This Is the End


Markets, Risk and Human Interaction

November 28, 2011

Managing the 99 Percent

November 28, 2011

And that,” put in the Director sententiously, “that is the secret of happiness and virtue—liking what you’ve got to do. All conditioning aims at that: making people like their un-escapable social destiny.” – Huxley, Brave New World
From: The McCourtny Consulting Group
To: The Endowment for the Preservation of the One Percent
Subject: Managing the 99 Percent
Whether or not it is put in sound-bite terms of “class warfare”, the “one percent” pitted against the “ninety-nine percent”, the fact of the matter is that the data showing a widening of income levels are undeniable, as are the push of a segment of the middle class to the near poor, the realization of lower social mobility, income levels that have broken the string of increasing standards of living from parents to children, and new doubts about education as a road to opportunity.
We are witnessing a simmering backlash in the face of the widening class distinction. It is wise to address the fundamental issues behind the backlash and consider approaches to deal with the problem, especially given that these conditions may be persistent and structural. Therefore, we have prepared a brief overview of approaches to the problem.
What to do
In the Feudal societies, class distinctions were determined by lineage, in the capitalist society by wealth, and more generally by the notion of a power elite that controls the key levers of society, be it in industry, government or the military. Whatever the source of the class distinctions, historically the ongoing concern of the dominating class has been to contain the pressures of alienation that can lead to the revolt of the masses.
What are the public relations strategies to control and manage this situation? We have considered a campaign based on the following messages to hoi polloi.
We are just like you. Hide wealth and then take a cue from the Mormon public relations campaign: washing the car, playing basketball, with the tag line “I'm a one percenter”. Some members of the Endowment are already primed for this approach, having explicitly told their highly compensated employees to cool it in terms of flaunting their wealth.
You are just like us: Create the perception of shared power and mobility, that hoi polloi influence the system and can change it if they want to. Point out that this is the connotation behind the term “hoi polloi” in ancient Greece. Maybe you haven't hit the daily double this time around, but you still have a shot. This approach already seems to be in play and working. Helped along by a long-running media campaign, many of the 99 percent who are unemployed as well as the growing number who are descending into the ranks of the nearly poor are ardent defenders of the wealthy and their historically low tax rates.
You are not like us, and you don't want to be like us. Make wealth appear unattractive. Money only causes problems, miserable lives; the upper class are a harmless bunch. England maintained class distinctions and the Crown where other countries were hit by revolution in part because the upper class wrapped itself in eccentricity and generally appeared harmless, if not even amusingly befuddled. However, although this worked for an aristocracy at leisure, it is not a good strategy to appear befuddled while running corporations.
You are not like us, but who is keeping track. This appears to be the most sustainable route for managing the situation, especially because technology is making it an ever more achievable strategy. Entertainment, keeping busy on the trivial. It worked for Rome, at least for a while. So it will be a constant theme in our proposal.
Too bad, just live with it. Given that, all else equal, people probably won't just live with it, eventually this requires the authoritarian, police state approach. As Dahl's Mr. Wormwood put it, : “I'm right and you're wrong, I'm big and you're small, and there's nothing you can do about it.” 
Proposal for the Campaign
We propose a campaign based on these multiple fronts that will leverage existing channels:
Reality TV. We have had the vicarious exploits of spectator sports for a long while, and now have created vicarious lives through Reality TV. This not only serves as a distraction. Properly employed (such as with the “Real Wives” series) it supports a “You wouldn't want to be like us” message.
