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  • TechnoProletarians?

    Posted by David Foster on April 18th, 2016 (All posts by )

    Here’s a story about some Silicon Valley tech workers protesting outside a Hillary Clinton event co-hosted by a venture capitalist and George Clooney.  One might expect that these people are protesting Clinton because their political preferences lean toward the Libertarian or Conservative side.  But then, one would be wrong.

    They are mostly Sanders supporters.  And they feel oppressed by the industry that they are in, and especially by the VCs who fund the companies where they work. Here’s the complaint of a 26-year-old software engineer:

    “They sell you a dream at startups – the ping-pong, the perks – so they can pull 80 hours out of you. But in reality the venture capitalists control all the capital, all the labor, and all the decisions, so yeah, it feels great protesting one.”

    “Tech workers are workers, no matter how much money they make,” said another guy, this one a PhD student at Berkeley.

    Now, one’s first instinct when reading this story–at least my first instinct–is to feel contempt for these whiners.  Most of them are far better off financially than the average American, even after adjusting for the extremely high costs of living in the Bay area.  And no one forced any of them to work at startups, where the pressures are well-known to be extreme.  They could have chosen IT jobs at banks or retailers or manufacturing companies or government agencies in any of a considerable number of cities.

    Looked at from a broader perspective, though, the story reminded me of something Peter Drucker wrote almost 50 years ago:

     

    Individually he (the knowledge worker) is an “employee”…but the knowledge worker sees himself as just another “professional,” no different from the lawyer, the teacher, the preacher, the doctor, the government servant of yesterday.  He has the same education. He has more income. He has probably greater opportunities as well…This hidden conflict between the knowledge worker’s view of himself as a “professional” and the social reality in which he is the upgraded and well-paid successor to the skilled worker of yesterday underlies the disenchantment of so many highly educated young people with the jobs available to them.

    There is much truth in this, I think…as any field becomes a mass employer, it is likely that a substantial number of the people working in that field will feel that they are not getting the high status and rewards that they should have.  And the frustrations about which Drucker writes are surely greatly exacerbated when large numbers of people in a field are concentrated in the same geographical area. And in the case of Silicon Valley, the high living costs–driven by both the over-concentration of the so-called “tech” industry in that area and the anti-growth policies of the political elites–serve to further increase these frustration levels.  There are also the downward wage pressures driven by the H-1B visa program and the offshoring of entire functions to India and other places.

    On the other hand, the SV concentration does offer most employees the opportunity to job-hop without geographically moving in many cases…and the nature of these startups provide technical employees with promotional opportunities that might not be available to them elsewhere.  If you a talented programmer in a software or Cloud company, you will have a shot at a range of non-programming jobs…product manager or sales support manager, for example…that you would be unlikely to have much chance for in, say, a bank or a metal-bending company.

    Here’s Drucker again:

    But no matter how good a job we do in the management of the knowledge worker–and so far, we have barely begun to work in this area–his status, function, and position in modern society are certain to be a central problem, politically as well as socially.  It is likely to be the social question of the developed countries for the twentieth and probably the twenty-first century.

     

    48 Responses to “TechnoProletarians?”

    1. Grurray Says:

      Day also changed his dating app screen name to BernieBro: “I’m just embracing it.”

      Has the new screen name worked?

      “Really well, actually,” Day said.

      This type of situation always makes me think of the Happy Days episode where Ritchie campaigns for Stevenson in order to get a date with the girl he has a crush on. Of course, Fonz supports Eisenhower (I like Ike! My bike likes Ike!!).

      It turns out the girl breaks up with Ritchie at the end when Stevenson loses in a landslide, so this kid has got maybe a couple more months of mileage out of that handle.

    2. Michael Hiteshew Says:

      I sympathize with those kids because a lot of small companies and startups are sweatshops. I’ve worked in them. On the other hand, he has a job and opportunities. If he gets the government controls on production he clearly wants, he may not have a job.

      I was reading a Brit ex-pat column on the BBC website maybe 10-15 years ago. The guy had vacationed in Greece for years and decided to move there and live where he vacationed. Once there reality hit. He discovered that young Greeks had no real job opportunities that paid well because the only viable businesses were tourism and restaurants and there was lots of competition. In addition, no one wanted to put an employee on the books because of all the obligations, tax and otherwise, so pay was under the table and only for hours worked. Young married couples often moved in with one of the parents because they made insufficient money to live on their own until their 30’s. He also discussed the rampant property crime where anything not nailed down was immediately stolen. On paper, however, Greece is a highly socialized, highly regulated society of the kind the worker above thinks he wants. Better or worse?

    3. Bill Brandt Says:

      I am ambivalent on this. Best advice I ever got on life was short and succinct. “Life is nothing more than choices”.

      Life distelled to the raw basics – this is so true.

      2 kinds of people – those who want to portray themselves and victims and those who steer their way though and too opportunities.

      There is nothing keeping these people in the Silicone Valley. Nobody’s got a gun to their head.

      But then they probably have to keep up those BMW payments ;-)

    4. Jonathan Says:

      Silicon Valley tech workers are analogous to NYC financial workers. Members of both of these groups put up with high costs in order to work in the geographical areas where jobs in their respective industries are most plentiful, where the most lucrative and prestigious jobs are found, and where it’s easiest to find a new or better job. However, SV people seem to be more naive about the nature of work, wealth and politics.

    5. Grurray Says:

      Very keen observation here

      Altogether, an increasing number of people who are full-time employees have to be managed as if they were volunteers. They are paid, to be sure. But knowledge workers have mobility. They can leave. They own their own means of production, which is their knowledge. What motivates–and especially what motivates knowledge workers–is what motivates volunteers. Volunteers, we know, have to get more satisfaction from their work than paid employees, precisely because they do not get a paycheck. They need, above all, challenge. They need to know the organization’s mission and to believe in it.

