Die Zeit: The future of work in a social democracy

by Steven Hill, Die Zeit, May 25, 2016

(German language version, “Vorwärts, Genossen”)

One of the puzzles of the post-global recession is the ongoing electoral weakness of many center-left political parties. One would think that with so many voters worried about their future, they would naturally gravitate toward parties viewed as more worker-friendly and growth-oriented (via government stimulus rather than austerity). Yet a recent poll puts the Social Democratic Party in Germany at only 19% support, its lowest level since 1992. Center-left parties in the UK, France, Spain, Poland and Denmark are also struggling, and currently barely a third of European governments are led by center-left parties.

But the goal of a political movement is not only to win elections — it is also to shift the political center. When your opponents start adopting your policy agenda, you have won decisively. For all intents and purposes, the Christian Democrats are now social democrats, even if not Social Democrats. The European political parties of the center-right, and even the far right when it comes to supporting the welfare state, are to the left of the Democratic Party in the US.

But it also means that, as social democratic issues are adopted by the center-right, Social Democrats lose the sharpness of their identity, particularly when subsumed inside a grand coalition. Many voters don’t know what the “social democratic” vision is anymore, or how it is relevant to their personal economic self-interest.

Now a new challenge is presenting itself to the political mainstream, and its longer-term impact will be more dramatic than immigration. It is the challenge of the “digital economy,” which is being invented in Silicon Valley, and its impact on the broader economy. How will the center-left parties in Germany, the US and elsewhere react to these profound technological changes?

The high tech economy shows potential for both promise and peril. The CEOs of Silicon Valley are boastful about how they are able to inject software and algorithms into ever smarter computers and machines — which are replacing the human workers, and slowly turning the US into more of a “freelance society.” Silicon Valley’s leading companies are not creating huge numbers of jobs. Facebook (12,000 full-time employees), Google (60,000) and even Apple (90,000) are slacker job creators compared to traditional economy companies like Daimler, BMW, Ford and Siemens, which each employ hundreds of thousands.

The prototype for the new digital company is Upwork, which is based in San Francisco and has a mere 250 regular employees who are able to use digital technologies to oversee 10 million freelancers and contractors all over the world. German workers bid for jobs alongside workers from India, Thailand, the US and elsewhere. The workers auction themselves to the lowest bidder, hustling and underbidding each other in a global race to the bottom.

Economist Nouriel Roubini says, “The factory of the future may be 1,000 robots and one worker manning them.” Take for example one new technology, that of 3-D printing. Local Motors, a company in Arizona, can “print” an entire automobile, and the process is far more cost-effective than traditional production methods. The “buy-to-fly ratio” for a traditional car is 20-1 — you have to buy 20 times the amount of steel and machine it down to make a car. With 3-D printing, it’s closer to 1 to1 — you use only the amount of carbon-based polymer that is needed.

Automobiles today are becoming “computers on wheels,” so not surprisingly technology companies like Apple are now designing the cars of the future, with the auto parts ordered from low-cost suppliers using 3-D print technology. This is undoubtedly a game changer for the auto industry and other industries. Will German auto companies need as many workers in the near-future?

German-style prosperity has been based largely on a degree of solidarity and co-determination between the different economic sectors, and on a constructive relationship between employers and employees. But the digital economy, if left unchecked, shows a strong tendency to undermine this social dimension.

German business leaders will have to make some difficult and far-reaching decisions. Technology will allow CEOs to get rid of a certain number of regularly employed workers and higher more contractors, temps and part-timers. Some businesses will be able to shed enough regularly employed workers to fall below the thresholds that require codetermination, or to reduce the number of representatives on works councils. Should they do that?

That would be the efficient thing to do, from the perspective of the individual business. But what about from the perspective of society? The rational and efficient decisions of an individual business, when adopted en masse by most businesses, could lead to irrational and inefficient macro-economic consequences.

The German economy, like the US economy, is driven 70% by consumer spending. What happens if not enough people have decent paying jobs, and so do not have enough money to buy up the goods and services produced by the businesses?  Lacking fewer customers, the businesses would have to lay off more employees which would result in even fewer customers – a downward spiral of recessionary and deflationary pressures.

So how should social democratic parties react to these economic shifts?

In the US, presidential candidates Hillary Clinton and Bernie Sanders have expressed concern over companies like Uber, which treat its ride-sharing drivers as low-paid contractors with no safety net and zero job security. Uber and Airbnb also break local laws and refuse to pay industry taxes. But Democrats recognize that these services are popular among young consumers who will be voting in this November’s election. Democrats also are deeply reliant on campaign donations from tech company executives.

So the Democrats’ approach towards the digital economy has become incoherent.  Indeed, President Barack Obama’s former campaign manager, David Plouffe, has been hired by Uber as its chief publicity maestro, leading to the bizarre specter of a high-level Democrat opposing pro-labor legislation to allow Uber drivers to organize a union in Seattle. Other high-ranking Democrats have become executives for Airbnb, further adding to the policy drift.