Computer games and virtual lives. Add to the vicarious lives of spectator sports and reality TV the opportunity for virtual lives through computer games; everyone is building their own virtual mansions and fighting their virtual wars, in combat with their own Eastasia. This provides both distraction and empowered “You are just like us” moments.
Social networks. Talk about keeping people distracted on trivia. And we can have people feel socially connected with us by being our friends by creating carefully managed Facebook accounts. We can hire a staff to maintain these Facebook pages in a way that the joint messages of “We aren't having a lot of fun” and “We are just like you” are both kept at the fore.
Those on Facebook already blur the real with the fantasy; many create alternative lives on Facebook just as they do in their virtual games, and it turns out that the Facebook fantasy helps get our messages across. The Facebook personae are not exactly “Just like us”, but are more like us than is the reality. The average Facebook self depicts someone more wealthy and happy than the actual person. So it is not quite cohorting with the one percent, but on the other hand there is rarely any evidence of the economic struggles that seem to occupy the pages of the New York Times.
Open media. Just as there can be the sense of power in various combat games, for the disenfranchised there can be the sense of power, a sense that “You are just like us”, through their access to blogging, twittering, and other channels of open media. These can be manipulated to give the impression that their voices are being heard, that they matter. In this regard, we recommend that a team be hired to comment on various posts – perhaps outsourced to India or Sri Lanka – in order to give the appearance that people are listening, that the trivia is substance. 
And these are channels to burrow into so that the realities of the world and their place within it are obscured. Just as Facebook gives us the impression of a large community of friends and colleagues, Twitter allows the 99 percent to feel connected to the world at large, to believe that people out there somewhere hear their voices.
Viral hits buttress the “You are just like us, but just haven't hit your daily double yet” message. It doesn't matter that the viral hits have nothing more than fleeting entertainment value. The simple fact that a 99 percenter can draw the attention of millions is the exception that proves the rule.
Education-lite. Education poses a dilemma because it is essential to have a skilled workforce while at the same time preventing the side effect of heightened awareness of alienation. So the ideal educational system is one that provides the requisite work skills while inhibiting thought.
Adam Smith writes that such a path is possible, indeed that the working man “has no occasion to exert his understanding. . . . Of the great and extensive interests of his country he is altogether incapable of judging; His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues". Smith proposed that the way out of this is for the government to provide public schooling for the working class. But what is a bane for Smith is a blessing for us: his working man is the man we want. 
Those in the upper-class in his era did not share Smith's interest in universal education. Rather, they saw the world as we do: education diminishes deference and fuels disobedience. And this same sentiment is echoed a century and a half later by no more ardent a defender of capitalism than Schumpeter, who argues that education in the face of manual labor and underemployment sows discontent, and “discontent breeds resentment”. The solution to this is to give the impression of education while in fact providing little more than the essentials of vocational training. Focus on accounting, computer science and the like while eschewing the impractical liberal arts. Have college be party time, the soma, sex and endless recreation that Huxley envisioned for the populace at large. If the majority of the ninety-nine percent can be herded down this path, then "sex, drugs and rock and roll" serves its purpose.
Open personal information. While we strenuously object to any of the “Too bad, just live with it” Orwellian tactics (and therefore also stress that any discussion along these lines be by phone and not by e-mail), there happen to be technologies that allow the requisite monitoring. Indeed, hoi polloi already provide this information voluntarily, often to the public at large. Between tweets, blogs, and our Facebook friends, not to mention those who write comments where registration with real names and e-mails is required, we have a treasure trove of data for any future efforts to manage the situation more directly. 