      They’ve been treated like faux-volunteers, but now they’re turning into real volunteers since automation and algorithms are taking their jobs.

    6. Subotai Bahadur Says:

      OK, definitely if he gets his wish and Bernie is elected, but almost surely no matter what; the economy and entrepreneurship that create the high paid jobs he is so angry with are pretty much doomed in a very short period of time.

      After that happens, when it comes down to it, they will be classified as Kulaks who worked for the capitalists by the core of Bernie’s supporters. It will be interesting.

    7. tomw Says:

      I resented very much signing an ‘intellectual property’ clause that released any and all claims to any software I created to my employer. The same document also included a non-compete clause, such that I would not seek nor accept employment with a competitor for several (3?) years subsequent to terminating employment.
      I thought, naively, whatever I did in my own time belonged to me. Nope.
      The hurtful thing now is to be forced to sign releases from any claim of unlawful termination to continue employment while training H1B visa’d replacement workers. (I did not have to do that)
      You pay a price to be on the ‘bleeding edge’ of technology, and to have that pot of gold in the distance whenever a start-up goes public, and all the vested interests become real. Sometimes you bet on the wrong company, others, you win the prize. Still others end up being sold by the ‘angels’, and you are left looking for a job once again.
      I could have changed jobs many times in the SF Bay Area in the 1977-1992 time frame, but chose not to, as I did not care enough to seek that pot of gold. As I noted to my co-workers, I would have been happy with a 40-foot doublewide out on some dirt somewhere, and my goal was to have enough assets to have that as an option if I ever wanted to tell my boss to take a hike. Who needs more?

    8. TangoMan Says:

      What is described is an age-old tale. When you combine the resources of capital with the efforts of workers you create wealth. That newly created wealth needs to be shared between capital and labor. There is always dispute regarding how that wealth should be divided. For the last 50 years capital has had the upper-hand in bargaining and the strength of capital vis a vis labor is now too unbalanced.

      I find it outrageous that SV employers are importing labor in order to further drive down wages. I can understand the frustration of these protesters. An 80 hour per week for a fixed salary is paying a worker only 1/2 of what they think they’re earning for a 40 hour per week job. As Drucker notes knowledge workers are more like regular working Joes than they are professionals and those old unionization movements which brought about 40 hour weeks were the result of pushback against employer practices which tried to suck as many hours per week out of an employee as was humanly possible. When the strength of Capital becomes too large compared to that of labor, then pushback needs to happen. Those SV employees need to be organized and more disruptive to employer interests in order to extract a larger share of the wealth that is created by their employment. There is a lot of truth in the observation that unions bring strength to a negotiating table that a lone employee cannot match.

      As for Bernie, WFT? Trump supporters actually want Trump’s hardline positions on deportation, birthright citizenship, Muslim ban, wall, etc. and don’t want these positions negotiated away. I’m reading reports that those who support Bernie’s socialism don’t really want a socialist economy and don’t want to pay for it, so what exactly are they pining for when they support Bernie?

    9. dearieme Says:

      Complaining about 80 hour weeks at age 26? Cissy.

    10. David Foster Says:

      TangoMan….”IAn 80 hour per week for a fixed salary is paying a worker only 1/2 of what they think they’re earning for a 40 hour per week job”

      If anyone takes a job with a startup thinking they’re going to be working 40 hour weeks, they shouldn’t be allowed to cross the street by themselves.

    11. Richard Says:

      Yes, ping-pong . . . First the “Ping” — the job, and then — the “Pong” — “The Golden Rule” — “The one with the gold makes the rules.”

    12. David Foster Says:

      Tomw…re non-compete agreements, there are significant legal restrictions on the use of these in California:

      https://www.americanbar.org/content/dam/aba/events/labor_law/2013/03/employment_rightsresponsibilitiescommitteemidwintermeeting/4_orrick.authcheckdam.pdf

      I have heard it argued that one reason for the success of SV is precisely this; that the higher labor mobility consequent to it has encouraged more starting and success of new enterprises.

    13. David Foster Says:

      A VC has some harsh words about startups that spend too much of their money on real estate and on highly inflated salaries required for downtown SF locations:

      “”Who makes the money? [Commercial real estate giant] Cushman & Wakefield makes the money? If at the end of this cycle, whenever it ends, we look back at who made all the money, and it’s not Sequoia or Social + Capital or Andreessen, but it’s Cushman & Wakefield, WeWork, and ZeroCater, something is wrong.”

      http://techcrunch.com/2015/09/17/chamath-palihapitaya-on-insane-burn-rates-ipos-and-raising-a-new-real-estate-fund/

    14. brer rabbit Says:

      “from each according to his ability, to each according to his needs”.

      Certain comrades have greater needs than others. This was true in Communist China, the Soviet Union and now in Bernie’s world. If comrade is able to work 80 hours, then he/she must work 80 hours.

    15. TangoMan Says:

      If anyone takes a job with a startup thinking they’re going to be working 40 hour weeks, they shouldn’t be allowed to cross the street by themselves.

      If anyone takes a job with a coal mining operation they’re going to be working 40 hour weeks, they shouldn’t be allowed to cross the street by themselves. Everyone knows that coal mining requires working 14 hours shifts, working on Saturdays and bringing your kids along with you to train them for when they become coal miners.

      All you’re pointing to is existing culture. The only difference between a tech start-up and a plumbing small business start-up is that the plumber starting his business doesn’t have as much upside potential and so can’t entice workers to work long hours for low pay by holding out equity stakes and the promise of a huge equity windfall if the gamble works out well.

      Script writers frequently note that there isn’t much work for directors, actors, lighting designers, producers etc who are working with a 100 pages of blank paper and so too with knowledge workers in tech – all the capital in the world can’t create anything without human ingenuity being applied to a task.

      Many people have also observed that playing a lottery is a bad financial undertaking and the impression I’m getting is that the days of big payoffs from equity stakes earned in start-ups is becoming an ever rarer event and so the informed trade-offs of investing 80 hrs per week, often with meager pay, in order to take a gamble on a big payday in the future isn’t looking so informed to many people these days.

