Tuesday, 16 August 2016 10:51

The Failed American Social Contract and the Betrayed Generation

by Manuel Rodriguez
Part I: The History of the American Social Contract and Why it Failed

The American Social Contract has failed, and with it the moral justification that generations of Americans accepted in order to educate themselves, marry, raise families, build businesses, retire and pass the torch to each successive generation of workers. The contract itself was deceptively simple and plain, but breathtaking in its sweep of moral, financial and cultural imperatives: the youth of our country were expected to reasonably educate themselves and prepare themselves for the responsibility of adulthood and their place in America’s economic engine, in return, the American workplace would provide a haven for these skills, successively greater pay and responsibility, and sufficient security and income with which to bankroll an early retirement.

This compact, though, has turned into a Faustian deal. No longer are successive waves of well-schooled young adults strutting into a secure world with nearly guaranteed jobs. They are being increasingly told there is no place for them at the table; instead, they’re on their own. Ill equipped to compete with each other let alone with their much older siblings, they feel betrayed.

In order to understand the failure of the American Social Contract, it is important to first understand how it came into being and became the driver for most of America’s post World War II economic expansion. After World War II had lifted the nation from the ravages of the Depression, it was this implicit contract that guaranteed the loyalty of successive generations of workers to corporate America. This bi-lateral understanding between the corporate aristocracy and the governed ensured a steady stream of educated and industrious workers eager to improve their lives over each preceding generation.

America, the only economic giant largely unscarred by the ravages of World War II, became the world’s financial and economic engine, driving much of the developed world’s innovation and manufacturing. America innovated, created, supplied and manufactured much of the economic output required by a post-industrial world-order, suffered from little overseas competition and assumed the mantle of technological giant and innovator.

Immigration into the United States also largely coincided with American economic prosperity and its voracious need for cheap labor. Prior to 1930 and the Great Depression, liberal immigration policy fueled America’s rapid industrialization. Between 1930 and 1950, however, America’s foreign-born population decreased from 14.2 to 10.3 million, or from 11.6 to 6.9 percent of the total population, according to the U.S. Census Bureau. Not coincidentally, this period also coincided with the Great Depression and World War II. From 1965 onward, though, American industry continued its ferocious expansion forward, and this growth required significant foreign labor to support it. Liberal immigration policies coupled with social upheaval and revolution throughout the world virtually guaranteed that portions of American industry would be re-populated with a foreign workforce.

This dominance, though, began to erode steadily over time, as nations nearly annihilated by World War II began to rebuild their ravaged economies. Slowly, Japan, China and Germany began to assert their economic prowess and began demanding ever-greater portions of this economic yield. As a result of their rapid re-industrialization following the war and the United States’ concurrent deindustrialization, in the 1970’s these countries began to assert manufacturing muscle on a scale previously unseen in the 1950’s and 1960’s.

Globalization, a concept nearly unheard of prior to the 1970’s, began to level the economic battleground throughout the world and shift American manufacturing to these recently rebuilt and repositioned countries. Competitive advantages and savings from lower-cost foreign jurisdictions began to progressively undermine and destroy America’s manufacturing heartland, leading to the eventual destruction of meaningful organized labor movements and unions. Currently, international trade treaties have effectively institutionalized this “race-to-the-bottom” paradigm among nations and international corporations, leaving even previously cheap manufacturing countries such as China and Mexico precariously expensive in the new world order.

For many countries, this entrenched race-to-the-bottom ethos has become the proverbial deal with the devil, as the death-spiral of replacing a more expensive manufacturing foreign jurisdiction with a cheaper one is virtually never-ending and impossible to stop once started. Outsourcing, globalization’s illegitimate cousin, similarly threatens professions and other data driven occupations that can be replicated and performed at lower cost in other foreign jurisdictions. Call centers, accounting and tax preparation, legal document review, engineering and research, medical review of x-rays and other medical films, IT development, management and implementation, are all merely a small representative slice of the myriad of occupations and processes which will be outsourced to cheaper foreign jurisdictions.

The last 20 years have also witnessed the proliferation of a variety of tools, technologies and mass manufacturing and distribution techniques that will, very soon, render vast swathes of jobs and occupations obsolete. The Internet and its related cloud computing progeny have completely eliminated entire categories of intermediaries, retailers, and caretakers that occupied the middle-tier in the logistical distribution network between the primary producer and the ultimate end-user. The aggregate impact of advanced data manipulation and analytic tools, robotic technologies and mass product distribution efficiencies will significantly disrupt the current logistical and distribution channels that dictate how products are ultimately manufactured and delivered to their end user.

Entire industries have been eliminated owing to science’s ability to compress vast archives of information into digitized packets of easily transferable data, including audio and video recordings and books. Indeed, moving forward, no industry will be immune to the seismic and immediate change occurring in ever-shorter product development cycles in these industries. Vast armies of robots powered by artificial intelligence have replaced factory floors once teeming with human workers. Financial data analysis, once the sole purview of highly pedigreed M.B.A’s, can now be performed by advanced programs that perform high-level data analytics and measurement. No category, job, profession, industry, product, or brick-and-mortar store is immune from these technological changes and the massive displacements that these new technologies will produce.

The ravages of untethered globalization and mass outsourcing of jobs have effectively destroyed the American heartland’s manufacturing base. This trend resulted from global political decisions to incentivize and allocate manufacturing to the cheapest jurisdiction available, and has effectively destroyed American manufacturing. Globalization could have been managed or delayed until its effects were properly understood, but international corporatism was loath to allow this. Severe technological innovation has also become a disruptive force for American workers, as these advances have effectively replaced the need for their services.

Coupled with these two trends, continued mass migration into the United States, while enabling the staffing of many jobs unwanted by Americans, will grievously impact entire industries, including infrastructure technology.American IT workers are being replaced and outsourced with overseas workers at less than 50% of their current compensation.

This dislocation will inexorably hasten the near-term death of the American Social Contract. Its imminent demise will have profound social implications and threatens to undermine the very fabric of our social institutions. These trends and their profoundly disconcerting outcomes are analyzed in Part II of the Failed American Social Contract.


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