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This post expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff. Similarly, this post expresses the author's views and does not necessarily reflect those of the Department of Treasury or its staff.

November 8, 2011

Class Warfare and Revolution (Circa 1850)

November 08, 2011
In a recent post I discuss six policies that spurred the Industrial Revolution in England – opening up immigration, weakening the guilds, investing in infrastructure, privatizing agricultural land, forcing a move to new energy sources, and policies for bringing capital to the new, capital-intensive technologies – and suggest that these policies have their analogues today as we face what history may view as another industrial revolution.

But that is only one part of the story of the Industrial Revolution. Another part is not always very pretty, but might also be instructive.  

Class Division in the New Economy
The rise of the capitalist class during the Industrial Revolution is well known, with a select few, the barons of industry, be it steel, rail, or textiles, catapulting to a level of wealth rarely known before. But less considered is the other tail of the distribution, the downward spiral of what today might be termed the middle class.

The story of the steel-driver John Henry’s race with the steam hammer is a type for the plight of English laborers overrun by the Industrial Revolution. Labor was caught in the sea-change of new technologies and economic organization. 

Hand work could not compete with the machines, no matter how great the workers' skill and determination. A whole generation of hand laborers kept up a desperate struggle, but with an inevitable end. The same occurred for the small farmers, who were squeezed out by the consolidation of farms that had been initiated by the policy of privatizing enclosures. Some gave up their land and drifted away to the towns to keep up the struggle a little longer as hand-loom weavers, but then became part of the factory labor class, just as others gave up their looms and devoted themselves entirely to farming for a while, but eventually sold their land and dropped into the class of agricultural laborers. 

The result was the same in either case: Household manufacture gave way to that of the factory and the small farms were consolidated. For the many who did both farming and hand work, their work, subsistence farms and homes were all lost.The farmers who lost access to the commons due to the policy of enclosures frequently failed to find alternative employment near home and became paupers and vagabonds.

Just as the factory system disenfranchised and commoditized the industrial workers, the farm workers became separated from the land. Three classes emerged in agriculture: the landlords, the tenant farmers, and the farm laborers. The landlord class was a comparatively small group, a few thousand, of nobility and gentry who owned by far the majority of agricultural land. Another class, the yeomen who owned and cultivated their own small farms, disappeared entirely, descending into the class of laborers.

Obviously, the Industrial Revolution ultimately increased prosperity, but for a time it made a wide swath of the populace worse off. The period of transition from the domestic to the factory system of industry and from the older to the new agriculture was one of almost unrelieved misery for those who could not integrate into the new economy, whether due to lack of capital or lack of physical or mental adaptability.

New Routes to Job Creation
While the hand-loom weavers kept up a hopeless struggle in the attics and cellars of the factory towns, their wages sinking lower and lower until the whole generation finally died out, and while the small farmers bowed to the competition with the larger producers, the plight of the farmers and hand laborers descended with a vengeance on their children. Many landed in parish poorhouses, and it didn’t take long before the factories discovered this fresh new source of labor. They began taking the poorhouse children as “apprentices”, signing indentures with their stewards, agreeing to give their wards room and board – and the promise of training – and then put them to work.

Children as young as seven years old worked in the cotton spinning factories. The children began work while extremely young and worked the same hours as the grown men and women. They could do many jobs in the factories just as well, and in some cases, such as when working with spindles and fine thread, even better than adults. They were remotely situated in apprentice houses built near the factories, the burdens of unrelieved labor and the harshness of their masters unnoticed by the community. The actual working hours in the factories in the earlier part of the 19th century were a technology-assisted twelve to fourteen hours a day; gas lights illuminated the factories and steam power worked without tiring. When the factory was running at full capacity the children were employed in two shifts, one in the day and another in the night. It was said that "their beds never got cold," one shift climbing into bed as the other got out. There was no effort to provide them with any training, nor education, nor time for recreation.

While the conditions were harsh in the factories, things could be worse. Here is an account of child labor in the mines. It is so heart-wrenching that it might be dismissed as sensationalism were it not based on the findings of an 1842 report of a Royal Commission charged with investigating the conditions of child labor in the mines:

Children began their life in the coal mines at five, six, or seven years of age. Girls and women worked like boys and men, they were less than half clothed, and worked alongside of men who were stark naked. There were from twelve to fourteen working hours in the twenty-four, and these were often at night. Little girls of six or eight years of age made ten to twelve trips a day up steep ladders to the surface, carrying half a hundred weight of coal in wooden buckets on their backs at each journey. Young women appeared before the commissioners, when summoned from their work, dressed merely in a pair of trousers, dripping wet from the water of the mine, and already weary with the labor of a day scarcely more than begun. A common form of labor consisted of drawing on hands and knees over the inequalities of a passageway not more than two feet or twenty-eight inches high a car or tub filled with three or four hundred weight of coal, attached by a chain and hook to a leather band around the waist.

