Category Archives: Education Issues

#394 Post COVID-19 — How Do We Repurpose Fixed Assets and Human Capital? (Part 1)

21 Wednesday Oct 2020

Posted by in Economics, Education Issues, Gov't Policy, Societal Issues, Tech Tsunami, Uncategorized

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Readers: some of the dialogue in this blog is set in the future (sometime after the year 2020). Entries addressing events in the the future assume there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, ENTRY #387.  

Some of the entries are part of a series.  Several series are available as easy-to-read booklets for download:

Prelude to the current series of entries: I’ve concluded Trump is a lunatic and the administration filled with lapdogs save a couple of people at CDC.  Instead of wasting time commenting on actions by Trump, I thought it more productive to begin discussing what happens in the US once the coronavirus is more under control.  #378 began the series. At this point not sure how many entries.  Comments and suggestions welcome.

ENTRY #394: Note: Yikes, the craziness of the Trump administration has continued the last couple of weeks. Trump and a substantial portion at his staff contracted the COVID-19.  After a few days hospitalization at Walter Reed Army Medical Center, and after taking a host of unapproved drug cocktails plus some steroids, Trump claimed that he was feeling better than any time in the last 20 years.  Must have been a rough 20 years.

Then, in only Trump fashion, he claimed getting COVID-19 was a blessing from G_d. Of course, who else would G_d choose to save the world from this scourge? Mother Teresa? An epidemiologist? No, the Harvard/MIT grad, Trump. Well, maybe Trump didn’t go to Harvard or MIT but just ask and he’ll tell you he’s a stable genius and one of G_d’s favorites.

A bit of irony was part of Trump’s treatment at Walter Reed included cells obtained from an abortion. Where was the outrage from Trump and the far-right about stem cells from an abortion? Cat apparently got their tongue.

More seriously, and the focus of this entry is the major restructuring of the US economy that’s going to occur whether or not there is a vaccine or even cure for COVID-19. The US is faced with an economic upheaval that may rival what occurred during the first and second phases of the Industrial Revolution.

Industrial Revolution Phase I started in earnest around 1800 with the introduction of machines and devices that replaced handcrafting. These machines could complete a task in a fraction of the time and with higher precision than the work done by hand.  Phase I also benefited from the refinement of the steam engine, which allowed the engine to power such mobile devices as a locomotive.  The locomotive enabled the creation of a railroad network to deliver goods to more locations.  Steam-powered tractors used in agriculture resulted in significantly higher output per man-hour of labor.

What I’ve labeled as Phase II of the Industrial Revolution started about 1900.  Two major breakthroughs: (i) introduction of the internal-combustion engine, which was smaller and lighter than a comparable output steam engine, and (ii) standardization of parts. Standardizing parts, originally developed by the rifle manufacturing industry for easy replacement in the field, was later adopted by manufacturers of transportation – automobiles, locomotives and aircraft.  Standardization enabled the use of assembly lines, which lowered labor cost per unit and increased quality.

Phase II also resulted in workers shifting from agriculture to manufacturing jobs.  The shift required workers to have a different set of skills, although for most workers skills required for jobs in manufacturing were limited and could be learned on the job. 

The vast majority of manufacturing companies, especially automotive, were based in the Northeast and Midwest, both of which experienced a major influx of immigrants and southern blacks leaving the farm.  While the manufacturing companies made enormous profits, hourly workers were not well paid until the companies faced work stoppages as the UAW and other unions gained membership.  Following WWII the economy steadily improved and wages for factory workers increased to the point that many enjoyed what could be called a “middle-class lifestyle.”

The plethora of well-paying manufacturing jobs began to erode in the 1980’s with the introduction of: (i) companies shifting production of goods to plants outside the US; (ii) robotics and somewhat later, artificial intelligence-based programs.

Rather than the disruption being caused by a change in required job skills, as seen in Phases I and Phase II of the Industrial Revolution, jobs were shifted outside the US due, in part, to: (i) US tax laws on corporations, which ended up favoring job shifts rather than penalizing job shifts; (ii) erroneous analysis of costs by the employer.  Shifting jobs outside the US accelerated further in the 1990s and by the early 2000s, a substantial number of manufacturing jobs had been shifted outside the US.

The analysis of costs justifying the shift to plants outside the US often focused primarily on labor costs per unit rather than a more holistic approach that accounted for all costs associated with manufacturing.  High labor costs were blamed on union contracts and therefore the only way to keep costs down was to move jobs to a different location.  But were labor costs really too high? 

Following is an example I experienced personally.  While the story is a data point of one, my experience is the thinking of the Board was fairly typical among many companies, large and small. 

One of my jobs post GM was running a company in northern California that assembled electric scooters.  When I took the job the Board said to shift assembly out of northern California (Sonoma County) to China, where labor costs were much lower.  I resisted and within seven months we had increased productivity (with virtually no capital expenditures) to a level where we could double the labor costs in California and pay the Chinese workers zero and it would have been cheaper to continue to produce in California.  Why?  When all related costs were considered, producing in Northern California – in the middle of wine country, no less – was cheaper.  Such a holistic approach to calculating costs apparently was not considered by many companies. 

In addition to being affected by jobs shifting elsewhere, many assembly and other semi-skilled workers in the US are facing another growing threat — robots. The increased use of robotics and AI represents a fundamental shift in how goods are designed, manufactured, assembled and processed for shipment.  The shipment of these goods to the buyer’s location is going to be disrupted as autonomous vehicles migrate from testbed demonstrations to daily use.    

As if implementation of technology were not enough of a formidable threat, these workers face yet another threat caused by COVID-19. To control the spread of the virus, many employers mandated that staff work from home. COVID-19 restrictions also forced many businesses to close, at least temporarily, although more and more businesses are closing permanently.

Within the service sector, the great unknown is to what degree travel and entertainment and supporting businesses will be changed post-COVID-19.  By the time the threat of the virus subsides, will a substantial portion of the population have become less interested in traveling on crowded airplanes, sailing on petri-dish-like cruise ships with hundreds of others, eating in crowded restaurants, or attending sporting events with tens of thousands of others? 

If so, then many assets supporting travel and entertainment will become obsolete – airplanes, hotels, restaurants, theme parks, cruise ships, large athletic stadia, etc.  Some of the buildings can be repurposed but what does one do with a surplus jet liner, cruise ship or football stadium? 

In the retail sector, the shift toward on-line shopping in not new.  For several decades, the brick-and-mortar retail sector has been facing disruption.  The shift toward internet sales, both personal and business, started to take hold in the late 1990s, early 2000s. While some of the shift to internet sales replaced transactions previously completed using 800#’s, most of the shift has been new.    

Restrictions associated with COVID-19 have been like a rocket ship propelling the shift forward.  In a manner of months, forced isolation may have accelerated on-line shopping patterns an amount that otherwise would have taken 10-20 years to achieve.  The shift to the internet and the number of store closings generate the question, “What to do with all the empty retail space?” 

Thus, any plan to stimulate the economy post-COVID-19 needs to address job creation as well as how to repurpose many assets associated with the service sector.  One assumption seems certain – the mix of output in US economy will be different post-COVID-19 than pre-COVID-19.  Making America great again will not be looking in the rear-view mirror and trying to recapture what once was.  The Pre-COVID economy and valuation of assets is as long gone as Wally and the Beaver.    

The US, and many countries worldwide, will have a blob of dislocated assets that have little or no value in their current configuration. Repurposing some of the fixed assets could be fairly straightforward.  Office buildings, shopping centers, many factories could be converted into housing, assisted living facilities and schools.  Converting shopping centers to housing seems ideal to help address the shortage of affordable housing in many cities. 

What do we do with surplus airplanes and cruise ships?  Beyond scrap metal, there’s not much use.  What about surplus infrastructure supporting the air-travel industry?  Some surplus airfields could become ideal recreation centers.  Or, the airfield could be reforested to support wildlife and help address global warming. 

