Monday, July 9, 2012

Buggy Whips and Our Economy

According to the National Bureau of Economic Research, the U.S. has been in a recession since December 2007. According to “official” measurements, we came out of that recession. But most Americans would not recognize that technicality, and we feel we’ve been stuck in the economic doldrums for at least the last four or five years, if not longer.

Many are calling this the worst recession since the great depression. No doubt the news is bad and all the major economic indicators signal that growth is glacial. The question on most people’s minds is how long will this recession last. It is frustrating to read about all the bad news making headlines everyday and it would be nice to read a positive headline such as, “US economy adds 500,000 jobs.

Jobs and unemployment is really the key issue to most Americans. Pay stagnation and loss of our usual optimistic view of the future are all symptoms of the malaise. Many are looking for a political solution to the problem. If only the political party that they support could get control and increase / decrease government spending or decrease / increase taxes or enact more / less business regulation, then the problems would be solved. If only the economic stimulus had been larger / smaller or the banks and wall street could be punished / unfettered, then the economy would spring back to life and the great “Middle Class” (that is all anyone talks about in an election year) would reemerge as the marvelous economic engine that it has been in the past.

There is no doubt that the middle class is the key. It is the size and economic power of the middle class in America that has been its economic strength for seventy or more years. We are concerned about the poor, and many complain about the contrast between the “haves” and the “have-nots,” or the difference between worker pay and CEO pay. We talk about raising taxes on the "rich," and blame the 1% or 2% as if it was all their fault. Political campaigns are full of finger pointing and dire predictions, but is this really a political or even an economic problem? To me, that is the question.

I wonder if it isn’t, at its core, a technological problem. Things change. We’ve already witnessed in our recent history sweeping economic and political change driven by technology. Whether it is the industrial revolution driven by steam, or the early twentieth century revolution driven by the automobile, or the current revolution driven by the computer. Technology is causing great change.

Consider the Amish of Pennsylvania. They deny change. In order to maintain a consistent and orderly lifestyle, they refuse change. By keeping it simple and consistent, they protect their society from the impact of change. Along comes the automobile … no need to change, keep the horse and buggy. A society based on agriculture transitions to manufacturing … not for the Amish … keep living off the land. The advantage is that grandpa is not obsolete. He is needed for his skills and knowledge because those skills are still vital.

It is a quaint and effective method to maintain a society, but it doesn’t work for most Americans. As we are reminded regularly, this is a global marketplace and we must compete. Looking for a symbol of obsolescence, it is the buggy whip maker. With the exception of the Amish, the buggy whip maker just has no place to go … to market.

It is sad but true. Only when the buggy whip maker wakes up to reality and changes his or her profession will the problem be solved. I grew up hearing economic explanations that included the poor buggy whip maker. You didn’t want to be one. The underlying idea is that the buggy whip maker’s time has come and gone. Change is needed. The concept is that change is good. It is only those that don’t recognize the need for change and insist on keeping the old ways that will suffer. The poor buggy whip maker!

Now apply that message to our situation today. Most have already noted the loss of manufacturing in the U.S. Often we blame that on outsourcing and exporting jobs to China. Certainly the globalization of industry has a part in the change. But, in fact, that is technology too. Modern transportation and communications, including worldwide computer networks and the Internet are part of that shift in manufacturing. Imagine that a car can be manufactured in Asia, and then transported across the wide Pacific Ocean to the U.S. and sold in competition to our domestic industry. Yet that is what is occurring today. The transportation and communication technologies have made this possible.

But I think the bigger shift is coming through automation. While automobiles used to be assembled by thousands of well paid workers, now we see robots welding and big machines assembling the cars. It is similar in the technology industries. Automation and robots have reduced the number of workers required to assemble everything from televisions to computers to the manufacturing of the wafers and chips themselves.

There are still workers required, but fewer workers, and possibly more important, more highly trained and educated workers. Someone is running the robots. The automation is doing the jobs of a dozen workers, and one highly skilled worker is programming and running the robots. The new jobs are in the robot manufacturing.

Dozens of laborers digging and shoveling on roadways have been replaced by giant machines that smooth, grade, and lay the pavement. Farms are harvested by great machines. Mines are dug by powerful machines. Even the grading of school papers  and counting election results are done by machines.

