The Knowledge Economy (part 2)

March 24, 2021

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Roberto Unger’s book lays out his vision of the emerging knowledge economy, with rapidly innovative, knowledge-based processes in the vanguard of production. So far, however, these advanced practices of production remain highly restricted—employing few workers, controlled by technological elites, and mainly benefiting a small number of global corporations. Unger observes what he calls “pseudo-vanguardism,” in which a company uses the products of advanced production—such as sophisticated software—to run large, highly regimented operations, often in parts of the world far from corporate headquarters. The creative knowledge workers of Silicon Valley are supported by low-paid assembly workers in Asia. “Genuine vanguardism remains restricted to a small inner circle of entrepreneurs, managers, and technicians—an elite of capital and of knowledge—disengaged from the social entanglements of mass production.”

This has two unfortunate consequences: the domination of the global economy by large oligarchies and the weaker position of labor in relation to capital. Most workers don’t yet receive the potential benefits of the knowledge economy, but experience instead greater job insecurity and a declining share of income relative to the owners of capital. Innovative firms want flexible work forces, so they replace secure employment with subcontracts to low-wage firms or part-time and temporary hires. These trends contribute to the “hollowing out” of the middle of the wage distribution and the increase in overall inequality. The potential of the knowledge economy to unleash creative impulses, boost productivity and raise incomes across the board is yet to be realized.

These trends are especially noticeable in the United States, as evidence I have been citing from many sources supports. Frey reported that in the last 40 years, the share of US income going to labor rather than capital has declined from 64% to 58%. Among the 36 countries in the OECD, only three rank higher than the US on the Gini index of income inequality, based on after-tax income.

Unger’s explanation for these restrictions on the knowledge economy starts with the observation that the standardized, formulaic practices of industrial mass production are simply easier to spread from one place to another. Innovative, imaginative forms of work are harder to emulate because they “cannot, as mass production can, be reduced to a stock of readily transportable machines and procedures and easily acquired abilities.” The knowledge economy makes heavier demands on society to provide cultural and institutional support for economic growth and transformation.

What would it take to make the knowledge economy more inclusive? Unger identifies requirements of several kinds:

  • Cognitive-educational requirements include technical training that is not too job-specific, more emphasis on the imaginative side of the mind, in-depth study as opposed to “encyclopedic superficiality,” cooperative rather than authoritative learning, and discussion of contrasting points of view.
  • Social-moral requirements include more emphasis on the kinds of social interdependence that we more often associate with families, communities and churches, as opposed to the unbridled self-interest of traditional business. Social supports that could help compensate for greater flexibility of employment could include portable benefits that workers could take from job to job, or a “social inheritance” granted at birth, available to help finance human capital development and career transitions.
  • Legal-institutional requirements include new forms of coordination between governments and firms. The aim would be to help more firms acquire and use the new means of production, similar to how government helped small farmers in the nineteenth century with land grants, agricultural education and economic support. Analogous support today would include intellectual property reform to keep large corporations from monopolizing the ownership of online, user-generated data.

Unger advocates for a more vigorous democracy, since he sees today’s relatively weak democracies as too easily captured by powerful interests. He wants something in between the minimal government of laissez-faire capitalism and the more intrusive government of state socialism. A stronger democracy would respect and empower group differences, but also develop more rapid and effective means of resolving disputes among them. Otherwise, government may stand by helpless and gridlocked while the economy is generating undemocratic outcomes.

In the long run, Unger expects the emerging knowledge economy to support a more egalitarian society, recent trends in the opposite direction notwithstanding. He also expects it to ameliorate the chronic imbalances of economic supply and demand that create periods of recession and stagnation. He agrees with the Keynesian economists that supply does not create its own demand, and that there is no automatic connection between advances in productive capacity and the capacity to consume. That is the main reason for economic instability. A particularly innovative firm can expand a market by producing a product at lower cost, but that may not solve the problem of economy-wide aggregate demand.

Keynesian demand-side stimulus by government can help, through easy credit or “redistributive social spending.” Government can tax or borrow under-invested savings from the wealthy in order to boost spending and consumption for all. But even that may not be enough, if the problems of stagnation and inequality are severe. This is where Unger sees an institutional solution in the transition to the knowledge economy:

[W]e eventually come to a class of solutions that do expand demand by the same means through which they increase supply: an institutionalized broadening of access to the resources, opportunities, and capabilities of production. At this point, and only at this point, that which increases demand also increases supply. What the prevalent way of thinking supposes to be the natural state of economic life—the reciprocal accommodation of supply and demand—is in fact a characteristic of exceptional varieties of economic organization: those that have the property of breaching the limits of both supply and demand by equipping more economic agents with the means and occasions for productive initiative.