      When the coal mining company wanted to hire people, the workers were making informed decisions about the length of the work day, the pay they received and the black lung that they were going to get but the informed decision they made to take the job doesn’t wash away the power differential between a lone employee, whose labor is a commodity, and the employer who can choose from thousands of interchangeable prospective applicants and the existing conditions regarding mine workers only changed when workers collectivized.

      Knowledge workers might be reinventing the wheel here.

    16. Mike K Says:

      “as any field becomes a mass employer, it is likely that a substantial number of the people working in that field will feel that they are not getting the high status and rewards that they should have. ”

      Theses what is happening to medicine and productivity is going down like a rock.

      I’m reading an excellent book called, The 10,000 Year Explosion. that is about evolution in humans the past 10,000 year “Eocene period.”

      The authors’ point is that evolution did not stop with homo sapiens, it accelerated. Their examples are terrific and I will do a post when I finish it.

      My short version is that we are evolving 100 times more rapidly than humans did before agriculture. “Knowledge Workers” may be evolving more rapidly than most.

      From entrepreneurial geniuses to slaves in two generations.

    17. TangoMan Says:

      I’m reading an excellent book called, The 10,000 Year Explosion. that is about evolution in humans the past 10,000 year “Eocene period.”

      Welcome to my corner of the blogosphere. Sad news, Henry just passed away a few weeks ago.

    18. Mike K Says:

      I can’ believe I had that book on my Kindle for three years and hadn’t read it. I think I thought it was something different; an animation of the human egress from Africa and the volcano in Indonesia that almost wiped us out.

      Anyway, it will get me back to the Lewin Genes IX that is on my shelf.

    19. David Foster Says:

      Tango…there are a few problems with the coal mining analogy, for example:

      1) Most tech workers are college graduates, whereas most coal miners ended their formal education with high school. While we all know about the issues with American higher education, surely those expensive years of schooling are of *some* value in being able to evaluate what one is getting into when accepting a job…reading and understanding the terms of a contract, for example.

      2) Coal miners, at least in the US, tend often to be in rural areas where their families have lived for generations, and are less-likely to be comfortable with moving to a different place.

      3) In any event, the number of locations where coal mining can be done is inherently limited by nature.

      4) There aren’t very many tech jobs that involve the sort of physical discomfort and danger that one will find in even a safe an well-managed coal mine.

      5) Many tech people have the ability to go out on their own…as web developers, or marketing consultants, for example….contrasted the the unlikelihood of being able to open up one’s own coal mine.

    20. David Foster Says:

      Tango…”SV workers need to be organized and disruptive to employer interests”….I can think of few things more harmful to the future of the US economy than unionization of people woking in early-stage firms. It’s not the higher pay that’s the issue; it’s the rigid work rules, highly-detailed job descriptions, further increase in work-related litigation, and increased difficulty in maintaining performance standards…all of which are predictable consequences.

      To the extent that the attitudes described in the article are common in SV…and I suspect that the sample of people at a Bernie Sanders event of this kind is far from typical…it seems like a good argument for putting one’s startup somewhere other than the Bay Area.

      I do agree with you about the H1-B visas….I see little justification for these on any kind of large scale.

    21. Mike K Says:

      “I do agree with you about the H1-B visas….I see little justification for these on any kind of large scale.”

      This is just more from the VC entrepreneurs who are funding Hillary.

      “Do as I say. Not as I do.”

    22. Whitehall Says:

      What’s really going on in Silicon Valley is that the sources of returns to capital are shifting.

      It used to be that computers, software, and IT were huge productivity enhancers for the broader economy. That allowed them to reap above normal returns as their fair share. Technology and innovation brought wealth.

      But IT and computers are generally plateauing in marginal returns from technical innovation. Ask yourself, when did the IT department deliver a really useful new gizmo to your desktop?

      What we see now is the concentration of business in a few behemoths like Google, Facebook, etc. Market share, elimination of competition, and positioning are king now.

      Once that starts (returns from market share or crony capitalism) then the workers no longer are needed as much as their value declines. It is becoming a mature industry.

    23. TangoMan Says:

      .I can think of few things more harmful to the future of the US economy than unionization of people woking in early-stage firms. It’s not the higher pay that’s the issue; it’s the rigid work rules, highly-detailed job descriptions, further increase in work-related litigation, and increased difficulty in maintaining performance standards…all of which are predictable consequences.

      I agree with you on these specifics and frankly they’re very disruptive to ordinary businesses as well, especially seniority rules. That said, it doesn’t necessarily follow that employees joining together in order to increase their bargaining power against employers requires that all of the above be adopted as well. These knowledge workers have two benefits that blue collar workers didn’t have – the first is hindsight and the second is understanding that such rigid work rules are not a good fit for a knowledge workplace like they may be on a factory floor where the work requires repetitive tasks.

      I’ve long been on record, probably 14 years since I started blogging on these topics, that an immigration moratorium would dry up labor surplus, drive up wages, restructure the labor market and broader economy, and thus could achieve higher shares of wealth created for employees and carry less deadweight cost than unionization. I usually state that employers need to be forced to hire black workers, when they prefer to hire Mexican illegals, and that this would do a lot to solve many of the problems percolating in the black community, but the same principle applies to knowledge workers – employers need to be forced, by market scarcity conditions, to hire 55 year old, out of work, programmers because there are no longer young programmers flooding the market, nor are there foreign imports. (An aside, didn’t you used to comment at my old blog, GNXP, a decade or so ago? I’ve been crossing paths with you for a long time but I can’t remember where.)