Here in Germany, the Social Democratic Party, led by the grand coalition’s labor minister Andrea Nahles, has launched an impressive series of public dialogues called Arbeiten 4.0. In my five months as a fellow at the American Academy in Berlin, these dialogues have been helpful toward putting the issue of the digital economy and its consequences higher on the public’s radar. That has been a good first step. But what should be the next steps?

One of the controversies that has emerged is that certain German leaders are skeptical that this digital economy will impact Germany as much as the US. I have met with researchers who say, with great certainty, “These kinds of precarious workers are not showing up in our data.”

But caution is advised:  these new workers are hard to track. In the US, the Bureau of Labor Statistics also claims that there has been little increase in these types of workers. Yet the U.S. Government Accountability Office issued a report in April 2015 saying that “the size of the contingent workforce can range from less than 5 percent to more than a third of the total employed labor force, depending on widely-varying definitions of contingent work.” That is a pretty broad discrepancy, based on different methodologies.

Harvard University economist Larry Katz says that current BLS measurements, which depend on household surveys and workers’ self-reporting of their status, are missing the real picture. It turns out that many workers do not always report accurately. Some report that they only have a single job, when in reality they have two or more jobs. In addition, the share of workers receiving income through “alternative work arrangements” – independent contractors, freelancers and the like – increased by 50% from 2005 thru 2015, and the percentage of people filing tax forms for self-employment is way up, even though survey measures of self-employment are down. In a recent report with Princeton economist Alan Krueger, Katz concluded that “all net employment growth in the U.S. economy since 2005 appears to have occurred in alternative work arrangements.” Other independent measurements are arriving at similar conclusions.

Like in the US, Germany also relies on household surveys for tracking how workers are working. I have asked a number of German researchers, “How do you know that, like in the US, German workers are not inaccurately self-reporting?” I also have asked for specific data on how many workers are contractors or freelancers, how many are not covered by social security? Also, when German workers are employed by online, foreign-based labor brokerages like Upwork, oftentimes neither the worker nor the employer informs the national authorities about this contract work. I have asked German researchers “how many of German workers are contractors for online companies like Upwork, and do the workers and businesses pay income or social security taxes to Germany?” I have not found anyone within German government, business or policy circles who knows the answers.

Like in the US, it seems these trends are not being rigorously tracked. Which means policy makers are flying without radar. Whether it’s a labor brokerage located in San Francisco or Singapore, or Airbnb breaking local housing laws in Berlin, or the many ways that increasing numbers of workers are working, the digital economy will be very hard to regulate if you don’t have the right data to monitor the activity of these technology platforms.

Already in Germany, certain “American” trends are apparent, even if not as fully developed. Germans have seen a significant increase in mini-jobs and in the number of workers on short-term contracts. Around 4-5% of Germans are now working in “solo self-employment,” where pay is often low with little safety net or job security. The percentage of the unionized labor force in Germany is down to historically low levels, only 18% (according to the OECD). It’s even lower, around 15%, if you don’t count pensioners and students, which is not that much higher than the US at 11%. The German pension system has been slashed dramatically, like in the US.

These realities suggest a few policy proposals that center-left parties should promote as part of their “digital economy agenda.” First, they should push for more accurate ways to count different types of workers, and how to best help these workers maintain a decent standard of living.

Second, they should create for all workers a portable safety net that supports any worker, regardless of how she or he works, including those who are working part-time and employed by multiple businesses. This universal safety net would be something like a system of “Künstlersozialkasse for all,” building upon the existing support for artists and musicians to create a comprehensive system which encompasses other occupations that are currently shut out of the welfare system.

Third, they could bring the powers of these technology platforms to pressing public issues by fostering a process of nonprofit app development, funded by the government and research universities. For example, Berlin is plagued by a lack of carpooling, and an app could be created to facilitate that. Other apps could help reduce traffic congestion, or report Airbnb violations. But for-profit companies will not produce these apps, since there is no profit to be made from them.

Other proposals might include a Guaranteed Basic Income, or allowing people to “own” and “sell” their personal data to companies like Google, who now seize it for free. I have doubts such proposals will be workable, but they are worth discussing.

Many years ago, Walter Reuther, head of the United Auto Workers in the US, visited a newly automated plant owned by Ford Motor Company. Pointing to all the robots, the host, Henry Ford II boasted, “Walter, how are you going to collect union dues from those guys?” Without skipping a beat, Reuther replied: “Henry, how are you going to get them to buy your cars?”

The social democratic parties have a crucial role to play in this digital era that is emerging. They need to propose a broad and inspiring vision in which both workers and businesses can recognize their common interests within the globalized economy.

[Steven Hill is a Silicon Valley-based journalist and the Holtzbrinck Fellow at the American Academy in Berlin. He is the author of Raw Deal: How the ‘Uber Economy’ and Runaway Capitalism Are Screwing American Workers. Find him @StevenHill1776]

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