To make this more concrete, consider service workers whose means of production consist mainly of personal computers, software and skills, both cognitive and social. They are both workers and owners of capital, and their capital is intellectual and social as well as material and financial. Assuming they are providing a desired social service, they simultaneously produce something of value and generate income for their own consumption. Anything that increases their access to capital—broadly defined—helps them do so. The sharp division of owners and workers so typical of industrial capitalism—and so central to its inequalities and instabilities—starts to break down.

Unger accuses mainstream economics of a “poverty of institutional imagination,” the kind of imagination he associates with Adam Smith and Karl Marx. The most “fundamentalist” of economists defend the institutional arrangements that developed in Europe and America as part of the fixed laws of capitalism. Others are “agnostic” about such arrangements, limiting the subject matter of economics to what they think would be true of any market economy. Unger doesn’t want to defend or ignore institutions like property law and labor law, but instead bring institutional change back to the center of economic analysis.

In his final chapter, Unger discusses the “higher purpose” of making the knowledge economy more inclusive. The present economy is not only vulnerable to stagnation and growing inequality, but it also wastes human potential.

By condemning the vast majority of the labor force in even the richest countries, with the most educated populations, to less productive jobs, it also belittles them. It forces them to live diminished lives, giving inadequate scope to the development of their powers and to the expression of their humanity. To overcome the evil of belittlement through the transformation of workday experience is the higher purpose of an inclusive knowledge economy.

Keynes looked forward to a time when industrial productivity would eliminate scarcity and free people from the demands of work. That made sense at a time when highly productive manufacturing workers were demanding both good wages and a shorter work week. While some material things have become more abundant, Unger doubts that we could ever have enough of every marketable commodity. He points instead to the human capacity to keep finding new things to desire, especially in an economy that can offer more customized goods and services. Even if we limit our consumption of material things—and I expect limitations on natural resources to make us do so—I agree with Unger that “there is no limit…to our desire for service and attention from one another.” Instead of “freedom from the economy,” he looks for more “freedom in the economy.” This is consistent with his willingness to let the robots do the formulaic work, while humans devote themselves to the more creative functions.

Here are Unger’s closing thoughts:

As it deepens and spreads, the knowledge economy makes the practice of production more closely resemble the workings of the imagination….

Imagination is freedom because it is transcendence in the working of the mind. A form of production giving more space to the imagination than any previous practice of production ever gave represents an advance in freedom. It justifies the hope that we might find freedom in the economy rather than only freedom from the economy.

A knowledge economy in which many can take part does more than increase productivity and diminish inequality. It has the potential to lift us up together, to offer us a shared bigness.

The Knowledge Economy

March 23, 2021

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Roberto Mangabeira Unger. The Knowledge Economy. Brooklyn: Verso, 2019.

Roberto Unger is a Brazilian philosopher who has studied a wide range of disciplines. Here he sets forth his vision of the emerging knowledge-centered economy. I would describe Unger’s perspective as post-mechanistic in a double sense: He describes an economy that is moving beyond mechanized manufacturing as its core economic activity; and his conception of that economy emphasizes creative processes of institutional change rather than universal mechanical laws. That places him in the tradition of heterodox economic thinking, along with critics of capitalism like Marx and institutional economists like Veblen. The more orthodox neoclassical tradition tends to be less historical, assuming that capitalism works the way it does because of its conformity with timeless mathematically formulated laws.

Unger denies that there is any “natural and necessary way to organize a market economy,” or that capitalism is “governed by immutable regularities, like the ones studied as laws, symmetries, and constant of nature, by fundamental physics.” He calls institutional structures “artifacts” and “ramshackle constructions: the outcomes of many loosely connected sequences of conflict among interests and among ideas.”

How work is changing

Like Adam Smith in the eighteenth century, Unger wants to understand an emerging economy by focusing on its “most advanced practice of production,” or what he calls its vanguard. In Smith’s day, that was a rudimentary form of mechanized manufacturing. Today it consists of rapidly innovative, knowledge-based processes that continually alter the relationship of humans to nature and to one another. Unger says that “economic life has…always been a story of the troubled advance of the imagination,” but now that is becoming truer than ever before, applying across every sector of the economy from agriculture to hi-tech manufacturing to knowledge-intensive services. However, within every sector, the newest practices of production remain highly restricted—employing few workers, controlled by technological elites, and mainly benefiting a small number of global corporations. If we can extend those practices to more work processes, the emerging economy has the potential to alleviate two of the perennial problems of economics–chronic stagnation and extreme inequality. This potential:

…bears on our chances of more fully realizing in practice the ideal that commands the greatest authority in the world and the strongest kinship to democracy: the ideal of effective agency, of the ability of every man and woman to act upon the circumstances of his or her existence.