      Anyways, back to the topic. These are smart people and they’re working among other smart people and for smart employers, like Wilford Brimley noted in Absence of Malice, everyone’s smart, so the mission here is to innovate a better social organization than the United Auto Workers which can serve one purpose – to extract for themselves a larger share of the wealth that these knowledge workers create for their employers. This is a political war and these issues are never easy-peasy, there will be a lot of crying involved as this will lower profitability and returns on equity and moneyed interests are not going to take to this lightly, just like earlier moneyed interests fought bitterly against unionization efforts.

      Tango…there are a few problems with the coal mining analogy, for example:

      I didn’t make my point well. I was alluding to the early pre-union days when miners were worked long and hard. The same point could have used English textile mills as an example. The point is “things are as they are until they no longer are that way because something, or someone, changed the workplace culture.” Start-up culture involves insane hours because employers could get away with their requirement in exchange for equity stakes and there were enough success stories around in the early days to lend credibility to the claim that this was a risk worth taking. What worked in the past may no longer be working so well in the present. Start-up culture may be benefiting from path dependence issues and the fact that because this is the norm no start-up needs to buck the norm and so employees don’t have a choice because individual employees, especially individual prospective employees, don’t have the clout to change the existing norm while acting as independent agents. Coal mining, and textile mills, worked on a norm with respect to employee treatment right up until the time that the norm was changed.

      Now, the bigger question which you allude to is whether this one person’s attitude is representative of a larger community or just speaks to his unique take on life in SV, and I don’t have data to generalize beyond this one guy. I do though suspect that lots of people, not just in start-up but in corporate America, put up with the workaholic ethos because they must, rather than because they like to live that way or because they personally benefit from those long hours. We see with women that they are more vocal with management about structuring their work life so that they can have a personal life whereas men are more willing to play act as workaholics while surreptitiously living their personal lives while ostensibly on the job.

    24. Whitehall Says:

      TangoMan,

      An interesting bit of industrial history of America is that the first textile mill workers in the US were treated very well. Good pay, paternalistic employers, reasonable hours, etc.

      But that was with protective tariffs. Once those tariffs were removed, cloth got cheaper in the US but the workers lost ground and working conditions more closely resembled those of Europe’s “dark satanic mills.”

      Another analog is the post-WWII US auto industry. That was the hey day of the UAW when three big US auto companies dominated the WORLD markets. The legacy today is a much smaller number of well-paid UAW members and lots of retirees (like my dad) with great pensions and benefits.

    25. TangoMan Says:

      Another analog is the post-WWII US auto industry. That was the hey day of the UAW when three big US auto companies dominated the WORLD markets. The legacy today is a much smaller number of well-paid UAW members and lots of retirees (like my dad) with great pensions and benefits.

      The existing union culture is dysfunctional and corrupt in more fundamental ways than the old corruption of getting in bed with the mob. UAW signing on to a two-tier wage structure, AFL-CIO making peace with Democrats and their support of expansive immigration policies, the union which forced a candy company out of business rather than negotiating wage reductions in order to keep the company healthy, these all speak to twisted moral frameworks which do not serve the interests of their members.

      That post-WWII era is very interesting. America was flying high and many people assume that this was because America still had an industrial base which was not bombed out of existence during WWII and thus we became the factory for the world, but the exports as a percent of GDP don’t show an export-led boom as having occurred. I don’t know the particulars of whether Detroit was leading an export boom for autos but I do know that Detroit was part of the whole of the US and the whole of the US was in the middle of an immigration moratorium, every decade of which saw the percent of foreign born in our population decrease and every decade also saw a reduction in the gini index, meaning that the entire labor force was benefiting from capturing a larger share of the wealth they created when they worked with Capital. It wasn’t just auto workers who did well. Since 1970, about 10% of GDP has shifted from labor and over to capital – that’s going to leave a bite. Labor scarcity lifts all wages and this allows unions to amplify their power and I don’t see a problem with such power politics so long as unions don’t become parasitical or corrupt. David mentioned the ills of rigidly defined workplace rules and his point is sound – these types of rules ossify a workplace but I’m not convinced that such rules are a fundamental aspect of unionization instead of being artifacts of Version 1.0 of the union movement.

    26. David Foster Says:

      Whitehall…”An interesting bit of industrial history of America is that the first textile mill workers in the US were treated very well. Good pay, paternalistic employers, reasonable hours, etc. But that was with protective tariffs. Once those tariffs were removed, cloth got cheaper in the US but the workers lost ground and working conditions more closely resembled those of Europe’s “dark satanic mills.””

      I was aware of the good conditions for the farmgirls who were the original New England textile workers…they had libraries, music recitals, newsletters, etc (although the paternalism was pretty heavy-handed)….but had never before heard the decline in these conditions associated with the end of tariffs. Can you provide some dates and links? Thanks.

    27. David Foster Says:

      One historical factor in the relatively-high US wage levels was the availability of “free land”…if you don’t like the job opportunities in your town, then light out for the territories and try your hand at farming or ranching.

    28. David Foster Says:

      Tango…true there was low immigration in the 1950s, but to what extent was that true during previous times of high economic growth? The railroads were largely built by Irish and Chinese immigrants.

    29. David Foster Says:

      The historically-relatively-high US wage rates, which I associated with ‘free land’ in the comment above, tended to drive a higher level of mechanization in the US than in other countries. If you’re paying $2 a day for your textile workers, it make more sense to invest in the snazzy new labor-saving looms than if you’re paying $1 per day.

      Here’s a thought experiment: if Henry Ford had been able to have his cars assembled in Mexico by workers earning 1/10 of the US rate (assume good inbound and outbound logistics via RR, and government corruption and banditry reduced to tolerable levels)….then would the assembly line and other massive productivity-enhancing innovations have ever been created in his company?

    30. dearieme Says:

      The assembly line wasn’t an innovation of Ford’s. Since the idea was old hat, I suppose the question is why the other car makers didn’t use it.