The more difficult problem is how to repurpose human capital.  Without significant training, how do you take someone who was in a semi-skilled job – say an assembly plant or sewing clothing – and have the person perform in a job requiring a more advanced skill set?  How does society repurpose service workers, especially those in travel-related Industries? 

Even many semi-skilled, white-collar workers will be displaced post-COVID-19.  As organizations adjust to more remote working, some middle management jobs likely will be eliminated.

Repurposing the human assets is a daunting task for government and organizations.  In terms of required job skills, Phase III of the Industrial Revolution will be the opposite of Phases I and Phase II.  In Phases I/II new jobs often required less skill, or a skill that was relatively easy to learn on the job. 

Phase III job skills will be more advanced.  Robots and AI-based machines can replace many existing lower-skilled jobs.  OJT will be very difficult.  An example.  There is a company in Fort Wayne, IN that makes exhaust systems for many auto OEM’s.  The plant runs 24×7.  Despite the high output, the plant has few employees.

At first glance, bending pipe a few ways for an exhaust system seems simple enough.  However, the exhaust system might be different for the same model car/truck with a different engine.  Plus there are at least three different auto OEM’s serviced by this plant, which complicates production schedules. 

Bending pipe is a bit more complicated than it seems.  When pipe is bent, one side becomes thinner and the other side of the bend tends to crinkle. 

The Fort Wayne company’s solution to pipe bending and complicated production schedules is a highly automated process to bend the pipe and to change configurations automatically.  Most workers at the plant are skilled in computer programming.  There are no manual “pipe benders.”  The only non-skilled jobs are the lift-truck operators moving raw material to the beginning of and off the end of the line.  In a few years, the lift-truck operators could be replaced by autonomous lift trucks. 

For the US, post-COVID-19 the training of unemployed workers for new skills will be more difficult than repurposing fixed assets.  How do we approach solving this problem? More thoughts in the next entry.  For some guidance, see the existing write-up titled “Technology Tsunami.” (https://usrevolution5.files.wordpress.com/2020/01/tech-tsunami-booklet-with-supplement-1.pdf)

#390: Bring in the Repair Crew to Fix Trump’s Damage (#12 in Series)

23 Sunday Aug 2020

Posted by in Causes of the Revolution, Education Issues, Gov't Policy, Post Trump Presidency, Societal Issues

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Readers: some of the dialogue in this blog is set in the future (sometime after the year 2020). Entries addressing events in the The future assume there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, ENTRY #387.  

Some of the entries are part of a series.  Several series are available as easy-to-read booklets for download:

Prelude to the current series of entries: I’ve concluded Trump is a lunatic and the administration filled with lapdogs save a couple of people at CDC.  Instead of wasting time commenting on actions by Trump, I thought it more productive to begin discussing what happens in the US once the coronavirus is more under control.  #378 began the series. At this point not sure how many entries.  Comments and suggestions welcome.

ENTRY #390:  One of the more positive events the last couple of weeks was Snoopy’s birthday. Yes, that Snoopy.  You know the great philosopher whose many friends and admirers include Lucy, Woodstock and Linus.

More seriously, the past weeks have been mind-wrecking. Coronavirus aside, Congressional Senate Republicans have all but disappeared from the landscape. Based on different credible news sources, no Republicans in the Senate, especially Mitch McConnell, were involved in the now stalled negotiations to extend government support for those whose economic well-being has been hit hard by Covid-19.

Trump became the de facto Republican negotiator. The outcome was no surprise.  Trump has proved repeatedly – in private and public life – to be one of the world’s worst negotiators. He maintained that pattern during these negotiations.

Always wanting someone to blame rather than working with someone to solve a problem, Trump and his brain-dead band of Munchkins refused to cut a deal with house Democrats.  Trump claimed the Democrats were at fault even though the House passed phase two of an economic recovery package in May.

McConnell, who may star in the sequel to “Dr. No,” refused to have any hearings on the House-passed bill or participate in negotiations.  Ah, isn’t it wonderful to play the fiddle while Rome burns?  Dilbert recently coined a new Covid-19 phrase that could be applied to McConnell’s behavior, “What a maskhole!”

So as McConnell fiddled instead of negotiating, Trump again declared himself king.  This time the self-declared king signed several half-baked Executive Orders that will do nothing to help those in need but seemingly will reinforce Trump’s image with his base as “solving the economic recovery problem.”  If his base only understood as much about economics as most 4th graders understand.

One half-baked Executive Order of his was to suspend Social Security withholding tax.  First, people who are working are not the bulk of the problem.  People who aren’t working or working very little need economic assistance. At least those working have an income.  Second, the withholding tax was to be “suspended” not eliminated.

As president, Trump has no power to change the tax law, especially with an Executive Order. So what does a “suspended withholding tax” mean? The money that should have been withheld from paychecks needs to be repaid. Thus, Trump’s Executive Order gave workers an opportunity to loan themselves money that they must repay.  Let me repeat, if his base only understood as much about economics as most 4th graders understand…

Suspending withholding tax seems fair, right? Mmm, maybe not.  Let’s see, workers get a loan they must repay while business owners get a loan from the federal government to pay workers and use for other expenses, but that loan doesn’t have to be repaid.  No such gift for the workers.

If you completed a survey of how many Trump supporters understood how Trump’s Executive Order really affected them, I’ll bet the total would be less than 5%. Why they continue to support actions by Trump that are not in their economic best interest is beyond me.

Trump’s nonsensical behavior and the abdication by Republican Senators of any responsibility to help the public does not bode well for the US post- 2020 election.  A Trump re-election would likely result in ever more dictatorial tirades. Some of his claims of late, as one reporter noted wryly, would make North Korea’s Kim Jung-un blush with embarrassment.  Attorney General Bill Barr seems equally bent on promoting an authoritarian-led Trump regime.

If Trump is re-elected and Republicans hold the Senate, another US civil war seems certain.  Yes, civil war with armed conflicts and attacks on segments of society deemed to be “Never Trumpers.”

If Biden wins, he and Kamala Harris will have an incredibly tough road ahead, even if the Democrats win back the Senate. The damage done by Trump, Barr, Pompeo and their cronies can be repaired, but…

Think of how long it takes to repair something – house, car, relationship – compared to the time it takes to cause the damage. What’s the time difference between time to break and time to repair? To repair takes probably ten times as long, or longer.

So, if Trump is re-elected and the US experiences a severe Revenge Revolution, or if Biden is elected and the US experiences a mild Revenge Revolution, the country is going to face a decade or possibly two decades before the damage from Trump can be repaired.  Repairing damage to some international relationships could take even longer.

Compounding the repair efforts will be demands to address societal issues caused by racism.  Effectively addressing issues caused by racism may be more complex than repairing Trump-related damage.

People who think some government actions or more laws will make racism disappear are being foolhardy. Racism, and not just racism directed at blacks, has been around for thousands of years.  For centuries, people outside one’s circle – immediate family, local community, ethnic background, religion, etc. – have viewed others with suspicion and often discriminated against them. No law is going to change such attitudes.

The demands that something be done right now to address issues caused by racism are understandable but very likely those demands will divert time and valuable financial resources from the effort to repair the economy, educational system, political system, infrastructure and other critical items which need to be repaired now.  In fact, one could argue rationally that without significant progress in repairing the Trump-caused damage, efforts to address racism will be for naught, and could even backfire.

The best solution for minorities to address the effects of racism, seems to be as it has always been for minorities – education, Education when supported by one’s community begets economic opportunity.  Consider the recommended approach racist if you want.

My view is members of the black community need to take the initiative to help one another.  The Black Lives Matter and other movements would do well to study the pattern of how every other ethnic group that migrated out of poverty.

There are many wealthy blacks who can support such an effort, from athletes to entertainers to business people. We need fair and equal enforcement of the law for sure.  But, it is also time for blacks to look in the mirror and begin to take charge of their destiny.

Significant progress might take two or even three generations. A journey of a 1,000 miles begins with one step.

