January 2012, Week 4


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Sat, 28 Jan 2012 14:47:34 -0500
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Eric Schmidt At Davos Praises Globalization, Dismisses
Jobs Crisis

By Peter Goodman
Huffington Post
January 27, 2012


DAVOS, Switzerland

Eric Schmidt, the executive chairman of Google, is
clearly tired of modern-day Luddites complaining about
the job-destroying forces of technology.

"I assume that everybody here agrees that globalization
is wonderful," he said here Friday, speaking during an
afternoon panel at the World Economic Forum --
certainly among the more receptive audiences on the
planet for such pronouncements. He was sitting next to
Tom Friedman, The New York Times columnist whose best-
selling books about globalization often seem to
outnumber in-flight magazines in the first-class cabins
of intercontinental jets.

The subject they were discussing was both controversial
and crucial: Why has the success of innovative giants
such as Google and Apple failed to directly translate
into significant numbers of jobs? How do we generate
large numbers of high-quality paychecks in such times?

Schmidt pushed back against the premise, arguing that
while Google itself employs about 30,000 people around
the globe -- a fraction of the count at manufacturing
giants such as Caterpillar and Boeing -- the company
has indirectly generated millions of additional jobs
and trillions of dollars in wealth by offering up a
valuable platform for commerce.

Its online services -- from maps to search to cloud-
based word processing and email -- have made people and
businesses vastly more efficient just as in another age
advances such as plows and cotton gins enabled farmers
to expand their usable acreage.

Yes, he acknowledged, many nations on Earth -- not
least the United States -- are mired in a crisis of
joblessness. Technological advances such as automation
on the factory floor have rendered millions of jobs
obsolete, but they have also created millions of fresh
ventures, while freeing workers toiling in antiquated
industries to forge careers in higher-value pursuits.
This is textbook creative destruction, the force
celebrated by Joseph Schumpeter, the Austrian economist
who is the intellectual touchstone for Silicon Valley.

What has been happening since the advent of the
Internet "is no different from the loom when it was
invented, and I don't think any one of us would want to
eliminate the loom," Schmidt said. "This is how the
world gets better. This is how the GDP grows. This is
how we leave a better world for our children."

No one ought to blame Google, or any tech company, for
job destruction in a moral sense. Automation is as old
as capitalism, the natural outgrowth of the human
impulse to extract greater harvest with less effort
while saving the cost of paying other people to do what
one cannot or does not care to do oneself.

Labor sidelined by technology is a story not confined
to the wealthy world. For Americans, a discussion of
lost textile jobs conjures thoughts of laid-off mill
workers in the Carolinas, with production shipped to
factories in China. But China has lost more jobs in the
sector than any nation on Earth -- the direct result of

All of that said, Schmidt too blithely dismissed a
problem with no easy answers, one at the center of the
populist ferment now seething from Cairo to Columbus.
In the United States, he suggested, unemployment is
predominantly the result of inadequate skills among the
workforce, a problem that could be addressed with
better education.

"Governments have to do something that's hard," he
said. "They have to go back and invest in human
capital. There are plenty of companies in the U.S. and
other countries I've visited that are very short of
highly skilled workers."

For a clearly brilliant man who likes to advertise his
passion for data, Schmidt's explanation sounded both
lame and self-serving.

Yes, there are always companies in any industry that
will at any given time have difficulty finding skilled
people, a factor now enhanced in the United States by
the housing disaster: Laid-off pipe fitters in Michigan
cannot move to available jobs in Texas if they cannot
sell their homes. Yes, American education has fallen
behind the need for certain skills. Greater access to
degree programs at the community college level and
higher would surely help. But the notion that a skills
shortage explains away high unemployment in the
aggregate is awfully hard to square with the numbers.

As of December, more than 13 million Americans were
officially out of work, according to the Labor
Department. The previous month -- the time of last
available data -- the government counted 3.2 million
job openings. It seems fair to assume that even if one
could sweep people out of unemployment offices en masse
and send them straight to Harvard, many of these people
would remain out of work. (Or, more likely, other
people who didn't get sent to Harvard would be out of
work, soon to be replaced by the lucky people
dispatched to Cambridge, Mass.)

For an individual, gaining education as an approach to
increasing work opportunities is a no-brainer. But for
society as a whole, the employment shortage cannot be
eliminated in this fashion because of a feature that
Schmidt seemed uninterested in addressing: The benefits
of technological progress and automation are being
spread unevenly, exacerbating the forces of inequality
that have left millions of formerly hard-working people
unable to pay their bills.

Friedman, no Luddite himself, tried to take the
conversation there. A half century ago, he noted, the
largest employer in Baltimore was Bethlehem Steel,
where a high school graduate could work and earn enough
to pay for an average house and support an average
family. Today, he said, the city's largest employer is
Johns Hopkins University.

"They do not let you cut the grass at Johns Hopkins
without a B.A.," Friedman said. He acknowledged that
the history of technology is full of dislocation and
the eventual formation of new ventures that create vast
numbers of jobs. "But it feels like this time is
different," he said.

It does, which brings me to the part of Schmidt's
prescription that sounded self-serving. If the only
impediment to full employment is education, then no one
gathered here, among the 1 percent of the 1 percent,
need take responsibility for the fundamental problem of
our age: how to enable people who want to work for a
living to do just that.

One defining characteristic of the Internet boom is the
degree to which it has concentrated the wealth in a
limited number of hands. As is often noted, income
inequality in the United States has expanded to levels
not seen since the 1920s. Overall average taxation as a
share of national economic output is lower than at any
time since 1950.

Schmidt expressed few misgiving about this state of
affairs, suggesting in a private conversation after the
panel that he subscribes to the school of trickle-down
economics, whereby which lower taxation supposedly
yields greater wealth and fresh innovation. The market
then spreads it around.

The wealth part has worked out smashingly. Google is a
magnificent company -- not only as a source of
enrichment, but as necessary testament to the
productive capacities of the free enterprise system,
and the American version in particular. Yet too few
Americans have gained a slice of the spoils, leaving
too few able to consume enough to propel the economy.
That limits demand for all sorts of workers -- from
parking-lot attendants and short-order cooks to tax
accountants and architects.

Fixing that will require something that the fabulously
wealthy executives now here wandering the snow and
cocktail circuit are too prone to oppose: making the
tax code more progressive, thus enabling more people to
enjoy the wealth derived from innovation.

In short, the skills mismatch argument is really a red
herring for the lack of fair distribution in the tax
code. (Though this is a widely subscribed idea: Google
"unemployment" and "skills mismatch" and 803,000
results arrive in less than half a second!)

Creative destruction is indeed an elemental part of
free enterprise. Massive unemployment need not be.


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