    31. Whitehall Says:

      Here’s a link on the overall US textile industry response to tariffs or lack thereof…

      https://www.dartmouth.edu/~dirwin/docs/COTTON.PDF

      As to worker conditions…

      I remember my earlier assertions from a book on New England textile industry history. However, it correlates well with the tariff history.

    32. David Foster Says:

      The other car manufacturers were aiming at a ‘class’ market rather than a ‘mass’ market; their production volumes were probably too low for the assembly line to make a lot of sense.

      The usual story is that the assembly line first came into existence as a ‘disassembly line’, in slaughterhouses.

      Of course, the Ford efficiency enhancements weren’t *only* about the assembly line; there were special-purpose machine tools to perform multiple operations simultaneously, etc. I don’t know if Ford and his crew were directly influenced by Frederic Taylor’s work, but the whole concept of the “scientific analysis of work” must have been very much ‘in the air’ at the time.

    33. David Foster Says:

      Somewhat related and pretty interesting:

      https://ricochet.com/second-chances-for-americas-willing/

    34. Jonathan Says:

      The second chances post is very interesting.

      One of the negatives of our current culture is that we, and especially our bureaucracies and legal system, tend excessively to categorize and label people. This manifests on the one hand in victim culture, identity politics, affirmative action, and credentialism. On the other hand, and perhaps more negatively, it manifests in the wholesale writing off of people who fall into untouchable groups such as ex-convicts, felons and sex offenders.

      It might be better to treat people as individuals. Good to see that there are entrepreneurs who see opportunity in doing that.

    35. Mike K Says:

      “We see with women that they are more vocal with management about structuring their work life so that they can have a personal life whereas men are more willing to play act as workaholics while surreptitiously living their personal lives while ostensibly on the job.”

      This, of course, is what I have been describing in Medicine.

      There is an almost hysterical (pardon me) enthusiasm in this society for female founded industries. The recent debacle in Silicon Valley over the Ellen Pao lawsuit is one example.

      Now, we have an even bigger scandal in this strange story of the young woman who started this company because she didn’t like blood.

      When I first heard about this, I could not understand the business plan. When that happens, I usually lose money or stay away.

      Since launching Theranos in 2003, Ms. Holmes has set out to revolutionize the blood-testing industry. Before the company made changes to its website earlier this year, the website cited “breakthrough advancements” that made it possible to run “the full range” of lab tests on a few drops of blood pricked from a finger.

      In October, The Wall Street Journal reported that Theranos did the vast majority of more than 200 tests it offered to consumers on traditional lab machines purchased from other companies. The Journal also reported that some former employees doubted the accuracy of a small number of tests run on the devices Theranos invented, code-named Edison.

      Theranos has declined to say how many tests or which ones it runs on commercial machines. The company has said its technology has the capability to handle a broad range of tests.

      Federal officials began requesting information about Theranos in January and February, according to the people familiar with the matter. Those informal requests were followed by grand-jury subpoenas from a federal court in San Francisco in March, the people said. Agents from the Federal Bureau of Investigation and U.S. Postal Inspection Service are assisting in the investigation, the people said.

      I have never understood what this company was supposed to be doing different. Apparently, not much.

    36. TangoMan Says:

      The railroads were largely built by Irish and Chinese immigrants.

      I don’t believe that this was true for the early railroads in the US, the Eastern short lines. Same with the canals, those weren’t built by Chinese immigrants. Immigrants were certainly represented but I don’t believe that they ever comprised a majority of workers.

      The present day argument is that gardening in Los Angeles is done by Mexicans. Meanwhile gardening in Maine is done by the people who live in Maine. I suspect that most of us here either mow our own lawns, used to mow our own lawns, or used to mow our parent’s lawns.

      There is no job that Americans won’t do, it’s just a matter of pay levels. Those immigrants who built the railroad were simply the people who were willing to work for less and so were preferred to American workers.

      Here’s a thought experiment: if Henry Ford had been able to have his cars assembled in Mexico by workers earning 1/10 of the US rate (assume good inbound and outbound logistics via RR, and government corruption and banditry reduced to tolerable levels)….then would the assembly line and other massive productivity-enhancing innovations have ever been created in his company?

      Necessity is the mother of invention. Here’s another example:

      Economist Philip Martin of the University of California likes to tell a story about the state’s tomato industry. In the early 1960s, growers relied on seasonal Mexican laborers, brought in under the government’s “bracero” program. The Mexicans picked the tomatoes that were then processed into ketchup and other products. In 1964 Congress killed the program despite growers’ warnings that its abolition would doom their industry. What happened? Well, plant scientists developed oblong tomatoes that could be harvested by machine. Since then, California’s tomato output has risen fivefold.

    37. dearieme Says:

      “The usual story is that the assembly line first came into existence as a ‘disassembly line’, in slaughterhouses.” Pretty unhistorical though.

    38. Mike K Says:

      The Union Pacific railroad was largely built by former Union soldiers under the command of Grenville Dodge, for whom “Dodge City, Kansas was named. That PBS biography is pretty negative. Dodge was a Union general after he showed Grant how well he could repair railroads.

      After the war he and Sherman built the railroad to Utah. Sherman protected the route from marauding Indians and protected the workers along with some settlers.

      The western, California end, The Central Pacific, was built by Chinese labor, many of whom had experience with tunnel construction. The tunnels were needed in the Sierras.

      Irish immigrants, like my great grandfather, worked on the Erie Canal as a boy and he came to Illinois around 1860, when he was 26, to work on the new Illinois and Michigan Canal, which had opened in 1848. That at least is the family story. He worked in Peru-LaSalle as a constable and, when he had saved enough money to buy a farm, he went back to New York in 1863 and married my great grandmother. They stayed in New York, possibly because the war had begun and their first son was born in upstate New York. Their second son was born in Illinois in 1867.

      I think a lot of Irish immigrants worked on the Canadian Pacific Railroad. That was later, though. After the potato famine.