As far as demands for reparations, my view is be careful what you ask for and especially be careful of what you demand.  Reparations might make some people feel better in the short terms.  Keep in mind reparations are a superficial solution that does not solve the underlying problem. A good sense check for reparation would be to research the lives of lottery winners for say 5-6 years following their so-called lucky day.

Real change takes time.  Real change takes commitment to change.  Real change takes hard work.  Respect must be earned.  Respect cannot be legislated.

Next time: discussion of actions to address climate change post-Revenge Revolution.

#380: Shopping Centers — Surplus to Stimulating (“We Gotta Get Out…” #3)

03 Sunday May 2020

Posted by in Affordable Solutions, Common Sense Policies, Education Issues, Innovative Thinking: Ideas and Products, Societal Issues, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #365.  

Some of the entries are part of a series.  Several series are available as easy-to-read booklets for download:

Prelude: I’ve concluded Trump is a lunatic and the administration filled with lapdogs save a couple of people at CDC.  Instead of wasting time commenting on actions by Trump, I thought it more productive to begin discussing what happens in the US once the coronavirus is more under control.  #378 began the series. At this point not sure how many entries.  Comments and suggestions welcome.

ENTRY #380: If one believes COVID-19 will trigger some changes in societal behavior, then what behavior might be disrupted permanently after the immediate threat has dissipated? Last week’s entry discussed how the general public likely will demand more affordable or government-provided healthcare coverage.

This week’s entry addresses how shopping patterns might continue to be affected and the implications of major changes. The “stay-at-home” mandates during early months of COVID-19 accelerated the use of on-line shopping.

While some brick-and-mortar stores were able to generate on-line business for delivery or store-side pickup, many shoppers shifted to such on-line stores as Amazon. The shift affected food shopping as well. Even though most grocery stores remained open, many people ordered on line with curbside delivery at the store or home delivery.

The big unknown is whether consumer shopping behavior has been altered permanently. If it has, how will such behavioral change affect attitudes toward participating in such other large-crowd activities as football games, concerts, restaurants, even religious services? If people are satisfied to watch sporting events at home on large-screen TVs, to shop on-line, to have food delivered, to live-stream religious services on the same large-screen TV, then what happens to the physical structures supporting large-crowd activities?

For the businesses/organizations associated with these activities, what happens to the value of the real estate or the value of the franchise, whether the organization is a chain restaurant, retail outlet, or religious institution? (Interesting, the value of a sports franchise may be less affected since much of the value is not based on the number of fans attending an event but the advertising revenue associated with the media broadcast of the event.)

If the value of the real estate falls, then what should be done with the property? Let’s start with the most obvious real estate – shopping centers. As suburbs were developed following WWII, shopping centers became the de facto downtown for the suburbs. Just as the value of real estate in many downtowns declined as shopping centers proliferated, the value of shopping centers has declined as on-line shopping has proliferated.

Without having any hard data, the United States likely has at least two times the number of shopping centers needed. Some of the surplus shopping centers are large-footprint centers with multi-anchor stores and some more neighborhood centers and/or strip malls. Most larger centers also have a number of big-box stores on the periphery, which are also not needed.

What should be done with these surplus shopping centers and big-box stores? Converting the real estate to office space has been an option. However, following the coronavirus the US may end up with too many office buildings as well. As people were forced to work from home, and the implementation of technology was accelerated, many companies began to rethink requirements for (i) office space; (ii) employees on staff. The result of this rethinking is likely to be fewer office buildings and smaller staffs. (For more information about the impact on employment of the implementing more technology, download Tech Tsunami Booklet with Supplement).

If office space is not needed, then what could be done with these shopping centers? Why not address a national need and convert the shopping center to affordable housing? The coronavirus pointed out the irony that many workers deemed “essential” were also lower-paid workers. Converting shopping centers to affordable housing for these workers also would allow them to live closer to public transportation, which usually is available in larger shopping centers.

The shopping centers could be reconfigured to become true neighborhoods. Many shopping centers have large areas devoted to parking that could be converted to playgrounds, small parks, even neighborhood sports fields. Many centers are ringed with restaurants, dry cleaners, drugstores, etc., which could stay in place following redevelopment. With some creative planning, neighborhood schools could be built as part of the conversion. (School nicknames could incorporate the name of the former shopping center – the Carolinaplace Cougars or the SouthPark Sentinels. Just kidding.)

As a centerpiece of the neighborhood, the schools could be designed with classrooms for the traditional “3 R’s” education, as well as classrooms for introduction to sciences and the arts.

Neighborhood schools would reduce the need for and the inconvenience and cost of busing. Neighborhood schools would encourage children to participate in after-hours extra-curricular activities as well as be available, if needed, for remedial classes. Such here-and-now remedial classes would help students keep pace.

The proximity of the school near students’ homes would reduce the need for parents to spend money on expensive babysitting. Building design could include rooms adaptable for adult education and/or neighborhood meetings.

To help address the problem of limited access to healthcare faced by many lower-paid workers, the redeveloped shopping center could include a neighborhood clinic with office hours tied to non-working hours of neighborhood families. Clinics would serve basic needs, including physicals for children and adults and would be linked electronically to larger medical facilities. Such “preventive medicine” would reduce visits to ER.

Next week. More on post-coronavirus impact on societal behavior, including how religious institutions might be affected. Could some churches, synagogues and mosques suffer the same fate as many big-box stores?

#362. Trying to Understand Trump Supporters

08 Sunday Dec 2019

Posted by in Causes of the Revolution, Education Issues, Societal Issues, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  An update coming later in December.

In the previous entry I committed to try and understand why people continue to support Trump. What is particularly puzzling is support for Trump by people whose core values are polar opposite of Trump’s behavior. Why would one make such a decision?

Because a discussion about Trump can be so emotional, I thought it better to first have a couple of “experimental conversations.” Also, and maybe somewhat selfishly, I thought the experimental conversations should be with people who are really more acquaintances than close personal friends. Thus, if the experiment went bad, then the consequence of alienating each other would not be damage to a close personal relationship.

Two candidates for the experimental conversations immediately came to mind. #1 was someone from high school with whom I’ve had no contact since other than on Facebook. #2 was a second-generation immigrant with whom I had a working relationship a couple of years ago.

When considering the candidates, I understand somewhat why the one from high school might be a Trump supporter. Why the second-generation immigrant supports Trump makes no sense. Why would he ever support Trump? He’s Hispanic, grew up in south Texas near the border. Obviously, I’m missing something in his logic stream.

A key open issue with the research is the venue for the dialogue. Each venue has benefits and drawbacks. Facebook is easy to use but uncontrollable. The conversation between us could be interrupted by a myriad of friends of the participants or of mine.

Email might be okay to introduce the idea and present a few questions, but nuances and subtleties are nearly impossible in email. Plus, the time lag with back-and-forth emails would break the rhythm of the conversation. Texting would be faster but, as with email, nuance remains nearly impossible.

So the plan? Use old technology. The initial contact with the candidates will be email. The email will discuss the experiment and ask about participating. If yes, then set a time for a call to begin the conversation.

Given the sensitivity of the topic, one of the guidelines will likely be that the candidate can stop the interview at any time, but with the commitment that within a few days, we would try to talk again. If the second call goes south, okay. The experiment with that person fails. Not to be discouraged, lots of experiments fail. Also, like experiments one should make every effort to understand what went wrong, and not just point fingers at the other person.

After a couple of experiments the idea is to talk to more Trump supporters, trying to understand their perspective. “Why waste your time?” has been a frequent comment from people I’ve discussed the idea with. The conversation usually also includes, “Trump supporters will never change.”

The naysayers are probably right. But the curiosity in me is compelling. Maybe, just maybe, there’s an underlying issue creating support for Trump that can be addressed with a solution that is good for society at large and addressed without Trump’s usual bombastic and hurtful approach.

At the worst, the experiment should become good conversation at cocktail parties and family gatherings. Rather than yelling at one another, talking about the experiment might allow different camps to have civil discourse. You never know.

So, I’m off to pursue my naive experiment. I’m going to try and start this week. Probably won’t have any results for a couple of weeks, but I will post them in the blog.

