Does technology drive inequality?

It seems you can’t pick up a newspaper or watch a TV news show without hearing about the growing inequality of incomes in the U.S. Many question the validity of these claims, but let’s assume for a minute they’re true and that chief provocateur and mercantilist Lou Dobbs is right when he clumsily proclaims on CNN that there’s a war on the middle class.

The bogeyman of Dobbs and his ilk is globalization. They posit that the middle class is being attacked by overseas workers willing to labor for dollars a day. Their answer is to restrict trade and close off our economy to world markets.

But what if they’re wrong? What if increasing income inequality isn’t the result of globalization, but instead is caused by technology? We only have to look at our industry for myriad examples of how technology has replaced middle-income workers.

Perhaps the most striking example is the replacement of board drafters by skilled technicians using computer-aided drafting (CAD) software. An engineering firm used to feature a sea of drafting boards, each attended by a salt-of-the-earth, middle-class worker.

The introduction of CAD completely changed the landscape. A contest usually ensued among the drafters to see who could learn the new software quickest and use it most efficiently. The winners increased their personal productivity by leaps and bounds and freed themselves from the mundane task of drawing lines. Many took advantage and took on more design tasks, increasing their job satisfaction and often their incomes.

The losers lost their jobs, and the losers outnumbered the winners by about three to one—a good CAD person could do triple the work of the best board drafter.

The replacement of relays, timers, and analog instruments with PLCs is another example of how technology created winners and losers, and eliminated middle-class jobs in the process. The winners latched on to PLCs and made it their business to learn how to use them. The losers either couldn’t make the leap or didn’t want to.

Again, the winners freed themselves from mundane tasks such as laboriously troubleshooting relay-filled panels. They learned how to use PLC technology to do their jobs better and faster, and they reaped the benefits.

The same scenario is writ large across the manufacturing landscape worldwide, often aided and abetted by automation in general and automated machines in particular. That’s why manufacturing employment is declining worldwide, even in China, as worldwide manufacturing output continues to increase.

Think about how your customers use your machines. When a manual packaging operation is replaced by a highly automated packaging machine, labor is displaced. Skilled technicians and engineers who know how to keep these sophisticated machines up and running are in great demand. Workers who are very good at putting small boxes into bigger boxes no longer are needed.

The worldwide demand for manufactured goods simply can’t match the growth in manufacturing productivity. This means manufacturing employment and the middle-class jobs associated with it inevitably must decline.

An analogy can be made with the farming industry. Not long ago it took more than half the U.S. workforce to produce food for domestic consumption. Now the U.S. farming industry produces food for internal needs and export with less than 5% of the U.S. workforce.

The same trend is evident in manufacturing. As technology replaces labor, productivity increases and manufacturing jobs are eliminated. The winners use technology to enhance their positions, and the losers go to the service industries.

Sometimes the losers win because they find employment in the service industries is more satisfying and more lucrative than in manufacturing. Sometimes the losers really do lose because their new jobs don’t pay as well. It’s all part of a dynamic economy.

Optimists like me say that eliminating middle-income manufacturing jobs due to technology has little or no impact on inequality because displaced workers are gobbled up by service industries, with more than half of them better off than before. Income statistics back me up: U.S. and worldwide per capita incomes continue to rise as manufacturing jobs are replaced by service jobs.

Pessimists say the middle class is disappearing, but few would label technology as the culprit for fear of being labeled Luddites. Instead, they blame globalization and call for trade restrictions. However, trade restrictions won’t create a more equal society, and certainly will cause other problems.