    39. Anonymous Says:

      “Labor scarcity lifts all wages and this allows unions to amplify their power and I don’t see a problem with such power politics so long as unions don’t become parasitical or corrupt.”

      Firstly, relative scarcity of any factor of production, land, labor or capital causes it’s relative price to increase- and in the case of absolute scarcity production to fall. People own these factors and returns from this ownership is what moves human productive effort from one to the other or combinations. Part of capital is human capital. A significant component of returns to workers is for their human capital. The Black Death created a relative scarcity of labor in Europe, but few would argue that the survivors were better off- at least in their own life times.

      Unions create a an artificial shortage for their captive market, but create an excess of labor in others. There is no net increase return to labor economy wide and long term the inefficiencies and distortion reduce real output and standard of living. Much of the measured increased share of output restores was due to the increase in labor participation in the 1950′, 60’s and 70’s of women in the labor force. The acceleration of their participation coupled with their relative lack of human capital would more than cover the fall in labor share of output costs. Mving much of this previously unaccounted for household production into market production also accounts for the nominal rather than real increase in output and increase in “standard of living.” Since non-market goods, such as household production and the value of non-monetary compensated child care was and is not capable of accurate account, the statistics fail to show the whole picture. Showing association of the measured metrics during such a significant labor resource change is very suspect. Add in the growing cash economy and barter among local small businesses and among professional and these macroeconomic metrics are increasingly suspect especially i magnitude comparisons.

      Secondly, unions have power because they restrict labor by creating an artificial scarcity by monopsony. They exclude free competition. They were successful in obtaining and extending monopsony power through the political process of legalizing closed shop. Unions are inherently parasitical and corrupt because they use political power to create a non-competitive labor market. They artificially restrict jobs to keep wages higher than a competitive wage determined by the actual value of labor output (marginal value product) where the efficient combination of factors of production is returning a competitive return to all owners of these factors as well as a profit high enough to justify the enterprise. This is a dynamic process of adjusting toward this efficiency and resource owners as well as buyers are constantly seeking to find a better return for their efforts.

      I’m having a problem figuring out how such a restriction of the market dynamic for adjusting factor prices such as closed shop unionization of industries and occupations helps the economy adjust to rapid changes in technology, human wants and factor availability. Without that effect there can be no net benefit in efficiency of factor payments. Spare me the progressive narrative of relative power between the company leadership and the sheeple workers. Mobility is the issue and a viable option. If one won’t become mobile in all aspects, then one has reduced their power to improve their situation. If workers are being abused, they need to look elsewhere. It works.

      There is little if any difference that I can see between the outcome whether one is looking at the traditional trade unionization or those in captive high skill occupations such as teachers or government. Union 2.0 looks a lot like SEIU and the AFT. They preside over areas that are virtually hot beds of efficiency, competition, accountability and innovation. Their corruption of the political process at all level is legendary and increasing over the past several decades. Government employees and teachers are generally over compensated and far less productive under union representation than similarly skilled workers who are not.

      I believe that the labor market has been highly distorted by unions in the trades areas and the effects were accelerated in the 1950’s where many workers moved from the trades into service sectors. Manufacturing output was protected by high transportation costs and trade barriers. Low immigration was a boon as well. It protected unionized and others from skilled competition from overseas. The “war on poverty” provided a great way to cover for the reduction in unskilled entry level trade employment by providing a monetary stipend for picking leisure over labor. Our falling share of labor returns from production is the fruit of an artificially constrained and distorted labor market where capital productivity has offset higher cost, lower effort workforce. Overseas competition under our oppressive regulation and tax system, coupled with the ultimate effect of an institutionalized decreased unskilled labor participation are the more recent effects. Immigration, both legal and Illegal has kept the un- or semi-skilled labor market wages low- no doubt and masked the effects of labor market and output inefficiencies. Now in a world trade environment where labor is increasingly mobile either physically or technologically, downward pressure on wages is ruthless as is the downward pressure in prices of goods and services that are similarly mobile.

      But how many of our low skill potential employees would elect work under the current entitlement systems in place? My bet is that not many. It is fixable, but maybe too complicated and disruptive to be politically possible in my lifetime.

      Using immigration as the primary cause is simplistic. It is as much an effect as it has become a cause. A more comprehensive approach would actually restore a more efficient and dynamic economy.

      Comparative advantage is the basis of the gains from specialization and trade within our economy as well as globally. Absolute advantage is not comparative advantage. Only to the extent we actually have comparative advantage based on production opportunity cost from specialized factors of production and the incentives to use them efficiently are we ensured of gains from trade in real terms (both internal or external trade). It seems to me that some of this discussion shows a confusion between absolute versus comparative advantage, nominal versus real economic values and static versus dynamic effects. Given all the inefficiencies resulting from a cumulative intrusion of government into our economy, simply focusing on the effect-cause of poorly conceived and operational immigration and shutting ourselves off from international trade with high trade barriers would only reduce what gains from trade we have been able to garner, reduce our real output and standard of living through the operation of all the other inefficiencies still present and empower the protected classes to work their competitive restrictions without as much counter effect from global competition. Reducing trade restrictions on manufactured goods broke the grip of the trade unions on many industries that ultimately led to better value. We wouldn’t and couldn’t listen to Deming until the Japanese made us. Remember the cars made in the USA in the 1970’s and early 80’s. That’s what we got from the trade restrictions and union power of closed shop (as well as other systemic inefficiencies) in the 1950’s and 1960’s.

      I’m not arguing against unions as such, but I am opposed to closed shop legal support.
      I’m not arguing for free trade under conditions of currency manipulation. I am arguing for a more market driven, efficient economic environment. We are not guaranteed a better quality of life just because we think we are entitled. We have to earn it by being more competitive. Comprehensively better. Crony capitalists and crony unionists spring from the same source: a government empowered to provide regulation, market protections/barriers and manipulation of the terms of market operation beyond its legitimate, very limited fundamental powers as expressed in our constitution. Clearly that is much bigger than just immigration and trade, neither of which is sufficient to get us moving in that direction.