The job creators, with the prosperity of England no doubt foremost in their minds, lobbied against the hand of regulation and labor reform. Their points were three-fold:

First, that abolishing child labor would harm those who promoted job creation and productivity. Manufacturers opposed the child labor laws as an unjust interference with their business, an unnecessary and burdensome obstacle to their success, and a threat of ruin to the class who provided employment to so many laborers and created the productive engine that was the source of commerce for the country.

Second, that if child labor were restricted England would be placed at a competitive disadvantage. This would not only affect the capitalist class, but affect the size of the pie to be distributed, and thus ultimately trickle down to affect the working class itself.

Third, that at a more fundamental level government regulation should be broadly cast aside because it was detrimental to competition and essential freedoms: freedom of labor, freedom of capital, and freedom of contract. If the employer and the employee were both satisfied with the conditions of their labor, why should the government interfere? How this related to children who had been indentured by their stewards is unclear.

There was, however, opposition slowly grinding out successes in one industry after another over the course of the decades, though the most oppressive industry, that of mining, being literally underground and hence less visible, was only addressed toward the tail end of the reform.
Elizabeth Barrett Browning's Cry of the Children, published in 1842, is an influential example of the outpouring of sympathy for the plight of child labor, but the most persuasive argument for reducing the hours of children did not come from sympathy as much as from economic practicality worthy of laissez faire. Work in such a stifling and harsh environment stunted the children’s growth and led to disease and degenerative conditions. Therefore, some in the capitalist class were won over, or at least muted in their opposition because they deemed it advisable to reduce the harsh labor conditions for the “physical preservation of the race”.

The Revolutions of 1848
There are different possibilities available at any historical moment; the socioeconomic sphere can adjust to change in any number of ways. In the face of the social tumult brought on by the industrial revolution, the course taken in Europe differed from that of England. In England awareness and change came about gradually through the force of government reforms. In Europe the epiphany occurred with the revolutions of 1848. As did the events in the England, these revolutions reflect some of the stresses and some of the glimmers of political and social activity we are seeing today.

The 1848 revolutions were the culmination of a number of stresses, some similar to those felt in England, which had been building over the course of decades. There were social costs incurred as the small farms and guilds of the artisans were replaced with larger, impersonal agricultural and industrial plants. There had been a decline in the standard of living compared to that of the previous generation.  The problems reached a crescendo in the years immediately preceding the 1848 revolutions because of the interrelated crises of years of poor harvests, a credit crunch brought on in part by the need to borrow in the face of the resulting high food prices, and an economic downturn precipitated by, among other things, a banking crisis. These all combined to lead to lower income and high unemployment. 

The revolutions of 1848 spread by force of ideology, spurred on by new modes of communication that, ironically, were facilitated by the concentration of the masses due to the factory system. The  revolutionary events began in January 1848 in Palermo, the provincial capital of Sicily. Uprisings were a regular occurrence there and in southern Italy in general, but this time they found more success and quickly spread from there to the Italian mainland. From there they moved on to Paris, where there were street demonstrations and clashes between demonstrators and police, with the demonstrators erecting barricades throughout the city. By March demonstrations and clashes between the demonstrators and police spread to Munich, Vienna and Budapest, and then to Milan and Berlin.

In most all cases the confrontations led to constitutional changes, dissolution of monarchies, and boarder political representation for the masses. But these changes ended up being short-lived; within a few years a counterrevolutionary wave washed many of these gains away. However, the 1848 revolutions represented the first time that there was such a broad outpouring of popular support, with the masses, mostly participating in non-violent protests, spanning many countries, religious groups and classes.