Bernard Avishai -- "What Does Business Owe Society?"

By John Ballard

The Nation magazine sent me an email yesterday luring me to subscribe. The tickler was a solicitation for ideas on how readers suggest rethinking capitalism. They already have a bunch of responses, but after you select one to read and your appetite is whetted for another, only then do you get the word: You can read all of them at your leisure, but first you must become a subscriber.

Cool, huh? Readers submit content, then get charged to read what each other have said -- the perfect social media marketing plan. All the editors have to do is make sure the spelling and grammar are acceptable, arrange the collection neatly like so many boxes of cereal, then watch them fly off the shelves and collect subscription charges.

Years ago I read about a scheme someone planned to raise cats and mice, feeding mice to the cats, cats to the mice, ang getting skins for free..

The first time I saw Cafe du Monde in New Orleans, a faux-French sidewalk operation famous for biegnets, it struck me as the perfect setup. The beignets (quick-fried donut-looking pastry sans holes dusted with confectioner's sugar) are displayed cafeteria-style, customers serve themselves, and the owner spends the day at the checkout raking in money. Customers who don't like standing in line just get a table (if they can find one) and a quick-moving young person will instantly go get what you want and bring it to you, hustling for tips.  Location. Location. Location. And the place runs like a sewing machine.

Banks have a similar operation. They take your money, lend it to me, and charge both of us for the service. There's more to it than that, of course, but strip away the foolishness and you see they don't really have what other businesses consider inventory. The modern bank is just one step removed from a pawn shop.

My suggestion to the Nation to rethink capitalism was simple -- maximize the number of people with discretionary income. The best customers are those with the most to spend, so the more well-off people are in a population, the more capitalism will flourish. Stated another way, the best way for a business to help itself is to help as many of its potential customers as possible. So when I cam across Bernard Avishai's post this morning I was primed to dig in. Only later did I realize it was written it fourteen years ago, but that doesn't make it any less important. It's the ideas that count. And that's why I printed it out to be read later. So this is what I'm reading this weekend.

?What Does Business Owe Society? By Bernard Avishai

Labor is a fast diminishing part of value. When I first joined this business, in 1954, the cost structure of our manufactured products included about 55 percent direct labor. Today, the number is less than 11 percent. There is a revolution underneath that deceptively simple number; you would not still be senior managers of this company if you didn't appreciate it.

Blue-collar jobs have been made redundant by robotics, flexible machine tools and automated inventory management systems, others by outsourcing to low-wage countries. White-collar jobs have been made redundant by scheduling, order entry, word-processing and dozens of other kinds of software -- and more recently by growth of our fledgling corporate intranet. Middle management is disappearing.

Some have called this a revolution of re-engineering. It is really a revolution in computer-integrated production, and we are only at the start of it. While the market capitalization of the Fortune 500 has grown three- or fourfold since the early 1980's, their work forces have shrunk by 25 percent.

[Snip]

When I was a teen-ager, we would hear often about friends who dropped out of high school to start a family and "go to work." The very idea today would be ridiculous. For people with reasonably sophisticated skills, the job market will always recover: Lazard Fr�s has found that during the recovery of 1994-96, 1.5 million jobs were created for every million jobs lost, and most of the new ones are in smaller businesses. But people without skills will be heartbroken. The days of U.A.W. people making $18 an hour with nothing but a couple of years of high school are gone.

Unskilled labor is no longer being compensated, and can never be compensated, with a dignified wage. Advocates for protection and stimulation can, to be sure, create a demand for some low-end jobs in the short run. But nobody can raise a family on what these jobs pay. And the problem will only get worse. Any job that is still simple and repetitive enough to employ a semi- or non-skilled person is going to be even more pressured by new software or by contractor-suppliers in China and Brazil.

The result will be growing and tragic inequalities. Even the Harvard Business Review has worried about the development of an "apartheid economy" in advanced industrial countries, and for good reason. Income inequalities between people who can engage in team-based problem-solving and people who cannot are growing. According to H.B.R., between the early 1970's and the mid-90's, real income in the top deciles grew about 5 percent (personally, I think this is seriously underestimated), while it declined about 15 percent in the bottom deciles. College graduates earned about 43 percent more than high school graduates 20 years ago. They are earning 82 percent more today. The gap, in both cases, is widening. We are becoming two societies.

Seen through the lens of the Arab Spring and labor pressures in China this fourteen-year-old essay is prescient. It's time for responsible leaders in business and politics (sounds like an oxymoron, I know) to look more closely at the consequences of policies. Even bankers make a distinction between "the economy" and "the REAL economy."