      Death6

    40. TangoMan Says:

      Unions are inherently parasitical and corrupt because they use political power to create a non-competitive labor market.

      AND

      Now in a world trade environment where labor is increasingly mobile either physically or technologically

      Funny how you accept one as a natural state of nature and the other as corrupt when both arrive at their end state through the very same processes.

    41. Mike K Says:

      “few would argue that the survivors were better off- at least in their own life times.”

      I think it depended on the society. In England, the Black Death ended Feudalism and led to the middle class society of the wool towns. The small towns of the “Cotswalds” were built by sheep farmers who might have been serfs in an earlier age but the labor shortage forced efficiencies.

      During the Middle Ages,thanks to the breed of sheep known as the Cotswold Lion, the Cotswolds became prosperous from the wool trade with the continent, with much of the money made from wool directed towards the building of churches. The area still preserves numerous large, handsome Cotswold Stone “wool churches”. The affluent area in the 21st century has attracted wealthy Londoners and others who own second homes here or have chosen to retire to the Cotswolds.

      Of course, the little ice age made wool more desirable. for cloth.

      “Reducing trade restrictions on manufactured goods broke the grip of the trade unions on many industries that ultimately led to better value. We wouldn’t and couldn’t listen to Deming until the Japanese made us. ”

      Deming learned from Walter Shewhart, who ran Western Electric for years. It was the auto industry, not the unions that ignored the customer.

      You have to separate the craft unions, which still have apprenticeships, from “trade unions,” which really means CIO style industry unions. They have been anti-competitive for a long time. Back to the 19th century. But craft unions were just a way to pass on the trade with some formal relationship between master and apprentice.

      Medical practice and medical associations had a similar purpose. Libertarians always rail against medical licensure laws but we are going to see how the free market works in medicine now that the medical associations have been destroyed by government and hospitals are busy with “vertical integration” of medical care by buying up medical groups and then running them like coal mines.

      Nurse practitioners and PAs are going to be the primary care providers and the older, experienced nurses are already being pushed out so new graduates and “technicians” who will work for less are taking over.

      Lawyers are going to be dealing with “Legal Zoom” and the like now so we will see how that works out.

      This is how we get Trump. Mass production gave us Fords but that does not give us custom products. The Wall Street Journal had a cover story some years ago about the dumbing down of travel agencies. Their example was a corporate travel division that did not realize that an executive needed a visa for Taiwan and so he was stuck in Japan on a business trip. I had a bad experience with Expedia last summer. I had the same travel agent for many years when I was doing more traveling but the agents have all gone out of business.

      My daughter’s car was insured with GEICO which has only an online presence. I had to renew her insurance when she moved to South Carolina last year. I explained to the agent that the policy was on auto-renew and charged to my credit card. They did not renew her policy when it expired last fall and, before I could figure out what happened, she was in an accident and was not covered.

      I have had the same insurance agent here for 30 years. They cannot write a policy in another state.

      The Second Law of Thermodynamics is going to destroy our middle class world.

    42. Anonymous Says:

      “Funny how you accept one as a natural state of nature and the other as corrupt when both arrive at their end state through the very same processes.”

      I have not that I can see.

      The misuse of the visa system falls under the heading of pandering to crony capitalists and building the future voter base supporting a particular party. As far as I can see immigration should be directed toward those actually seeking citizenship and should be granted as a benefit based on objective criteria and screening based on our needs. “Marry beautiful Russian girl” seems a little weak to me. Work visas beyond very short term are highly questionable. Certainly displacing high skilled citizen employees or bringing in foreign construction workers to build, or low skilled staff to man your golf course, resort, hotel, or tower should not qualify. Goods and services should flow as freely as transportation costs will allow so long as the trade is unrestricted by both sides (or even if restrictions are approximately comparable).

      Citizenship is not an economic good or service. Security and political functioning is based on citizenship and production costs or output considerations should have secondary importance after immigration is tested against citizenship purposes. So both are inefficient and abuses of government power.

      Labor is becoming more mobile regardless of governmental actions. Information and communications technologies are allowing decentralized (i.e. international) cooperative service production and allowing dispersion of human capital- knowledge and skills. Lower transportation costs apply to people as well as goods. Even with stringent immigration enforcement and limitations on visas, service production will increasingly flow across borders. Production can also be easily moved across borders especially if you present companies with a very costly regulatory and tax system. Cutting the dead weight losses due to government is our biggest competitive challenge. To a great extent this has led to our underground economy and illegal immigration issues.

      Death6

    43. TangoMan Says:

      Labor is becoming more mobile regardless of governmental actions.

      And:

      I have not that I can see.

      You write intelligent commentary and I respect you for that but you’re missing something important here and you’re framing your argument in the passive voice.

      International labor mobility is not something like the tide, which just happens and there’s nothing we can do about it, it arises precisely because there is active effort to bring it about. Same thing with increasing the international mobility of capital. In a state of nature, capital is pretty much captive to the local environment which produced that wealth. There needs to be active effort to free capital such that it can move beyond immediate locales.

      To bring this back to my quote in your comment, you object to the nature of unions because they use government to shape the labor market but this is exactly the same thing that Capital does when it uses government to increase opportunities for free trade. If the US government didn’t use its might in the international realm, then all sorts of foreign investments would have far higher risk attached to them as local governments would face no punishment for confiscating that capital to use to their own ends. The same co-option of government applies to trade treaties, currency laws, etc. None of these arose passively, they all came about through active efforts to shape the environment, the exact same thing that unions do to shape the labor environment.

      Goods and services should flow as freely as transportation costs will allow so long as the trade is unrestricted by both sides (or even if restrictions are approximately comparable).

