With Christmas just around the corner, the nation's largest retailers are worried. October sales figures show the slowest growth in more than four years. This shouldn't come as too big a surprise. The Labor Department recently reported that the pay-checks of American workers rose by only 2.7 percent in the last 12 months, the smallest increase on record.

The report led Secretary of Labor Robert Reich to lament, "There is something wrong with rising profits, rising productivity and a soaring stock market, but employee compensation heading nowhere."

The issue of rising productivity against declining wages and vanishing jobs is likely to be one of the key political issues of the 1996 election campaign. Labor leaders and an increasing number of politicians - from presidential candidate Pat Buchanan to House Minority Leader Richard Gephardt - are beginning to seize on this issue. But no one, as yet, has dared to address the more serious long-term structural problem facing the American economy - a problem that, if left unattended, is likely to hurt employers as much as workers in the years to come.

Indeed, employers may suffer the most from the current efforts to keep wages low. Here's why.

Determined to keep lower labor costs, companies replace their human work force with "intelligent machines" and automated technologies.

Manufacturing and much of the service sector are undergoing a transformation. It's as profound as that experienced by the agricultural sector at the beginning of the century when machines boosted production, displacing millions of farmers.

Today, intelligent machines replace humans in countless tasks, forcing millions of blue-collar and white-collar workers into temporary, contingent and part-time employment and, worse, unemployment.

According to one study, as many as 90 million jobs in a labor force of 124 million are potentially vulnerable to displacement by automation. Wall Street applauds every time an American company announces new layoffs and the value of the firm's stock jumps a point or two.

Behind the scenes, however, business leaders are beginning to worry. They talk in guarded tones about the two achilles heels of the technology revolution. both are threats to the long-term viability of the Information Age economy.

While reducing labor costs often translates into short-term gains, employers see a troubling decline in consumer purchasing power. According to a study published by the Economic Policy Institute, the typical American family experienced a 6.9 percent loss in total income between 1989 and 1993. Male high school graduates (half of all male workers), have lost 20 percent of their earning power in the past 23 years.

The quickened pace of corporate re-engineering, technological displacement and declining income can be seen in stagnant inventories and sluggish growth. In turn, this means new rounds of re-engineering, technology displacement and wage cuts that continue to force the downward drift in consumption.

A similar situation occurred in the 1920s. At the onset of the Second Industrial Revolution, electricity, oil and the assembly line replaced steam-powered plants. Between 1920 and 1927, productivity in American industry rose by 40 percent. In manufacturing, output per man-hour rose an astounding 5.6 percent a year between 1919 and 1929.

At the same time, more than 2.5 million jobs disappeared. In the manufacturing sector, more than 825,000 blue-collar workers were let go. Purchasing power dropped precipitously. Henry Ford warned fellow employers to consider rehiring laid-off workers. Or else, he said, "Who would buy my cars?"

Instead, the business community concentrated on the people who were still employed, cajoling them to buy more by introducing installment buying and extending easy credit terms. Goods were put in hock faster than they could be produced.

According to a 1994 report from the Federal Reserve Board, middle-class families pay nearly a quarter of their income to creditors, a substantially higher level than in previous periods of economic recovery.

The Labor Department announced that manufacturers' inventories grew in September for a 12th consecutive month and retailers reported the lowest monthly sales growth in four years. Industry Analysts suggest that consumers might have reached the limit on their credit cards. The second Achilles heel of the Information Age - and one never talked about - is the effect on capital accumulation when vast numbers of employees are reduced to contingent or temporary work and part-time assignments, or let go altogether, so that employers can avoid paying out benefits - especially pension benefits. As it turns out, pension funds, now worth more than $5 trillion in the United States alone, keep much of the capitalist system afloat. For more than 40 years, they have served as a forced savings pool that has financed capital investment.

Pension funds account for 74 percent of net individual savings, more than one-third of all corporate equities and nearly 40 percent of all corporate bonds.

Pension assets exceed the assets of commercial banks and make up nearly one-third of the total financial assets of the U.S. economy. In 1993, pension funds made new investments of between $1 trillion and $1.5 trillion.

Several forces are coming together to threaten the continued growth of the pension fund investment pool. The dramatic shift from defined-benefit to defined-contribution plans - especially 401(k)s - now makes it easier for employees to dip into their personal pension fund accounts. Moreover, the impending retirement of millions of baby boomers over the next three decades threatens a continued devolution of the pension investment pool. Most important of all, companies can be expected to continue to marginalize their work force and let large numbers of employees go, to make room for corporate re-engineering and the new automated Information Age technologies.

All of these factors could result in the capitalist system collapsing on itself while drained of the pension funds needed for new capital investments.

A steady loss of consumer purchasing power and a decline in workers' pension fund capital are likely to have a far more significant impact on the long-term health of the American economy than all of the ballyhooed concern over the national debt and budget deficits. It is very much in the interest of corporate management to begin seriously thinking about constructive ways to share the vast productivity gains of the Information Age with their employees - if they want to ensure both an adequate stream of purchasing power and sufficient investment capital in the years ahead.

Article by: Jeremy Rifkin - best known as a critic of biotechnology and automation, and is the author of "The End of Work" (Tarcher-Putnam).

Copyright © 1996. The Light Party.

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