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Global competition and the long road to general prosperity by Richard Seltzer

This article was written in 1992. It has not yet appeared in print. 

The tremendous gains in productivity being brought about by advances in technology have prompted visionaries to foresee a new era of leisure and prosperity for mankind. But instead, especially in those industries -- like the computer industry -- that have taken the greatest advantage of the new technology, we see competitive pressures leading to round after round of restructuring and downsizing.

Has something gone wrong? Is this a temporary aberration related to general economic cycles or isolated technological breakthroughs? Or are more fundamental forces at work that indicate the direction much of the world's economy is likely to follow in the coming decades?

With advancing technology leading to increased productivity, the same number of people can produce more goods than before. Theoretically, the wealth produced by this increased efficiency could be shared for everyone's benefit. For instance, people could get more pay and/or could work fewer hours for the same pay. But instead of shorter work weeks and/or higher wages, we see a situation in which fewer people work the same hours as before for the same pay, and increasing numbers of their former co-workers are unemployed.

The changes affecting the world economy today have been compared to the Industrial Revolution. The U.S. in the nineteenth century saw the rise of the labor movement and adoption of federal legislation which gradually led to nationwide changes in the basic conditions under which businesses did business and workers worked.

In a free marketplace, technology-driven increases in productivity lead to new kinds of products and lower priced goods rather than shorter work weeks or higher wages. If a single company, on its own, makes changes that benefit its workers but greatly increase its costs, its competitors can set their prices lower and drive it out of business. Significant change can only happen if the ground rules are changed for all competing businesses.

In the nineteenth century, improvements in transportation and communication created a nationwide economy. If one state, on its own, tried to benefit its workers by changing the ground rules for doing business in its territory, the increased costs would have put the affected companies at a competitive disadvantage versus companies in other states, leading to workers losing jobs and companies going out of business. A gradual, step-by-step process was needed at the national level to change the playing field on which all businesses competed.

There was no master plan. The dissatisfaction of millions of ordinary workers provided the impetus, and the creativity and flexibility of some individuals in labor, business, and government led to compromise and gradual improvement. It was a complex and difficult effort, fraught with individual pain and incidents of violence. But as a result, working conditions improved immensely, the standard work day was reduced from 12 or even 16 hours to 8 hours, health and other benefits were extended to workers, and at the same time the prices of consumer goods continued to fall. In these ways the rewards of gains in productivity were shared by many. Meanwhile, the playing field for natural competitors was kept relatively level, and the increased costs were absorbed as part of the normal cost of doing business.

Recognizing today's technology-driven changes as another revolution, one might look to the examples of the past for a solution to today's problems. One might expect to see widespread worker dissatisfaction, a growing and strengthening labor movement, and a whole series of national laws and regulations designed to change, once again, the basic rules that businesses operate under, so the benefits of technology can be shared by greater numbers of people.

But such efforts are unlikely to improve the present situation because they are national in nature, while the economy is global. Just as the rise of the Industrial Revolution coincided with the growth of national economies, so the current technology-based revolution coincides with the growth of the global economy.

With instantaneous worldwide communication and interaction over computer networks, more and more businesses have to operate globally to survive. If any one country were to enact legislation intended to more equitably distribute wealth to its workers, its businesses would be unable to keep pace with foreign competitors.

Workers as well as businesses recognize the pressures of this global environment. They see that the prices of the goods they make must keep pace with those offered by competitors in Japan, Europe and elsewhere, and that the only way to do that is to reduce costs by further improvements in productivity, by restructuring and by downsizing. Fewer and fewer people have to do more and more for businesses simply to survive.

Is there any practical solution? Is there any end in sight?

It seems that just as the solution for the ills of the Industrial Revolution had to be worked out at the national level, the solution to our current ills will have to be worked out at the global level.

There is no easy answer. We can expect the current global competitive pressures to continue to intensify and to spread to more industries.

We can expect an era in which international politics and relations will have immediate impact on the individual worker and business.

And we can only hope that mechanisms for international cooperation and agreement evolve quickly and become effective in building the myriad of agreements that will be necessary to establish new and level playing fields for business in the global economy. Only such international cooperation will make possible the kind of widespread prosperity that visionaries have foreseen.  privacy statement