If you have an idea about how to approach understanding why people with a polar opposite set of values than Trump still support Trump, please let me know. Or, if you have a question or two you’d like to have answered, please forward as well. Thanks. All for now.

#346 GM Electric Vehicle (EV1) — the Story behind the Story (Part 1)

05 Monday Aug 2019

Posted by in Corporate Policy, Education Issues, General Motors

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[Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.]  

The previous three (3) entries were about my personal experiences with Lee Iacocca, who many consider one of the most effective corporate executives of the 20th Century. I decided to continue the break from the craziness in Washington and discuss another part of my life that continues to generate considerable interest — The GM EV1, the first modern electric vehicle. (if you want to read all five entries as an ebook, download 2019Q4 GM EV-1 Story Behind the Story Booklet.)

There are two sides to the story — product and non-product.  The product side is reasonably well documented.  The non-product side story is far from complete, and what’s been told so far I think is misleading.  The next x number of entries — I actually do not know how many — will be an attempt to provide addition insight.  Stick around.  The series will be a good diversion and offer a good lesson, I hope.

More than 25 years ago, GM presented to the public the first modern electric car. The car generated widespread interest worldwide and helped boost GM’s image. Despite the positives associated with the car, GM management never seemed to endorse the program. After very limited production by auto company standards, GM pulled the plug. People frequently ask me, “Why was the program stopped?” “What could have been done differently so GM management would have kept the program?” “Did GM killing the EV1 set back development of electric vehicles for a decade or more?”

The questions and discussions about electric vehicles range from informal over drinks and dinner to Q&A following classroom lectures to interviews as part of formal research for a book or academic paper. For example, recently I was contacted by a professor doing research on electric vehicles. He’s been researching EV’s for a number of years and contacted me for more possible insight into the late GM EV1 program.

After two lengthy Skype calls, and roughly a day I spent filling in holes in such public information as Wikipedia, his comment was, “I’ve never heard anyone talk about what you said.” Just to calm the EV1 crowd, no confidential information was provided or discussed.

The focus on the “untold story” was the dynamic inside GM that I considered the primary reason GM management never fully supported the EV1. As will be described in this series of entries, my belief – the underlying reason for stopping the program had little to do with GM’s public claim of lack of demand and excessive cost. True that GM had limited cash but, as will be described herein, much of the cash shortage was self-induced.

As a bit more background, most companies struggle with introducing new technology. Such struggles are well-documented. Two books address the phenomenon of the internal struggles. If you’re interested in learning more, start with Jim Utterback’s, “Mastering the Dynamics of Innovation.” You’ll be shocked at how many companies tried to introduce a threatening disruptive technology but were unable to do so. To help understand more about why the difficulty, read Clay Christensen’s, “The Innovator’s Dilemma.” The books have been around a while but I think still relevant and certainly will help build an understanding of the difficulties of transitioning a company from an existing to a new, disruptive technology that without adoption could put the existing company out of business.

Before getting into the internal dynamics at GM, let’s clear up one gigantic misconception about why the GM EV1, and other electric vehicle models were not pursued. Despite implications in the movie “Who Killed the Electric Car?” from all that I know and experienced – and that was a lot – there was no conspiracy! There was no sinister backroom plot to kill EV’s. Yes, auto companies were frustrated with CARB’s (California Air Resources Board) zero-emission vehicle mandate.

And, yes, oil companies have repeatedly tried to thwart any regulation or legislation that reduces access to drilling, no matter what the cost to society or the environment. But neither of those killed the electric car.

What did kill the EV1 was dynamics inside GM. The dynamics are rarely, if ever, discussed. To understand how the dynamics evolved we need to review actions inside GM during the decade leading up to the introduction of the EV1 concept car. For many inside GM, those 10 years could have been titled “The Decade of Sour Grapes.”

I apologize for the length of this explanation. I still don’t know how many entries might be required to explain properly what occurred inside General Motors and why there was such resistance among so many executives to the EV1 program. Whatever the number of entries, I hope you find these entries enlightening and hope the decision to kill the EV1 becomes more understandable. You might not like the decision, and I certainly did not, but I think it will be more understandable following this series.

In 1980, the position of GM chairman transferred from Thomas A. Murphy to Roger B Smith. Murphy and Smith were polar opposites. Tom Murphy might as well have been the quintessential CEO from central casting. He was well spoken, self-confident, witty, kind and considerate. Smith, his successor, was short, insecure and had a ruddy complexion, squeaky voice and a tyrannical personality.

After Murphy retired I often thought if you could sit down with him, ask him what decision he considered his biggest mistake as chairman, after a couple of drinks he might say appointing Roger Smith as CEO/chairman. After a few years into Smith’s reign, I decided Murphy wouldn’t need a couple of drinks to admit the mistake. A cup of coffee would do.

One of the keys to success for OEM’s in the auto industry — GM, Honda, Daimler, Ford, etc. — is keeping products up-to-date, including significant styling updates. Keeping products fresh requires enormous amounts of cash. Without product updates, sales decline and the amount of cash available usually declines even faster. Further the effect of the decline can take years, if not a decade or two to turn around.

As obvious as the sales to cash generation relationship might seem, Smith took a different view. He believed sales and market share were less important than profit per car. Profit per car is important but without sales, all the fixed cost inherent in the auto industry gets spread over fewer units and the additional cost per unit starts to eat away at even the most profitable car lines. As the sale decline continues the company can be overwhelmed with red ink.

Inside GM the car divisions were profit drivers. Virtually all cash generated within GM was associated with sales of cars and trucks. While some individual product lines were marginally profitable, those product lines helped spread the enormous overhead cost.

Forcing each carline to be profitable also limited the car division’s opportunity to offer competitive products to counter the ever increasing number of imports, particularly from Asia.  The goal of the imports was to gain market share and many modals very attractively priced.  The Asian companies took a much longer view and were willing to subsidize certain models sold in the US with profits from carlines sold elsewhere.

Smith’s time horizon was much shorter and the emphasis on profit per car/truck, rather than overall profit, had a devastating effect. For reference, think about a grocery store. In order to attract people to shop, the store has “loss leaders.” If the store stops offering such loss leaders, what happens? Profit margins might increase but overall profit will likely decrease as people begin to shop elsewhere. And this is what happened to General Motors in the 1980’s under Smith’s strategy of emphasis on profit-per-car/truck rather than sales. People stopped coming in GM dealerships and started shopping elsewhere.

How bad was the strategy? Over the decade of the 1980’s GM market share of all cars/light-trucks sold in the US declined from roughly 45% to 35% — a relative decline of about 25%. What did that mean in terms of unit sales? During the 1980’s, the US averaged about 13-15 million cars and light-duty trucks per year. The 10 points lost by GM (45% to 35%) equated to sales of 1.3-1.5 million cars and trucks per year.

What did that mean for employment? 1.3-1.5 million cars and trucks per year equates to roughly five (5) assembly plants. Thus, Smith’s strategy resulted in unemployment for everyone who worked at those five assembly plants and unemployment for thousands more at GM suppliers. In addition GM made huge cuts in white-collar staff. (Yes, I understand there is another discussion that needs to take place about which auto companies gained share that GM lost. However, that conversation is not relevant to the dynamics inside GM that affected the EV1 program.)

Did GM profit improve under Smith’s strategy? In terms of earnings, if each car averaged say $2,000 variable profit (a reasonable estimate), then GM lost market share during the 1980’s reduced potential GM earnings over the 10-year period by at least $15-$20 billion. (Roughly $30-$40 billion in $2019.) In addition, GM profit margin declined as did overall profits. If you were the teacher grading Smith’s performance, a grade of “D-“would be extremely generous.

In addition to a strategy that generated lower profits and less cash, Smith directed GM to purchase Hughes Electronics, to purchase Electronic Data Systems (EDS) and to start the Saturn division. Where did the cash come from for these ventures? Funds from an ever smaller piggy bank that should have been allocated to help car and truck divisions maintain competitiveness were instead diverted to Smith’s various projects. As such, the divisions — Chevrolet, Buick and others — had even less money to update new products and less money for marketing. Of the GM car and truck divisions, only Buick managed to maintain market share during Smith’s reign.

