2012 at 4:29 PM

Jazz, you’re right. Unfortunately, that old law of Unintended Consequences is always with us, and what you are getting from all that wonderful efficiency is a large and growing group of people who have exactly two marketable commodities to their names: their votes in our warm-body democracy, and their bodies in riots.

SDN on January 16, 2012 at 5:10 PM

It seems the constant in all of this debate is that far too many people only look at the immediate short-term picture (the Luddites I suppose). So the new robot at the factory put a few people out of work. Who designed, built and installed that robot? Who maintains the robot? Who puts the raw materials on the robot assembly line? Who takes the item produced by the robot off the assembly line and transports it to where it is used or sold? There are other jobs there – people just need to be more adaptable to where they are needed and useful. It’s the same as the stories about how ATMs eliminate bank teller jobs – but created jobs to design, build, install, service/refill, and maintain the ATMs. We have not yet gotten to the world of robots doing everything on their own in a never ending line of robots creating and managing robots.

dentarthurdent on January 16, 2012 at 7:36 PM

And the otehr point about companies doing whatever is best for the bottom line is also valid. But in terms of why American jobs go overseas or get replaced by robots, I’ve said before and will keep saying – I believe our government taxation and regulations and labor unions are the main drivers by making American labor too expensive. Eliminate, or at least reduce those factors on our labor market, and allow companies to pay people what their skills and job are really worth and that tide would turn the other way. And while we talk about US jobs going overseas, why doesn’t anyone ever talk about the foreign jobs that are coming over here? Why are German car companies building plants in the US – in non-union states? Because the more advanced European socialism and job-for-life environment there makes non-union American labor a better deal, and we are the major market for their product so it cuts transportation costs. The opportunities are there for our labor market if the government would just get out of the way.

dentarthurdent on January 16, 2012 at 7:47 PM

Warren said: No one ever made it on their own: NOBODY.

She specifically stated this:“You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.”

And her argument is completely baseless. It doesn’t even approach the difficulty of “which came first, the chicken or the egg”

That is because we know which came first: THE FACTORY.

THEN…and only then, the company that invested in, owns and operates the factory made a PROFIT and paid federal and state taxes. Their employees worked, earned an income and paid federal and state taxes.

AND THEN, and ONLY then….. the federal government and state government had the MONEY to pay to build the roads, build the schools to educate the workers and hire the police.

The state and federal government didn’t receive the funds to educate the citizenry, build the roads and hire policemen by PRODUCING anything and then selling such products at a profit and taking the risk inherent in such an endeavor.

The funds they received are TAKEN. They are in the business of confiscating their funds from the citizenry. Granted, it is written into the Constitution as their right (at least the federal government’s), but the whole idea she posits is completely upside down. They are completely free of and exempt from the risks that businesses take by being part of the Free Market System.

The government’s revenue is GUARANTEED. It is in-exhaustible as well and can never even become bankrupt or shut down, because they can print money or issues US bonds to keeps things going.

If there is any entity that NEVER made it on it’s own, it is the Federal Government.

Opposite Day on January 16, 2012 at 8:10 PM

Advice for job-seekers: find a task that can’t be automated now or in the near future.

Mr. Prodigy on January 17, 2012 at 8:55 AM

Advice for job-seekers: find a task that can’t be automated now or in the near future.

Mr. Prodigy on January 17, 2012 at 8:55 AM

Not terrible advice, but not entirely sound. I work at a factory that makes extensive use of programmable logic controllers to automate product assembly, and there are 600+ people working there now, as opposed to only about 150 two years after the plant first opened. Automation doesn’t necessarily mean losing jobs in an industry, although I will concede that it often does.

gryphon202 on January 17, 2012 at 11:59 AM

gryphon202 on January 17, 2012 at 11:59 AM

Absolutely! Like I said above, some jobs on the assembly line may go away, but others are created. People just need to be adaptable to the changes – which unions always fight.

dentarthurdent on January 17, 2012 at 12:11 PM

Jazz, while I don’t disagree with your conclusions, you have chosen a very poor example.

Very often, replacing human workers with robots is NOT the cost-effective method of getting your work done.

I say this as an Industrial Engineer. I know exactly how to make that decision, and it’s not always a clear choice.

I freely grant it’s an easier choice when your labor market is a wholly owned subsidiary of a union cartel. :p

Scott H on January 17, 2012 at 9:49 PM