      This is a normative argument but it’s not even an argument it’s more of a statement about what an ideal state should be. It flows from philosophy, likely it represents how you see the world. The problem here is that this is not a universally held view and there will be interests opposed to your vision because they are working to advance other ideals. For you, I imagine, the quest for economic efficiency represents a high ideal, something to strive for, but you surely realize that for others issues like boosting middle class incomes even at the expense of international trade efficiency are a high priority. This now becomes a battle of norms, of ideals.

      Information and communications technologies are allowing decentralized (i.e. international) cooperative service production and allowing dispersion of human capital- knowledge and skills.

      This is all passive voice. These outcomes are arising from active measures taken by interested parties so that they may benefit. Anything which is active in nature can be resisted by another form of active counter-effort. Don’t get me wrong, I’m not proposing, here, that active counter-efforts should be taken, I’m simply pointing out that they could be launched, for instance, tariffs on imported services. It seems easier to see that a tariff arises from active efforts so why frame labor mobility in a passive sense when clearly people and organizations are actively working to make this happen.

      Even with stringent immigration enforcement and limitations on visas, service production will increasingly flow across borders.

      Again, for this to arise will require active effort by interested parties. Those active measures can be fought against by parties which have competing interests.

      Production can also be easily moved across borders especially if you present companies with a very costly regulatory and tax system.

      True, but import tariffs can also be put in place to deny market access to companies which engage in such strategy. In your example and mine we both acknowledge active measures. So, coming back to the original point, everyone is using government to shape the environment so that it best suites their interests. Unions are not unique in this regard.

      Cutting the dead weight losses due to government is our biggest competitive challenge.

      I agree. There’s nothing for me to nitpick here.

      To a great extent this has led to our underground economy and illegal immigration issues.

      This is a problem which is very hard to model properly because it’s not a straight economic problem. We live in a social welfare state and we can’t wish that away. This means that each citizen comes with big costs because we are all consumers of various types of social welfare and public infrastructure. It costs more to travel on a freeway than on a simple dirt road. Those freeways in California are used by movie stars, SV titans, lawyers, housewives, and by fruit pickers. Each freeway has a capacity per hour inherent in its design, which means that when a car uses a slot on that freeway there is a social cost attached to that use. Some businesses can generate enough surplus value to pay their share of the public infrastructure and social welfare costs and other cannot. A lettuce farm is going to have a tough time paying their workers enough in wages so that when we tax those wages we can extract enough in taxes to balance the costs imposed on society by both the business and the workers who use the infrastructure and the programs.

      Now, because of the above, some businesses probably shouldn’t be located in America because they require social subsidy in order to operate with their low wage employees. When that lettuce picker has a heart attack he needs to be treated just like Larry Page will get treated if he suffers a heart attack. The latter creates enough value for society that he doesn’t require subsidy but the former most surely does.

      Look I agree that government regulation of business imposes costs and this does have some effect on the growth of the underground economy and on illegal immigration, but frankly, I think that there is a far stronger case to be made with respect to the welfare and infrastructure costs, they are are biggest costs and the low value creation business socialize their presence onto the high value creation businesses. To go to extremes to illustrate the point, imagine if every driver on a freeway was going to and fro while earning $1 million per year. The tax burden for building and maintaining that freeway would be peanuts for each user and we wouldn’t need to build out such an extensive infrastructure and same with social welfare. Now let’s come back to reality and include people with more modest incomes in the traffic analysis. There exists some dividing line between people who contribute enough in tax revenues to pay their way and those who cannot. The more we cater to those who cannot, the greater the tax burden on those who can. This has nothing to do with business regulations. Employers who prefer illegals are not doing this because they want to avoid regulations, they’re doing this because they can’t be competitive at a wage level where the employees don’t require social subsidization. Those social subsidy bills come due and they get passed on to the rest of society and thus all of our costs increase. That’s what is making us uncompetitive.

    44. Mike K Says:

      “they’re doing this because they can’t be competitive at a wage level where the employees don’t require social subsidization.”

      There are several other factors at work here.

      Mexico is perfectly capable of growing lettuce and tomatoes at lower cost. The social service costs are lower there and the population that picks vegetables there is native.

      The Mexican government is deeply corrupt. The Mexican states that are in the north and which are capable of supporting a vigorous agriculture are also heavily impacted by drug cartels which are in bed with the government. This imposes costs on the farmers and on the workers.

      The tourist industry is another source of funds and employment in Mexico. I used to go Mexico all the time. I haven’t been there in 20 years.

      The Newport-Ensenada Yacht Race was this weekend. There were 200 boats in the race. When I used to go every year (a total of 22 years), there were 700 boats.

      People are not going to Mexico like they used to. I think tourists may be going to destinations south of the border states but even there, there is drug cartel trouble.

      South America is in deep trouble. Brazil is the latest. Brazil is “the nation of the future” which never gets there.

      India seems to be exporting its educated class to here when it desperately needs them. This is related to the recent phenomenon of the rich supporting the Democrats and all the social changes that seem bizarre. There is an agenda here and it is not one that helps America.

    45. Grurray Says:

      There are areas on the border in Mexico that are booming. I keep track of industrial news and trends down there, and the past few years have seen a massive amount of investment, much of it coming from operations previously in China.

      The big catalyst has been border security. At the spots with fences and tough enforcement, Mexican towns have thrived. The gangs were forced to leave, so legitimate business moved in.

    46. Will Says:

      Oh no, he did not “go there”…

      “At the spots with fences and tough enforcement, Mexican towns have thrived”

    47. Anonymous Says:

      David, the story helps explain a conundrum I’ve had about Silicon Valley…puzzled why SV and its young workers overwhelming vote with the Left. You would think Silicon Valley’s workers would naturally lean Libertarian or Conservative to align with their self-interest in freedom and prosperity.

      California is working overtime to destroy that which made it the envy of the world.

      Texas and to a degree Colorado and Arizona are picking employment that used to be California–moving vans tell the story.

    48. SPKorn Says:

      I don’t like to post Anonymous. Anonymous is me