The purchase of EDS created another problem. With the purchase of EDS, Ross Perot became GM’s largest single shareholder. Perot asked many thorny questions during the GM board meetings which irritated Smith. Perot irritated Smith so much he ordered GM to buy back all of Perot’s stock — for $750,000,000. (About $1.5 billion $2019.)

Where did the $750 million cash come from to repurchase Perot’s stock? Again, funds diverted from the car divisions that should have been used for product development and marketing.

Another major diversion of cash went to the creation of Saturn division. Smith created Saturn because he believed the existing car divisions were incapable of attracting younger buyers. Smith’s attitude angered many senior executives at the car divisions.

To make a bad situation worse, Smith insisted Saturn should be set up as a completely separate car company, even to the point where Saturn had a separate foundry to cast engine blocks. Such vertical integration was ridiculous. No one, and I mean no one, cares which supplier casts a particular engine block as long as it meets quality standards.

In addition to diverting funds to set up Saturn as an operating unit, Saturn never made money. The longer Saturn stayed in business the more the other car/truck divisions suffered as funds were diverted from product development and marketing programs to prop up Saturn. (Although not a topic of this set of entries, Smith’s negative impact on GM did not stop when he left office. The decline in GM share became almost impossible to stop because the product competitiveness of the divisions had fallen so far behind. In my view, GM’s eventual bankruptcy should be attributed directly to Smith.)

Hope you’re beginning to get an understanding of frustration among executives at the car and truck divisions. Hard to believe, I know, but there’s more background we need to cover. You mean like why Smith cast aside the organizational structure that had made GM hugely profitable for decades? Yes. And when the reorganization happened Alfred P. Sloan likely rolled over in his grave…and rightfully so. Time to pause for now.

 

#338 The Human Toll of the Coming Technology Tsunami – Example, Lordstown, OH Plant

01 Saturday Jun 2019

Posted by in Causes of the Revolution, Education Issues, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.  

One of the contributing factors to the Revenge Revolution will be a technology tsunami, which I believe is rapidly headed toward US shores.  Fifteen recent entries addressed various aspects how the tech tsunami might: (i) affect the US economy and family incomes; (ii) be mitigated by taking certain actions.  The series of entries is available as an eBook. This entry is an supplement to the booklet and now included with the booklet.  (Download: 19 06 01 Tech Tsunami Booklet with Supplement)

The impact of the technology tsunami can easily be viewed as an abstract concept, especially if one is not affected directly. For example, you read an article about technology replacing someone’s job. Then the person replaced finds another job, which is fairly easy in today’s labor market. Reader thinks, “What’s the net effect on the person whose original job was replaced by technology? Zero. What’s the net effect on the unemployment rate? Zero. Time to move on to the next article.”

But, hold on, there’s more to this story. What prompted this blog entry was an article in the New York Times about a family whose members had worked at the GM Lordstown, OH plant almost from the opening day of the facility.

The Lordstown plant was built in the mid-1960s, but over the years GM continued to invest and upgrade the facility. What resulted from investments in Lordstown and other plants throughout North America was increased potential capacity with lower labor content per car/truck produced. Thus, more output with fewer employees. (As I wrote in late 2018, although I had no first-hand information, based on my experience inside GM, closing Lordstown, and other plants in North America, seemed justified.)

What happens to workers when a GM plant closes? Depending upon an individual’s seniority and the number of jobs available at other facilities, some laid-off employees might be eligible to transfer to another GM plant. Some laid-off workers at Lordstown met the criteria and have transferred.

What about workers who aren’t eligible to transfer or who don’t want to transfer, which often involves relocation? Some training is available for other types of jobs, which are usually non-automotive and often at lower pay. In addition, some laid-off workers, again depending upon seniority, receive from GM supplemental unemployment benefits for a limited period.

Back to the family featured in the NYT article. If you haven’t read the article, it’s worth a read. (19 05 28 NYT Lordstown Shutdown Employee Impact Examples ) The short version is the father gets out of the military, goes to work at the Lordstown plant soon after it opens. Over time the father becomes a representative of the union. The son, born after the father starts at Lordstown, doesn’t study much in school but is confident he will get a job at the plant, primarily because of his father‘s position with the union.

After completing high school, the son is hired and one of his jobs is prepping cars before final painting. Painting is an areas where the auto industry has installed as much technology as possible over the years to improve the quality and consistency of the finish. The implementation of technology in the paint shop has dramatically reduced employment. At Lordstown plant the number of employees declined from 38 to 4, a decrease of almost 90%. While the decrease in employment in the paint shop is at the high-end, substantial declines in employment from technology have affected body welding, engine machining and other high-precision areas with high labor content.

At the time of closing, the son had worked at Lordstown for 25 years. While no specific age was cited in the article, the son is probably in his mid to late 40s. With his years of service, he’ll be eligible for a modest pension from GM. However, he has at least 20-25 years left before being eligible for Social Security and Medicare.

Where does the son find another middle-class paying job given his limited education and skill level? Another job in the auto industry unless he relocates to another GM plant. Even if he finds an auto job, he runs a high risk of losing it given the continuous implementation of labor-saving technology by the auto companies and suppliers.

The extent of how many jobs in the auto industries (and other industries) are being eliminated by technology goes far beyond the assembly plant, which most people think of. In an earlier blog entry I mentioned an auto supplier in Fort Wayne, IN that bends tubing to make exhaust systems for cars and trucks for many auto OEM’s. If you don’t think there are lots of twists and turns in your vehicle’s exhaust system, next time you see a car or truck up on a service rack, go take a look underneath.

The process of bending tubing might seem straightforward (no pun intended) until one thinks about what happens when a tube is bent. The metal on the “outside” of the bend becomes thinner and the metal on the “inside” of the bend wants to “crinkle.” Bending tubing can be much more complicated than it first appears.

The company that bends the tubes is a perfect example of the impact on employment of the coming technology tsunami. The company incorporates an extraordinary amount of high technology, with a plethora of very sophisticated machines…and very few people staffing those machines. The parking lot of the company is the tell-tale sign of the technology tsunami. The company operates 24×7 with significant daily output, yet has a small parking lot that even during the day when office staff is working, has plenty of empty parking spaces for visitors.

Is this just a story about how one family was affected by a GM plant closing or are there broader implications? If the attitude of the now unemployed son is at all representative, then US society has a growing problem. While the son apparently has not yet come to grips with the long-term implications of the layoff, he is searching for answers to “Why is this happening to me?” “Why, after 25 years of working at this facility, am I getting screwed?”

He’s very frustrated and believes that people in Washington “just don’t get it.” The frustration includes Trump, whom he voted for in 2016, and members of both parties. He’s also frustrated with large corporations, which he thinks suffer no penalty for shuttering plants and relocating operations to say Mexico.

The frustration and anger of the son is understandable. While from a business perspective I think GM is more than justified in closing the Lordstown plant, especially given some of labor problems over the years, the business justification does not eliminate the economic and social issues facing the laid-off workers.

We, as I keep suggesting is the proverbial societal we, need to help this family transition from pissed-off members of society to being productive workers in an ever-increasing technology-laden workplace. As it stands now, even with a small pension and some additional benefits, the son is the kind of guy who is ripe to be part of a Revenge Revolution. For those not familiar with northern Ohio, almost guaranteed he’s got a deer rifle or two and a bunch of ammo. Now, he’s out of a job, has shrinking income, thinks politicians don’t understand the problem, and thinks large corporations are exploiting people and communities. Not a good combination.  (The son is much like the character “Sandy” who appears periodically in the blog entries.)

Without some serious societal effort, the ranks of this group are going to grow. Making America great again does not involve trying to reintroduce high-labor content products or industries from decades past. The implementation of technology to replace humans is going to continue. All types of jobs and skill levels will be affected, from manufacturing to legal to medical. Without a national plan to begin lifetime education for people of all ages, from 6 to 66 (and older), the US is going to face a growing segment of the population which is extremely angry and poses a growing threat to a stable democracy.

