Maker Culture, Guaranteed Annual Income, and, the Walmart Effect

My significant other says that I'm one of the most optimistic people she's ever met. I know that sometimes this annoys her. She accuses me of being unwilling to face up to the facts facing the human race because I'm too afraid of the TRUTH. Perhaps that's right. I do tend to keep looking for the shoots of new growth pushing their way through the asphalt. It might be confirmation bias, but I think that I can see some evidence of a better future even in the midst of our current mass attempt to commit suicide by destroying the planet.

What I'm talking about in this particular op-ed is the emergence of the "Maker Culture". But before I start talking about it, I need to give some background economics theory to make sense of it. Some of this might not be what you are used to hearing, but please bear with me for a while. The biggest impediment we have to building a better world is our inability to understand what it could look like and how we can get from here to there. And a huge part of our inability to see what's right in front of our eyes is a lack of the right language to explain it. I hope that what follows will help people understand what I'm talking about.

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The first thing I'm going to ask my readers to do is start looking at different parts of the economy in a different way. That is to say, I think we need to start making a distinction between economic activity as a means of making or doing useful things, and, economic activity as a means of distributing wealth from the rich to the poor. For the purposes of this article, I'm specifically excluding social programs that directly help the poor. Instead, I'd like to focus on that broad range of predominantly service industry businesses that are hurting the most during the current pandemic. These are, things like bars, restaurants, cruise ships, airlines, spas, etc. 

The Canadian economy won't collapse because there are no spas, cruise ships, and, jet travel to vacation destinations. The real economic value that these industries add to society is to provide an excuse to give the people who work in these industries a (generally low) income and keep them off the dole. The only really objective crisis that could happen because of this pandemic is if the government sees these industries collapse and perversely chooses to do nothing to fill the void that they leave behind in many people's lives. That's why the governments in relatively well-run nations have decided to give out money to these people through programs like the Canada Emergency Response Benefit (CERB).

At this point, I'd like people to think about now is why we have all those restaurants, bars, nail salons, tourist traps, airlines, etc in the first place. People of a certain bent would suggest that they came from "THE FREE MARKET", but I'd suggest that they came about because of specific government choices. 

Consider the following examples. We take it totally for granted that governments do things like create student summer jobs in the tourism industry. For example, why not have them doing something to create affordable housing? The reason is that tourism is seasonal (which is great for employing students) and doesn't require either a huge capital or educational investment. It's easy to find students who will dress up in historically accurate clothes and hand out brochures, and stick them in an old building that has just been spruced up enough to be safe to walk through. But you aren't going to put most of them on a construction site and expect them frame, plumb, or, wire a new apartment building. (I know some people do spend their summers doing stuff like this. Indeed, I spent summers this way myself. But most young people didn't grow up on a farm and don't know how use tools and run potentially dangerous machines---let alone have the strength to work with stuff that's built around the "big galoot" standard.) 

It's the same thing when a city sets up an "entertainment district" in a city. It's really not that expensive to convert an existing building into either a bar or restaurant---at least compared to setting up a factory or building an apartment tower. And there's no real skill set necessary to wait on tables and wash dishes. That means that a little bit of encouragement by a city Council can reap relatively large dividends in terms of employment---even if most of the jobs are minimum wage.

Please note that I'm not saying that tourism is a rational or best solution to the decline in jobs because of automation. Instead I'm saying that it is an easy fix that doesn't require a lot of effort to get politicians "with the program". 

To a large extent most politicians are mental prisoners of the "neo-liberal consensus" which states that governments shouldn't even try to redistribute wealth from the top to the bottom. As a result, we've seen a situation where the top 20% has been doing very well for a quite a few years. In contrast, almost everyone else has seen their wages stagnate or even decline in terms of real income since the 1970s. Here's a graph from a US government publication that describes the situation in America, which is much the same as in Canada.

Public Domain image from U.S. government.

Many industries have seen this problem and adapted to it. For example, that's a key part of the reason why developers aren't terribly interested in building affordable housing. They know that they can make a lot more money building luxury condos and monster homes with granite counter tops for the well-off instead of "economy" flats for working class families. It's simply the case that it makes more sense to build for that one fifth of the population that actually has money to spend than for the four fifths that don't.

And this isn't just something that affects the housing market. The growth of tourism, bars, restaurants, spas, etc, has all been driven by a lot of people in the bottom 80% making a not-very-good living off of servicing the top 20%. Indeed, it's actually not that much different than what used to happen in days of yore. People without money but who weren't involved in primary production (eg: farming, industry, trades) used to get jobs working as live-in servants for the wealthy. Nowadays our servants usually don't get provided with a place to live. We don't have live-in cooks---but they do cook for us in restaurants. And we don't have footmen to serve us our meals, but we do have waiters and delivery drivers. We don't have chauffeurs, but we do have Uber drivers. We don't have live-in scullery maids either, but we do have "Molly Maids" (or, as they used to be called "charwomen"). There are very few old fashioned "servants" anymore, but we have a huge number of people "employed by the service economy"---which is very much the same thing. The only thing that's really lacking is noblesse oblige.  

And this didn't "just happen". Governments actively chose to stop taxing the upper ranks of the population enough money to keep them from becoming "super rich". The also decided to "look the other way" when new technology---like Amazon---ripped the tax structure to pieces and took away the revenue they used to make from things like sales tax at "bricks and mortar" stores. And politicians refused to "get involved" with putting offshore tax havens out of business, even though they peeled away huge amounts of income tax that governments used to receive.   

