Creative Destruction or Wage Destruction?

Creative destruction is one of those terms that seems to be thrown around like confetti these days. But I think the term is often used interchangeably with what I like to call “wage destruction”.  They are different although the net impact of both can be distressingly similar on workers as well as technical professionals.  Both creative destruction and wage destruction are equal opportunity  disrupter of employment.  It spares no one save CEO’s and hedge fund manages. Anyone who works for a living, whether they be a Ph.D. or in a service industry is vulnerable to job dislocation.

However, creative destruction is something that can be a net positive while wage destruction merely undermines earning potential without replacing an old technology with something new.

Creative Destruction:

Creative destruction is something that is fought by workers and big business alike. But it is something that truly needs to be allowed to move forward.   In the late 1970s one of our most underestimated president’s, Jimmy Carter, attempted to put America on the path to energy independence.  Among other things, Carter wanted to promote research into nontraditional energy sources and fuel efficiency. You would think he was advocating world wide Armageddon.  From coal miners to CEO’s of oil companies the resistance to such research was fierce.  Both laborer and CEO were locked in a common bond – if Carter’s plans were successful, both of their bottom lines were on the chopping block.

Carter’s words seem prophetic today:

We must not be selfish or timid if we hope to have a decent world for our children and grandchildren.

We simply must balance our demand for energy with our rapidly shrinking resources. By acting now, we can control our future instead of letting the future control us.

 

 

For the entire Speech follow the following link:  Proposed Energy Policy:

Carter was wrong about one thing.  There were more raw materials available than we thought at the time.  Deep drilling techniques  have given a new lease on life to the oil industry – BUT – wouldn’t we be better off if Carter had succeeded?

Our involvement in several Middle Eastern conflicts would probably have never happened.  Global climate change would not be looming like the Sword of Damocles. 35 years later we would be well on our way to a cleaner, more independent energy future that would have created as many (if not more) well-paying  jobs as it would have destroyed.

WAGE DESTRUCTION:

An example of wage destruction is when jobs are outsourced to other countries where the cost of living is lower.  Wage destruction can also occur when employment is “in-sourced”.  A perfect example can be found in the biotech field where graduate students and post-docs are imported from India, China, Eastern Europe – you name it – creating a massive glut of highly skilled labor willing to work for far less than what was standard compensation.

I read an analogy online a while back that was spot-on.  I couldn’t find the source, so I apologize  for using it unacknowledge  – but here it is:

Picture a city like New York.  For years it has had a relatively stable number of electricians.  There are enough electricians in the city for healthy competition. Fees for service are generous because it is highly skilled work and the overhead and equipment  does not come cheaply.  So over time, these contractors find that they are making a reasonable, but not extravagant living. All of sudden, the United States decides to open the immigration floodgates for every electrician in India and China who wants to come to New York to work.  Suddenly the number of electricians has quadrupled  and the “new kids on the block” that have helicoptered in are offering dirt cheap fees to entice consumers.   What happens to the ability of these New York electricians to make a living?  It becomes a race to the bottom.

The above is wage destruction.  No new technology was created that would create new jobs. There is no net gain – except for consumers – and it is an example of what is happening in many STEM fields while everyone wrings their hands about Americans shunning these fields, no one has any answers to wage destruction.

Innovation requires creative destruction, but withers under wage destruction….We have got our priorities upside- down.  So it is small wonder that the career tracks of our youth are going down the wrong path.

© 2012 – RGHicks – http://reinnovatingamerica.com – All rights reserved.