Reminder: For more about how the technology tsunami might affect the US economy and culture, and ideas to help mitigate the effects, there’s a free ebook waiting for your download. The book is a compilation of this entry and 15 earlier blog entries about the technology tsunami. Comments welcome. (Download, 19 06 01 Tech Tsunami Booklet with Supplement)

#335 Curiouser and Curiouser

13 Monday May 2019

Posted by in Causes of the Revolution, Economics, Education Issues, Societal Issues

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

Have we, societal we, fallen down the rabbit hole? Have we lost our sense of direction? Have we lost our moral compass?

Over the last couple of months, most entries in this blog have focused on what I’ve characterized (as have others) as the coming technology tsunami. The entries describe the possible significant negative effect on the US economy of the tech tsunami and proposed solutions, the centerpiece of those solutions being more education. Education, however, not just for those currently in school but education for all age groups, even those in their 60’s. Education efforts would also include those who are, or have been unable to learn when taught using more traditional methods.

Many ideas suggested in the blog entries are not new. What’s changed is the urgency created by the oncoming technology tsunami. Like climate change, waiting until the impact is obvious to most everyone is too late. At that point the game for the US economy will be over. The fat lady will have sung…and done an encore. For the doubters, the tech tsunami is not some abstract idea or a tsunami that’s far-off shore. The water at the shoreline has started to recede and the need to take action is now.

Others share this view. Others also share the view that different approaches to education need to be tried. I was heartened by an article in the 05/12/19 New York Times  (19 05 12 NYT Teaching Math Like Football) suggesting math teachers should approach the classroom more like a football coach in the locker room. Hear, hear! Great idea. In grammar school and high-school, I was lucky enough to have a couple of “football-coach” math teachers. They challenged each student and tried to make learning math fun. The football-coach approach could be helpful to many students who do not “get math” taught using traditional approaches.

OK, what about a topic for this entry? When thinking about what to write, what kept running through my head was a simple question, “Why do educated people keep supporting a president whose actions, by US law, are clearly criminal (obstruction of justice and tax evasion are just two) and possibly treasonous?” “How can rational people overlook, let alone support such behavior?” (He even cheats at golf!)

And, the behavior is not sporadic. It’s a continuous stream. What is the latest from the Trumpland? Asking Rudy Giuliani, Trump’s personal lawyer, to go to the Ukraine and ask the Ukrainian president to try to dig up dirt on a family member of a candidate for Democratic nominee for president. Duh, Republican folks, that’s Trump asking yet another foreign country to meddle in a US election. When are Republicans going to wake up and realize where Trump’s allegiance lies? If you don’t know where to start looking, try his bank account.

Trump does not care about any Republicans, let alone members of the hardcore base. Let me repeat Trump does not care about any Republicans, let alone members of the hardcore base.

If you don’t believe me, then what about those tariffs on Chinese exports? Do you believe Trump’s tweets that the Chinese will pay the tab? Even Trump’s economic advisor won’t buy that outrageous claim. No, the tariffs per se might go to the Treasury but the prices of Chinese goods sold in the US will increase by the amount of the tariffs…and possibly more. And, yes, you get to pay for the tariff. Yet another economics class Trump skipped while in college.

“Hold on,” you say, “Chinese jobs making all those goods will come back to America. Trump is actually creating jobs. Trump is saving America! Wake up liberals.”

Okay, a few jobs might come back, but only a few. But how many more other jobs will be lost with China’s retaliatory tariffs on American exports (imports to the Chinese).

But then you say, “Didn’t Trump save thousands of jobs when he negotiated to have GM sell the Lordstown, OH plant to that other company? You know that Workhorse company?” Sorry to inform you, the answer again is “no.” Workhorse buying the Lordstown assembly plant (not a done deal as of this entry’s publication) created no net new jobs. Workhorse was merely looking for a facility to assemble a proposed electric-powered truck.

And the list of misconceptions, misunderstanding, sheer blindness by Republicans continues on and on and on. Even the Energizer Bunny is starting to get tired. The lack of a modicum of thinking by Republicans makes their behavior curiouser and curiouser. What’s the value to Republicans of supporting Trump? Trump’s in the White House for cash. What do Republicans get out of the deal?

When I hear a Republican gloat about supporting Trump, I ask a very simple question. ”Assume all the same policies, economic conditions, cabinet appointments, relationships with foreign countries, tweets, known lies, etc. Now assume Trump is not a Republican but a Democrat. Would you still be supporting Trump and/or be opposed to the investigation by the various committees in the House?” Count how many current Trump supporters say “Yes they would continue to support Trump if he were a Democrat.” If you can count more than a handful, let me know.

To be fair, you should ask some Democrats the same question. “Assume all the same policies, economic conditions, etc., would you still be so anti-Trump?” My guess is a much greater percentage of Democrats would continue to be anti-Trump and especially support the investigations in the House of Representatives.

So why do Republicans support Trump when so many of his policies are reversals of long-held Republican positions? Why have Republicans let Trump hijack their brain? As noted in several earlier blog entries, it seems that many Republicans have been brainwashed.

How can such a large group be brainwashed? If there’s one thing Trump is very good at doing, its manipulating people. Especially vulnerable are those with limited inner strength. Helping Trump with the brainwashing are the Republican talking heads – Limbaugh and Hannity in particular – who fill their air time not with questions and a discussion of possible solutions, but fill their air time with declarative statements of suggested attitudes and behavior. Kim Jung-un probably listens to “Fox News” for ideas how to brainwash North Korean citizens more effectively.

Other recent truly bizarre actions by Trump include declaring that executive privilege can apply retroactively to virtually any discussion of any action taken by anyone in the Trump Administration. Huh? Trump has also told Administration officials to ignore the law. And where are the voices of the righteous Constitutionalists Republican Senators? Save one or two, Republican Senators have contracted laryngitis while also sucking up to Trump.

The willingness to support a rogue and lawless president rather than the Constitution leaves me with only one conclusion. There needs to be a Revenge Revolution in the US in order to rid the country of the Trump cancer and bring the Republicans back to their senses. Let’s hope the 2020 election can accomplish the same thing but I’m not as hopeful.

One might not like the actions or style of certain Democratic leader, or proposed policies of certain Democrat candidates for president. Those disagreements are understandable and part of a democracy. What is not understandable is why Republicans are blaming Democrats for trying to uphold their obligations under the Constitution by investigating criminal behavior and possibly treason of the president, members of the president’s family, members/former cabinet members and people associated with the 2016 campaign.

Just in case you, and maybe Republicans in the Senate, need a reminder of the words contained in the oath for members of the House and Senate, “I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.” (I can’t find where the oath mandates allegiance to the president, can you?)

#334 Could a Change in Semantics Break the Ideologue Logjam? More about Cost of Preparing for the Tech Tsunami.

05 Sunday May 2019

Posted by in Economics, Education Issues, Gov't Policy, Societal Issues, Tech Tsunami

≈ Leave a comment

Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

This week’s Entry continues the series about preparing for the upcoming “technology tsunami” that will have a major impact on the US economy.  The series starts Entry #319. 

Arguments against society-wide programs – healthcare, education, climate change – claim that such programs are too expensive. Taxpayers cannot afford these programs.

There is a kernel of truth to that claim. Such programs have considerable start-up costs and the payback is often a few years out. Sometimes the payback is a decade or two later.

Of course, the idea of having delayed payback does not apply when the same “too expensive” group decides to make business or personal Investments. Nor does the logic apply when this group is evaluating the performance of coaches for favorite college or professional sports teams. Why coaches? Surely everyone knows it takes time to build a solid sports team. Give the coach at least five years to perform and demonstrate his or her worth.

