The Global Auction
“All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind.” -Marx, Engels
The 20th century offered ordinary people the unique opportunity to dream beyond the traditional confines of family and community. These new opportunities were driven by improved job prospects, which over time produced a middle class in the United States and other industrialized nations. This transformation involved workers transitioning from crafts-based occupations, to jobs undertaking routine tasks in a factory. The bargain workers struck with employers and the government to make this transition was that future opportunities for themselves, their children, and their children’s children, would no longer be socially defined, but only limited by their willingness to educate themselves and work. It is through this grand bargain, the opportunity bargain, that education became the de-facto pathway to a better life.
In this very timely book, The Global Auction, Philip Brown, Hugh Lauder, and David Ashton present research into the linkages between job prospects, globalization, and the transition to a knowledge economy. The authors, professors from Cardiff University, University of Bath, and Leicester University, talked to around 200 national policy makers and corporate executives in seven countries through the course of their research. The result was their finding that the opportunity bargain has broken down: Americans can no longer expect that ‘getting a good education’ will lead to a well-paying job and a middle-class lifestyle. The downward jobs spiral cannot be saved by individuals continuing to pursue ever higher degrees, nor by governments doubling down on neoliberal policies of free trade and deregulation. To ensure good jobs for the next century, the authors believe a new bargain must be reached, based on a fundamentally different set of social priorities.
The opportunity bargain is based on the belief that through hard work, adherence to rules, and further education, workers would see returns in the forms of good jobs that included fair wages, job security, and health and retirement benefits. For much of the previous century this held true, as government and labor balanced corporate profits with public goods. This balance ended in the 1980s with the onset of free trade and deregulation policies, enacted with the belief that future knowledge economy innovations would drive employment growth and accelerate the demand for highly-paid workers in industrialized economies. This set further education as the pillar for industrialized nations’ competitiveness in the knowledge economy. The authors point out that it is still almost universally believed that college degrees will give American and European workers a competitive advantage in the global economy. Unfortunately, this is not proving to be the case in reality. Despite significant education gains, good jobs have been lost, with job losses moving beyond production and into knowledge work.
Why is the opportunity bargain dead? Why has the accelerated transition to the knowledge economy not led to better jobs for the majority of educated workers? The authors identify two factors in particular behind this: the quality-cost revolution, and the hollowing-out of white collar work.
First, the quality-cost revolution. Traditional industrial policy assumed that a country faces a choice between two futures: a high road to high-skill, high-wage work based on quality products; or a low road to low-skill, low-wage work based on price. However, competition today is based on both quality and cost, with corporations racing to improve quality and reduce labor and other costs at the same time. The authors’ research shows that over the previous twenty years, through a combination of rising skill levels, new production techniques, and international industrial standards, transnational companies have overcome many of the problems that hampered previous attempts to produce high-quality goods and services in low-cost economies. Although quality issues remain, virtually all of the companies the authors studied had rapid improvements in quality standards across their global operations. This trend is tied to the emergence of highly-qualified and well-trained university graduates in developing countries, raising profound questions concerning the source of competitive advantage in the older developed economies. To take part in this new-normal labor market, many college-educated workers in higher-cost locations will now find themselves in high-skill but low-wage work as they are competing directly against high-skill workers in low-wage locations. Unfortunately for the majority of the existing middle class, this is not a global auction where employers are bidding ever higher for workers’ skills. It is instead a reverse auction, where workers from various locations around the world are bidding against each other to see who can provide the service at the lowest cost.
Second, the hollowing-out of white-collar work. Human capital theory stipulates that companies need to develop their human capital to create new and innovative ideas, products, and services to drive competitiveness. However, the exact opposite has happened: internal human capital is not being improved -- instead, knowledge work is being off-shored. The authors document the rise of ‘digital Taylorism,’ or the standardization of work processes in the knowledge economy. The modern corporation’s solution to retaining its advantage resides in its ability to extract and translate tacit personal knowledge into explicit, codified knowledge. This involves translating the knowledge work of managers, professionals, and technicians into working knowledge by codifying and digitizing work into software packages and templates that can be transferred and manipulated by others regardless of location. The transformation of functions into components, and the modularization of jobs, means those jobs are no longer tied to an individual in a specific location. This results in the de-skilling of white-collar workers, and moving those jobs to low-cost locations.
The American Dream of a white-collar job and a middle-class lifestyle based on improving educational outcomes is now also the Chinese Dream, the Indian Dream, and a Global Dream for working people. While the authors focus on the existential threat to the American middle class, there are real benefits and job gains for workers in emerging economies. However, this is only part of the story; there is a final piece of the puzzle. With the democratization of higher education -- especially in the US, but similarly in India or China -- firms cannot absorb the numbers of skilled, qualified people into white-collar work. Consequently, they revert to setting positional barriers to job entry, such as recruiting only at elite universities. This reinforces the hollow white collar sector and contributes to growing income disparities as it denies opportunities to qualified individuals due to limits placed on access to elite degrees. These factors explain how US multinational firms have enjoyed record profits on their foreign direct investments, yet American wages have stagnated.
By the end of the book, the authors make it clear that under the current framework, the vast majority of higher-skilled workers in developed economies will be undercut on cost, as quality standards are normalized, by higher-skilled workers living in lower-cost locations. The irony that the information revolution that started in the US may ultimately be responsible for the off-shoring of a significant amount of skilled knowledge work across sectors, especially in IT, is not lost on anyone. The authors understand that only a reimagining of the inherent strengths of the American economy and society can regain that competitive advantage, but do not come up with concrete answers to the issues highlighted in The Global Auction. They do make it clear that what is needed is a future where wages reflect both the economic and social contributions of a worker, not the outcome of a power play over how jobs are defined and rewarded.