This country used to have well paid jobs in places like the steel mills and automobile factories. These jobs had good pay and good benefits. They didn’t require much beyond a high school education to perform. Well, that’s today’s buggy whip makers. These good and well paid jobs for relatively untrained workers are gone. Many moved overseas and many were replaced by automation.

Further, the income from these well paying jobs allowed average Americans to become world-class consumers. We bought cars and trucks, boats and RVs, houses and vacations. And that further enriched our economy as the marginal propensity to consume fired a great commercial class selling us those cars and trucks, boats and RVs, houses and vacations. Everything was humming like a speeding locomotive.

Speaking of locomotives, modern trains didn’t require as large of crews to operate. For many years the unions tried to ignore that fact and invented “feather bedding” and “no-work” job positions to protect the workers. But inefficiency never protects anyone. A failure to recognize just who is making buggy whips is bad for our economy.

Early aircraft had large flight crews with pilots and copilots and engineers and navigators. Stewardesses (that we now call flight attendants) had glamorous and well paid jobs, and air travel was comfortable. But then competition … and improvements in technology … came along. Now airlines are wobbly enterprises and passengers no longer even get a hot meal on a flight. Although we may wish to go back to the “good old days,” it really is a technological and economic shift that, like entropy, you just can’t reverse.

Consider the lowly garbage truck worker. At one time there was a driver and possibly several other workers who would fan out in the neighborhood, collecting trash cans, and dumping them by hand (and back) into the truck. There were a lot of injuries and problems with that method. In our municipality, the city gave out large carts on wheels. Now two workers would arrive. One would roll the cart to the truck and connect it to a mechanism that lifted the cart and dumped the contents without effort or injury. A few years later and the trucks and carts were replaced again, this time with large robot arms that pick up the cart at the curb. Now only one worker is required to collect the garbage.

Another trend supported by modern technology is mergers, acquisitions, and consolidation. Small businesses are replaced by giant corporations and coast-to-coast franchises. Although many view Wal-Mart as a company built on the backs of poorly paid workers, in reality the great success of Wal-Mart is more due to modern data processing. Giant computers in Arkansas process the previous day's sales and identify trends, order new goods, and manage a transportation system that carries these goods all across this land. The mom and pop store has been replaced by Wal-Mart, PetSmart, Home Depot, and the restaurants replaced by chains from McDonalds to Red Lobster. The service station attendant has been replaced by the self-service pump. The technology of advertising and leveraging economies of scale aided by the ever present calculating and computing machines has reshaped the commercial landscape.

Consider all the other business areas affected. Offset presses are replaced by digital copiers, libraries are replaced by the Internet, police directing traffic on the corners are replaced by signal lights. Even lawyers are being replaced by web sites. We’ve all seen advances in technology replace the old ways of doing business … if not entirely, then at least partially. And we’ve also seen many businesses fail because they didn’t change with the times.

My grandfather was a grocer in the 30’s and 40’s. He was part of the revolution called “self service.” Prior to that the grocer would reach onto high shelves behind the counter and get down the item requested by the customer. The new way of doing business was to let the customers pick out the item for themselves. Instead of the clerk taking the money and sending it up to the cashier in a small basket, that was replaced by the cash register, or in today’s markets, the laser scanner that the customer uses to check out their own goods … and pay with a little piece of plastic.

Most of us have lived long enough to witness giant leaps and bounds of technology and how it affects our daily lives. That new technology is affecting business too. Who would seek a job today without skills in Microsoft Word or Excel or knowledge of computers in general?

That is my thesis. The current “Great Recession” and particularly the slow job growth has much more to do with a sweeping technological change in the workplace rather than a failure of wall street and banks or the housing market or a political failure due to the poor policies of the Democrats / Republicans.

The solution: obviously it involves education and re-education, job training, better schools, a different attitude of our students today, and about a thousand other things that need to be tried, improved, or emphasized. My point is that as long as we try to boost the buggy whip manufacturing in our country, the greater the great recession will become. Make work, job stimulus, government spending is not going to create new jobs in areas that just don’t match our modern society and technology. Some things must be left in the past. We can’t all become like the Amish and keep our old ways.

You can’t go back. “And, when you can't go back, you have to worry only about the best way of moving forward.”
Paulo Coelho, The Alchemist

There is a place for government. Transitions of this scope are not going to be easy, and people will need protection from the negative effects of change. I'm not suggesting more government spending nor less. I'm arguing for clear priorities. There are buggy whips in some old government programs too. How can we maximize the investments made by the market and government to truly respond to these changing conditions? Some say the Pentagon is always fighting the last war. Is congress always responding to the last crisis? Is what worked in the Great Depression going to solve the Great Recession? Or is new thinking required? What should be the priorities for government spending in this twenty-first century?