More seriously, the question is, “Is society willing to take the risk of not investing in programs that will have a sustained, if delayed, return on investment? As an example of a similar personal-level decision is whether to delay needed maintenance on your house or car. Delaying can result in some immediate cash savings. However, the decision to delay is a two-edge sword. The repairs are needed and by waiting the severity and cost of repairs likely will be much higher. While delaying maintenance may seem to be a savings in the short-term, the decision to delay is not really savings at all, but additional cost. To paraphrase an old TV commercial, pay me now or pay me more later.

How does “pay me now or pay me more later” apply to the education of people who will be displaced by the technology tsunami? Let’s say the cost of educating those displaced averages $25,000 per person, roughly equal to 2 years cost of tuition, books and fees at a community college and even some state universities. In addition to the cost of education, let’s assume those being retrained receive a salary of about $50,000 per year. For the two years, the total cost for retraining would be about $125,000 per person.

The $125,000 cost per person seems extraordinarily high until one calculates the cost of not retraining. What is the cost not to retrain?

Assume the median age of the person being retrained is 45 years old, which means the person has 20 to 25 years left before retirement. Without retraining for the post technology-tsunami world, the person may be unemployable, and therefore, receive assistance for the next 25 years of his or her working career. In addition, the person would receive some form of assistance for another 10 to 15 years after reaching retirement age. Total time not working and receiving assistance…and not paying taxes? A total of 35-40 years.

If the person receives just $10,000 per year assistance, which is on the very low side, the cost of assistance for a person previously employed but now displaced, would be at least $400,000. Thus, the cost of not retraining is more than 3x the cost of 2-year training – tuition, fees, books and salary of $50,000 per year. Oops, we’re not finished. The person on assistance and not employed, would also not pay income taxes as well no withholding for FICA and no withholding for Medicare.

So which is smarter? Pay now to retrain the person displaced by the technology tsunami or pay more than 3x as much later (constant dollars) to have the person on assistance his or her entire life and never again paying income taxes or contributing to the cost of Social Security or Medicare?

The ROI to retrain workers is positive for workers in their 50’s and even early 60’s when all the costs are included. In addition to society saving money by retraining workers, having an employed workforce with more disposable income will increase consumer consumption, increase overall GDP and with some tweaks, to the tax structure, increase family wealth.

Despite the obvious benefits, for some reason “return on investment” does not yet seem to be part of most discussions about broad social programs, whether the discussion in Washington or in many state capitals. I am always personally baffled why Republicans focus on immediate cost and ignore “return on investment” logic for social programs, yet use the very same ROI logic for personal and/or business investment decisions. Guys, voters are not completely stupid. ROI is a concept that voters can understand.

To break the ideologue logjam, maybe such programs need to be positioned with Republicans as “business Investments” and not “social programs.” To mollify Republican critics of these programs, maybe recipients of the proposed technology-tsunami education program should be required to pay a minimum tax of say 1.0% of gross income per year for up to 10 years following completion of the retraining. The minimum tax would allow Republicans to claim assistance recipients have some “skin in the game.”

Democrats would do well to position technology-tsunami retraining, the Green New Deal, Medicare for all and other ideas, not as social programs, and especially not as “socialist programs,” but position as Investments that will help increase US GDP. Democrats should also agree that every wage-earner has to pay some income tax, even if it’s only $100 per year.

Some of the changes in positioning should be considered more semantic than substantive. However, the changes could allow Republicans and Democrats to claim some type of victory and begin to work more closely together. The changes would also thwart some of the statements by conservative talking heads implying that about half the population pays no tax. These talking heads only state “income tax” and make no mention of people paying sales tax, property taxes, fees and many other related taxes. (FYI, the percentage is remarkably flat by quartile of income paid for all types of taxes.)

Will the rhetoric change and Republicans and Democrats begin working together soon – at least agree to retrain workers to be displaced by the technology tsunami? Maybe start working together before the Revenge Revolution? As long as Trump is controlling the Republican Party, there is no hope. Republicans have demonstrated repeatedly a willingness to prostitute themselves for whatever the Donald demands, however contrary those demands are to long-held Republican principles.

Democrats, however, have a great opportunity for 2020 to begin repositioning arguments that many so-called “socialist programs” are really business Investments with positive ROI.

Should we be hopeful? Let’s see what happens. Stay tuned.

 

 

#333 Preparing for the Technology Tsunami: On-Going Education (12th in Series)

28 Sunday Apr 2019

Posted by in Economics, Education Issues, Societal Issues, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1. 

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  With all that’s happened lately in Washington, I wrote a special sense check, Entry #332.

This week’s Entry continues the series about preparing for the upcoming “technology tsunami” that will have a major impact on the US economy.  The series starts Entry #319. 

The need for on-going education and training of workers is nothing new. Who’s been responsible in the past for such training? Until about the mid-1990’s or early 2000’s, the employing organization seemed to be the principal source of on-going training.

In some cases, employee training was done on the organization’s premises; in other cases, employees were encouraged to attend classes outside. Expenses for such classes usually were reimbursed by the organization. Based on my experience, mostly in manufacturing-based companies, the training seemed to focus on procedures and systems unique to that company.

What has changed within the companies in the last 20-25 years is how machines and support equipment operate. There is ever-growing integration of software programs to help manage all aspects of machine operation, movement of material and the flow of information.

While some features of the software programs might be unique to the organization, the fundamental components of a given software program, or suite of programs, are the same. Understanding the fundamentals of software programs has created two classes of workers:

  1. A group, generally younger, who are now more mobile. Because these workers understand the fundamentals of software, they can carry that knowledge to another organization and not face as steep learning curve, thereby contributing more quickly than workers in the past;
  2. A group, generally older, who were trained in the organization’s approach before many software programs were integrated into daily operations. These workers become far less mobile and, despite their experience, less valuable to the existing organization. The “reduced-value” phenomenon applies to both blue-collar and white-collar workers. Unfortunately, some of these “reduced-value” workers have 25 to 30 years remaining before retirement. This group will be the most negatively affected by the technology tsunami.

What does society do with existing “reduced-value” workers…and ideally implement plans to minimize the number of such workers in the future? Back to school! But, can you really teach an old dog, or a middle-age dog, new tricks?

The stumbling block for many of these workers seems to be never having learned basic math. While one does not need to know calculus to understand how to use computer programs effectively, one does need to know basic algebra. Programs are basically built are conditional statements – if A, then B, etc. Understanding the approach applies not only to Excel-type programs but word-processing programs as well.

What about people who just don’t “get” math, even basic addition and subtraction taught in grammar school? Obviously, not everyone learns the same way and not everyone is skilled at every subject. However, my guess is at least half the people who claim “not to get math” would “get it” if math were taught in a way more understandable to them.

Without having completed any formal research, I’ll bet there are at least three approaches used to teaching math. And one of those approaches probably will work on most people. So, for the “I-don’t-get-math” group, let’s take away the stigma of not understanding the traditional approach to teaching math, and try using the other approaches. Just visualize the smiles on faces when “I-don’t-get-math” students move to the “I-get-math” category.

Will all these students become math wizards? No, but once the basics are understood, we…societal we…might be shocked at how many in this group progress to basic algebra, and beyond.

What about people who despite different approaches to teaching, never “get” math? How do we prepare them for the tech tsunami? Or, what if someone just doesn’t want to learn?

A certain percentage of people won’t learn, and the consequences are the same whether one is unable to learn or chooses not to learn. The consequences in all likelihood will be a lower-paying service-type job. For those who try, but can’t learn, unfortunately the consequence are the same.

Any time society has been disrupted by technology — printing presses replacing scribes, machinery replacing farm hands, robots replacing assembly workers…and other examples – some people are left behind economically. While a society-funded safety net can provide some assistance, a large percentage of people in this category will fall several rungs on the economic ladder.

OK, you say, I’ll buy the argument that we should be training more workers for the tech tsunami. But who should pay for the training, much of which seems to be remedial? Why should taxpayers pay for the bill and let the companies off the hook? Shouldn’t companies that are laying off workers have an obligation to retrain these workers?

