Creative Destruction

   It’s the kind of news that’s no longer news.

   Emergent BioSolutions, which manufactures the Anthrax vaccine at a plant in Lansing, announced plans to eliminate 91 jobs, reducing the size of its labor force at this facility by 24 percent.

     The reason? The company has installed a newer manufacturing process that incorporates more automation, thus requiring fewer workers. Previously, the plant produced nine million doses a year. Now, with the new operational system, housed a newer facility, it can turn out 20 million doses.

   More production with less staff.

   The news story about the job cuts, which I read in the Lansing State Journal, noted that 28 of the employees who are losing their jobs “opted for a severance package,” while a contractor was hired “to help the other 63 people fine tune their resumes and prepare for a job search.” The eliminated positions came in the manufacturing, quality control, and engineering departments.

   The report also stated that two years ago, in 2014, the company employed 425 people with an average salary of around $65,000.

   As I read this news, I wondered how many of those 63 workers will find the kind of skilled positions that paid that much in wages. I wish them well.

   The manufacturing equipment being used to replace them, up until this past year, was taxed as personal property and helped to supplement the budget of local government. The state legislature, with the support of Gov. Rick Snyder, voted to end taxes on personal property, feeling that it was an unnecessary burden on Michigan business. Their argument was that eliminating this tax will spur economic growth and create more jobs.

   On the other hand, the extra revenue might prompt company officials to purchase more equipment and further reduce their work force. Meanwhile, the cities, villages and townships that have manufacturing facilities within their borders and enjoyed this revenue source will need to further tighten their belts.

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    In my business, it’s pretty well known that many of the daily print newspapers across the nation have been hurt financially by the rise of social media. Fewer and fewer readers have resulted in diminished advertising revenue as well as less money from subscriptions and newsstand sales. To compensate, the parent companies have downsized their work force, moved to smaller quarters, consolidated various tasks at central locations, and—figuring “if you can’t beat them, join them”--have sought to include these new social media platforms as part of their operations. The problem is that their digital offerings, as yet, don’t generate the same income that the print product does and did.

   As a result of this transformation, a number of reporters and columnists of my age (which means older) have left the business. Most of them were beneficiaries of buy-out packages. Some might have been happy at the opportunity to depart, but I suspect a fair number saw the offer as a bitter pill. They were invited to leave sooner than planned.

    Their years of experience, the know-how acquired, the awards and accolades, and the loyalty to the company—when all was said and done—proved for naught. Like so many other workers in all sorts of different businesses and trades, they became victims of the efficiencies of the market--better known as the bottom line.

    The math at play here is easy to understand.  Fewer workers are of course cheaper. But also, younger workers can be paid less than those with longer seniority, plus most of them already understand how to use the various digital platforms.

    But even social media has seen a dramatic shift. Only a few years ago, news and other information were accessed primarily from desk-top computers that were linked to the internet via a telephone line. However, using them kept you tied to one place. Now more and more people get their media content from a phone with a screen, and the information is delivered by signals sent from cell-phone towers or satellite signals. What’s more, the device is mobile; you can look at it just about anywhere that a signal can reach. 

   We’ve seen telecommunication firms and manufacturers of the computer hardware and software take the center stage, only to be replaced by a new cast of characters as a result of this shift. And who knows what lies ahead?

    The job market, education, and long-range economic forecasters are having a tough time keeping up with this evolving situation. You wonder: What re-training programs are the best options for laid-off workers? What career paths should high school and college students pursue with a reasonable assumption of being hired? What small business or entrepreneurial start-up offers a good chance of success? What new invention or innovation might be the next big thing? And conversely: Which jobs will eventually become obsolete? What training will turn out to have been a waste of time? Which businesses will be pushed aside due to changing consumer preferences?

* * *

     ‘Creative Destruction’ is a term I’ve heard to describe the process of Capitalism whereby the status quo is continuously being undermined by new technology and innovation, creating new sources of wealth, new buyer preferences, and realigning where labor is needed (or no longer needed) and altering the flow investment flow. In doing so, it creates new economic and social paradigms.

   The term was coined by Joseph Schumpeter in his 1942 work Capitalism, Socialism and Democracy. He used it to describe the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

   “This occurs,” Schumpeter said, “when innovation deconstructs long-standing arrangements and frees resources to be deployed elsewhere.”

   While that definition may be illuminating as an economic theory and helps explain in shorthand how our free enterprise system operates, the real-life strains this ongoing change causes to existing social structures and the human psyche—both of which are much slower processes when it comes to assimilating and adapting to new realities—seem evident.

      What makes it even more difficult to grapple with and adds more tension to our social structures is that the process of Creative Destruction has accelerated its pace. Major adjustments caused by advancing technology are nothing new. Gun powder, steam engines, railroads, telegraphs, electricity, automobiles, hybrid seeds, and the assembly line are only a few of the inventions and innovations that have altered the lives of our ancestors in a multitude of direct and indirect ways, creating winners and losers. The difference, in most cases, is that they could be dealt with over a period of years, even a generation or two. Nowadays, we seem to operate at warp speed in what comes at us and how quickly we need to adapt.

    To lose a job through no fault of your own, to have your career suddenly upended, to have the security of your family put at risk, to see your dreams come crashing down is understandably traumatic, even devastating. If you find a suitable occupation to replace the one you lost, then the effect is negated. But if you can’t find anything comparable, if your choice is sitting at home or taking a lower-paying, less satisfying job, then insult is added to the injury.

   This scenario has happened to too many people over the recent years. Some have bounced back. Some haven’t. But also weighing on many people’s minds is the possibility of it happening to them. The fear of the unknown, the uncertainty this brings, combine to gnaw away at the confidence.

   On a larger scale, with technology more and more able to perfect machines that replace people power and human knowledge, how quickly—if at all—can or will the process keep creating new jobs and spin-off businesses? By way of example, we hear about driverless vehicles eventually ending the need for truck drivers. But what will those thousands of drivers do? How many current occupations exist that offer a living wage similar to this one? What new ones, if any, might be created from future technological advancements?

    We call it “progress,” and I guess on that larger scale that’s the way to look at the situation. That said, we need to be mindful of the casualties that have occurred and will keep occurring as a result of this rapid and dramatic change. We need to do what we can to assist those who lose their jobs, have their careers cut short, and see their dreams dashed.

    Creative Destruction, as the name implies, offers new opportunities, but at the same time often causes collateral damage. It’s up to us as citizens and through our government to insert a moral and compassionate component—to maintain adequate safety nets and help assist these displaced workers as they get back on their feet.