How must businesses respond to these changes? How must American workers respond? Schools? Institutions? Charities? Investors? Tax payers? The news media? The public?

It is a new world, reborn. The future belongs to those that grasp this simple fact of the future -- change! The horse and buggy is gone except for quaint county fairs, museums, and central Pennsylvania. Take a serious look at your skill set. Are you a buggy whip maker? Are you training your children to be buggy whip makers? Do you yearn for the return of the buggy whip industry?

And most important, is the U.S. becoming a country of buggy whip makers? What is the solution? I think the first step in solving the problem is clearly understanding the problem. I think the problem is really one of technological change. The world will change. Will we change with it or be left behind … with a buggy whip in our hand?


  1. Better transportation is a major cause of shift in industries. Every little town and burg used to have a brick factory. Lewistown where I grew up in Montana had a brick plant and Longmont where I live now had one too.
    Now it is cheaper to make bricks at some centralized, large, and likely very automated plant, and then haul the bricks to where they are needed. Whether by train or on large semi truck trailers traveling the interstate, it is now cheaper to make them in Denver and ship them anywhere in the state.
    Similar with agriculture products. We have a large sugar mill abandoned to modern technology. Now the sugar beets are shipped somewhere else or not farmed at all ... replaced by cane sugar from some other country.
    Longmont had a large turkey processing plant that went under the name Longmont Foods which opened in 1950. In 1987 the business was acquired by Omaha, Neb.-based ConAgra Foods and changed its name to ConAgra in 2002. In 2006 ConAgra sells off its refrigerated meat business, which includes the iconic brands Butterball, Armour, and Eckrich. Mount Olive, N.C.-based Butterball LLC, a joint venture of Smithfield Foods and Maxwell Farms, buys ConAgra's turkey business, which includes the Longmont plant.
    2008: Butterball announces it is discontinuing slaughtering operations in Longmont, leading to the loss of 491 jobs at the plant and at nearby turkey farms.
    2008: Butterball sells off the "Longmont" brand of pre-packaged turkey products produced here to a Mexican company.
    2010: Maxwell Farms rebuffs Smithfield Foods' offer to buy Maxwell's portion of Butterball LLC. Later that year, Maxwell Farms announces it is partnering with Seaboard Corp. to become joint owners of Butterball.
    2011: Butterball announces it is closing its Longmont facility by the end of the year resulting in the laying off of 350 people just before Christmas.
    Basically, instead of keeping around a dozen turkey plants located all around the country, Butterball will centralize at one large, and I assume highly automated plant somewhere in Nebraska. Turkeys will be shipped both to and from this large processing plant via truck, plane, and train.
    Another change in society due to our improved transportation system. Good roads, good tracks, airports, and computer managed operations to maximize profits via efficient operations.
    Efficiency is ultimately good for an economy and people, but change can be difficult as the buggy whip makers must learn a new trade. Displacement and disaster awaits the old buggy whip makers and their employees who don't make the change quickly. The cost in human lives can be great. I don't mean people die, although they may, I mean the cost in human life as many knew it.
    It happens in agriculture. It happens in the building trades. It even happens to airlines and computer manufacturers. It happens. Now what to do.
    So the old plant is being torn down. Hopefully something new will arise from the dust and ashes at first and main. Goodbye Longmont Foods. We knew you well. At least the sugar mill still stands ... empty and deserted ... but still there as a reminder of former times. Longmont Foods, on the other hand, is being wiped off the face of the earth.

  2. The story of Longmont Foods is also a tale of the steady dance of "consolidation." Economy of scale and automation and large investments mean that small, home town industries are absorbed, digested, and sometimes excreted by the great industrial giants.

    Household names and well known brands in the food industry, now giant multi-national conglomerates. Is this a good trend?

    As I said, efficiency is always good for an economy, but perhaps not always good for the workers. What should we as citizens do? What CAN we do? Should we stand in the way of "progress"? Is this progress? Can you stand in the way?

    Think of other industries like coal. Should we abandon coal? What other considerations are there? It is a complicated world. We're rarely asked our opinion anyway, but it is a complicated world and easy answers are not likely.