If one looks at other countries for guidance, many industrialized countries, especially in Europe, have laws that penalize, or even prevent companies from relocating or arbitrarily dismissing employees. The US has no such laws. As a result, companies are not penalized for relocating and leaving behind infrastructure installed specifically to help the company and/or leaving behind a loyal workforce with some skills that need updating.

In many states, North Carolina and South Carolina are but two examples, “economic development” is defined primarily as enticing other companies to relocate operations from the Midwest or Northeast to North Carolina or South Carolina. Incentives thrown at companies to relocate border on the ridiculous, but almost always include taxpayer-funded training for employees.

Yet the same “economic development” efforts often ignore, or even discourage, albeit possibly inadvertently, entrepreneurs from starting companies or offering no meaningful incentives to smaller company businesses trying to expand. If any incentives are offered to entrepreneurs, the “incentives” often consist of an “opportunity” to locate in some rehabbed building at a lower rent. While the reduced rent is nice public-relations strategy for politicians, most start-up businesses are starved for capital and capable key executives.

In the near-term, laws preventing companies from relocating and/or laws preventing states or cities from offering incentives for relocation are not likely to be implemented. Even if passed, there likely would be a drawn-out court challenge. A more effective approach to encourage existing companies to stay put might be to help the company analyze costs and determine if updating skills of employees and implementing other cost-reduction systems might be more effective than relocating, especially relocating operations outside the US.

Encouraging companies to stay put and retrain workers gain momentum in the next few years, especially as the technology tsunami becomes more apparent. While the US 2020 presidential election is 18 months away, many Democratic candidates seem to be discussing how to help rebuild the American middle class by leveraging new technology rather than the Trump approach of propping up industries on the decline – coal, e.g.

Programs to help update skills of existing workers could be very “hands-on,” akin to how many infrastructure projects were initiated in the 1930’s under New Deal WPA. Such national WPA-like programs are even more likely after the technology tsunami hits and/or after the country experiences the Revenge Revolution.

Programs to help mitigate the technology tsunami, programs to implement the evolving Green New Deal and other such ideas present a great opportunity for the US to create sustained economic growth. Sustained economic growth, however, can only be achieved with a high labor-force participation rate…and a high participation rate in a technology-tsunami world can be achieved only with an educated workforce.

 

#331 Solution to Diversity? Economics, Not Gov’t Intervention.

14 Sunday Apr 2019

Posted by in Common Sense Policies, Education Issues, Gov't Policy, Tech Tsunami

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution and author, How the 5th US Revolution Begins and About the Author.  Occasionally I do a “sense check” about the likelihood of a Revenge Revolution.  Entry #318 is the most recent “sense check.”  One more note — sometimes I write about another topic that does not quite fit the theme of the blog.  Those comments are available on the page titled “JRD Thoughts and Comments.” 

Entry #319 begins a series describing the coming technology tsunami (#319), and how the US should prepare.  Last week’s Entry #330, outlined reasons why diversity will be important to prepare for…and then capitalize on…the coming technology tsunami. The entry also noted that some conventional ways of creating diversity — school busing, for example — are fraught with problems and have significant potential downsides.

Diversity seems best accomplished on its own. Our neighbors, within a stone’s throw or two, include families from at least four countries. Within this group, there are at least five religions. All that in a suburban environment.

How did such diversity occur? With government intervention? With housing subsidies? “No” to both questions. The diversity evolved from economics…and attitude.

Granted our neighborhood is a bit more affluent than most but affluence may result in less, rather than more diversity. In Entry #330, I described observations from a 5-day visit to a well-known retirement community in Florida. When leaving the community, my wife and I both remarked we had seen no blacks, no Hispanics — yes, this was Florida — one Asian, and no one from the Middle East. We also both commented while we had a lovely time visiting our friends, we wouldn’t want to live there.

So what strategy can help stimulate diversity? Throughout the technology tsunami series I’ve stressed education as a key. Education opens the mind to new ideas, both academic and societal. And for the vast majority of people, education also provides a chance to improve economic status.

Education for this discussion consists of four major stages, or chunks:

  1. Primary education — i.e., “readin’, writin’ and ‘rithmatic” — and some social skills
  2. Secondary education — middle school and high school
  3. University or Advanced Technical Training
  4. Continuing education – following initial employment and continuing throughout one’s career

For primary and secondary education, the public has consistently supported taxpayer funding. While some changes to the primary and secondary curriculum might be required for the technology tsunami, the key to preparing for the coming technology tsunami seems to lie in Stage 3 — College, Advanced Technical Training — and Stage 4 — on-going training once in the workforce.

Currently, only a small percentage of the population can afford securing a college degree or advanced technical training certificate without financial assistance. Even with scholarships or reduced tuition, many students need loans. Terms of these loans are often onerous, saddling graduates with years of debt, which in turn reduce their opportunity to save for buying a house and/or to start saving for their children’s education. (For more about the problems with people paying off loans, or thinking they have paid off loans, see 19 04 13 Student Loan Repayment Issues and Problems)

Maybe the solution to the how-to-finance-advanced-education conundrum is easier than we think. Why not take the same approach to financing education that seems to work well for medical coverage in all industrialized countries…other than the US (so far). Allow students to attend a home-state university at little or no charge for a specified period — say five (5) years. Extend the no-charge time period if a student works.

Like universal health care, offer a “private,” additional-cost option. Under this option, students could attend an out-of-state university or private college/university. Tuition and other costs would be set by the institution. The private institution could still offer financial aid to students.

Technical trade schools could have the same option. Attend state-run technical schools at no charge with the option to attend private-technical or trade schools.

Technical/trade schools would need to meet one hurdle not currently required — accreditation.  Accreditation would sharply reduce considerable fraud among private technical/trade schools — Trump University being but one example. The accreditation process would be similar to that used for academic institutions.

And please don’t view subjecting the trade/technical schools to accreditation as government overreach. Educational institutions need some form of regulation. A market-based system will not work because, by the time the student understands the school is not providing adequate education, the student has wasted several years and is saddled with significant debt.

What about people who do not want additional education or who are not mentally capable? We’re not living in Lake Woebegone where all students are above-average.

A portion of the student population will not pursue additional education and a percentage of those will not even graduate from high school. While some low-skill jobs likely will continue to exist, people in those jobs should earn a minimum wage that allows them to live above the poverty line.

Policies to address this lower-education group are separate from policies to prepare the US society for the coming technology tsunami. The goal of the “tsunami series” is to outline approaches that will increase significantly the percentage of the population that is skilled adequately to thrive in a technology-based economy.

What about the education outlined in Stage 4? Ongoing education seems to be in a black hole where: (i) there is no existing infrastructure supporting such education…and none planned; (ii) no one in state or Federal government seems to be responsible for on-going Abbott Costelloeducation; (iii) there is no coordinated effort by private industry and/or trade groups. Policies for on-going education seem to have evolved from the Abbott and Costello routine of “Who’s on First?” Just who’s in charge of continuing education?

Logically you’d think private companies would want to maintain an educated workforce. But because of lack of restrictions…or penalties…re relocation, many US companies operate as if they have no responsibility to spend money to provide continuing education to their workforce. When the workforce skills become dated, a company, with little or no penalty, can close shop and move to another location. The new location will be selected based on which state or city is offering the most incentives, including training the new workforce.

Taxpayers at both ends – the location where the company left and the new location – get stiffed while the company management and shareholders benefit. (For more about the impact of how companies can adversely affect a community, and not suffer any consequences, see Entry #86, “Is North Carolina a Stealin’ State?” and Entry #87. There are several other entries as well that address similar issues.)

As far as addressing the issues of ongoing education, that deserves a separate entry, which will be number #332.

Note: within hours of publishing this blog entry, received the 04/14/2019 edition of the Charlotte Observer.  A front-page article discussed whether eliminating certain zoning restrictions — banning single-family zoning, e.g. — would help stimulate diversity.  My short answer is “No.”  Tweaking of zoning regulations for single-families is different than wholesale banning, which is likely to have major negative consequences for attracting higher-income families to remain in the city limits.  Link to article, 19 04 14 CLT Observer re Zoning Changes for Diversity.