Unger believes that the best way to stimulate productivity is not just to automate production but to enhance the human ability to innovate and cooperate, which is the promise of a more “inclusive vanguardism.”

The typical work organization of the knowledge economy will differ from the classic industrial factory in many respects. It will engage in more constant innovation in both product design and methods of production. It will create more customized products without entirely sacrificing the economies of scale that come from producing many of the same kind of thing. It will encourage more worker initiative while maintaining teamwork and unity of purpose. It will stop sharply dividing workers into order-givers and order takers. Think of a team of software designers developing a new app, or a team of financial planners using such an app to generate customized financial plans for many clients.

Features of knowledge-intensive production

Unger goes on to discuss three deeper features of knowledge-intensive production that he expects to emerge only as it develops and becomes more widespread. The first is that the economy will be less constrained by the problem of diminishing marginal returns, the decreasing gains in output from increments of one factor of production (such as labor) when other factors of production (such as machinery) are held constant. That is less of a problem when constant innovation based on developing knowledge is upgrading the quality of labor and technology all the time.

The second feature is the closer connection between how people work and how they think. “Now it becomes more accurate to say that the growth of knowledge becomes the centerpiece of economic activity.” Here Unger’s philosophical background is on display as he distinguishes the human mind as a machine from the mind as more than a machine. The first aspect of mind is “formulaic”, operating under stable formulas or algorithms repeated over and over. The second is more imaginative, reacting against established modes of thinking and freely recombining old thoughts into new insights.

Under earlier advanced productive practices—mechanized manufacturing and its successor, industrial mass production—the worker worked as if he were one of his machines. His movements—in Adam Smith’s pin factory or Henry Ford’s assembly line—recalled theirs. The parallelism of worker and machine was more than a metaphor or a distant analogy; it was studied and codified by experts in industrial organization such as Frederick Taylor and offered as a practical guide to managers and foremen.

Under earlier advanced practices of production, we see the mind as machine…. [L]ittle by way of education was in fact required of the worker in the age of mechanized manufacturing and industrial mass production. What he needed was a disposition to obey, basic literacy and numeracy, and manual dexterity, especially hand-eye coordination.

The third feature of the knowledge economy is a relational change to produce more trusted and trusting workers. The factory system of production, with its order-givers and order-takers, has relied on strict managerial control rather than trust. Employees often act as adversaries of management, doing only as much as they are made to do, just like many students in factory-like schools. But workers whose knowledge and imagination are valued must be trusted to exercise discretion in support of the team objectives they share.

Working less or working smarter?

Unger’s conception of the knowledge economy relates directly to the debate over automation’s impact on jobs. In Rise of the Robots, Martin Ford warned of a “jobless future,” where so much of the work is performed by robots that masses of people are unable to find employment at all. They will have to rely on a basic income guaranteed by government, receiving “enough to get by, but not enough to be especially comfortable.” That sounds to me like a rather grim prospect, the ultimate devaluation of human labor by capital and technology. Unger sees a very different potential:

The fact that machines operate formulaically might suggest that their greatest value is to allow those who use them to operate nonformulaically. The users of the machines can then reserve their supreme, and in a sense their only, resource—time—to those activities that we have not yet learned to repeat and therefore to encode in a mechanical device….

The most effective use of these machines is their use by workers who do not work and think as if they were machines. The combination of the machine and the anti-machine—that is to say, the worker—is much more powerful than the worker or the machine alone.

As I discussed in my review of Carl Frey’s The Technology Trap, economists have done some detailed analyses of occupations and specific tasks to determine which jobs are most vulnerable to future automation. They have found that even many non-manufacturing jobs are at risk, especially in the areas of office and administrative support, production, transport and logistics, food preparation, and retail. But they have also found that the vulnerability to automation is much greater for lower-skilled, lower-paid work. If there is a new frontier for job creation, it probably lies in the area of skilled services. There technology can enhance human labor with less risk of replacing the human laborer.

While acknowledging that this has not yet happened on a large scale, Unger believes that the knowledge economy can make workers less dependent on large owners of financial capital and machinery, encouraging freer forms of work like self-employment and cooperating teams that pool their resources. Workers will rely on smart machines to do the jobs that can be reduced to an algorithm, but make creative use of those machines to produce what they can imagine.

Much of this may sound like pie-in-the-sky to someone working in a low-wage, uncreative service job. As I mentioned earlier, Unger sees the vanguard of innovative production as highly restricted within the current economy. I will elaborate on that problem in the next post.