Because governments chose to avoid taxing the huge amounts of profits that have come into the top 20% of the population over the last 40 years or so, they have had very limited financial resources to deal with long-term job losses due to automation. So instead, they've followed the path of least resistance and helped the private sector cobble together a ramshackle service sector that has managed to keep the bread riots at bay. But Covid-19 came along, and it has shone a light on all the institutional failures plaguing human societies. Just as our Long Term Care, Senior's Homes, and, migrant farm worker system has been found wanting, so has pretty much the entire service sector.

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Just to let people understand how out-of-whack the economy has become, please consider the so-called "Walmart Effect". That term refers to a wide range of different effects that the world's largest retailer has had on local, national, and, international economies, but for this op ed I'm talking about what it does to wages. (I assume that since the term was coined it could be applied to other emergent monopolistic corporations too---like Amazon.)

Walmart is such a dominant force in the market that it has managed to exert a macro-economic effect on the wages of both it's own employees and the people who work for the companies that produce the products that it sells. The point is that it has created a functional near monopoly that forces suppliers to sell to Walmart at the prices it wants because there are no other retailers that can purchase similar quantities of goods. Similarly, in a community where the economy is not producing enough jobs---partially because Walmart put all the other retailers out of business---there is nowhere else for people to work. This creates a "vicious spiral" where people are paid so little money that they have to buy from the absolute cheapest stores, which forces stores and producers to pay their workers the least that they can get away with. (Or give up on every customer except the ones who are in the top 20%.)

The problem with this drive to the lowest labour costs possible is that there is an absolute minimum that you can pay people. That's because people have to eat, they have to have shelter, and, they have to have transportation to and from work. The answer that Walmart has come up with is to build their labour strategy around getting their workers to take advantage of government programs aimed at helping the working poor. 

In a Congressional report titled The Low-Wage Drag on Our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth a report from the US Congressional Budget Office is cited that shows that a typical Walmart store that had 300 employees was subsidized by various government programs to between $900,000 to $1.7 million per year. (The range comes from the initial assumptions one brings to bear when the study was done. And all graphs should come with ranges like this built into them---beware of ones that don't have them!) 

The US is a different country from Canada, and Walmart isn't the huge force here that it is there. But I do think that this is an interesting feature of the world we live in. That is, government programs that were designed to help working people by keeping them from falling into destitution have become "props" that support businesses that are actively driving all working people's wages to absolute rock bottom.  

As an aside, I often hear politicians in Guelph say that you can't expect Council to deal with the problem of housing. Instead, they want the federal and provincial governments to pour money into social housing. But the current model is "rent geared to income" and I'd hate to see a situation where people work at poorly paid jobs and the government subsidizes the places where they work by "topping up" the poverty wages through subsidizing people's rent. That's part of why I have argued for some time that we need to create zoning that allows developers to build large enough apartment buildings to start pushing down the market price for housing.

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In order to deal with the Walmart effect and wealth stratification I suggest that the government should expand the Guaranteed Annual Income (GAI) programs that we currently have for both seniors (the Guaranteed Income Supplement) and children (the Canada Child Benefit) to include working age people too. The Canadian Emergency Response Benefit (CERB) is something like this, but it is funded through deficits which really isn't sustainable over the long run---no matter how low interest rates stay. That means that we need to consider added revenue to fund the difference. 

The first thing to remember about this is that a Guaranteed Annual Income program wouldn't need the huge amounts of money that the CERB is currently burning through. That's because the Covid-19 pandemic is an emergency, like a war. Presumably any GAI program expansion would not have to deal with the huge numbers of people that the CERB is presently dealing with.

The second thing is that we currently already spend a lot of money on the social safety net. And a lot of proponents for GAI argue that at least some of the programs that we currently fund---like Employment Insurance, welfare, and, disability pensions---would not be needed if we had a properly funded GAI. That means that the money we currently spend on programs like this would simply be rolled into the GAI budget. This would have the added benefit of being a lot easier to manage, which would mean that a greater percentage of the money could go to the recipients and less towards bureaucrats shuffling paper.

The next thing to consider is how much more money could be raised if the government went after the people who have benefited mightily during the last forty years of wealth stratification. I'm not about to get into the details about how the feds could chase after the money that has accumulated into the hands of the top 20% (see the graph I posted above), but I will point out that there appears to be a great deal to be had if the politicians simply had the will to go after it.

One June 17th the Parliamentary Budget Office released an interesting document titled Estimating the top tail of the family wealth distribution in Canada that discusses the creation of a database by their economists to find out just how rich the richest people of Canada really are. It's a fairly technical document, but there are a few things from it that bear repeating. 

First of all, it's important to understand how difficult it is to actually get data on rich people. The report states:

There are several plausible reasons national wealth surveys, like

Canada’s SFS, are limited in measuring and analyzing high-net-

worth families.

 

Surveys may be subject to sampling errors if the surveyed sample is

not representative of the population, including at the top of the

family wealth distribution.

 

Response errors, where families inaccurately report, willingly or not,

the value of their assets and liabilities, may bias estimates for high-

net-worth families.

 

Certain large asset and liabilities values in the SFS PUMF are also

subject to top-coding, where they are replaced with a maximum

value. While this procedure ensures the confidentiality of released

data, it also reduces top wealth shares (see Appendix A.3).

 

The most impactful limitation may be differential unit non-

response, the tendency of high-net-worth families to be less likely

to participate in surveys. If high-net-worth families are

undersampled and the survey weights of those that are sampled are

not adequately scaled upwards, top wealth shares will be

underestimated.

 

While Statistics Canada reports the overall response rate (70.3 per

cent for the 2016 SFS), little is publicly-known about the incidence of

differential unit non-response in the SFS. There is evidence from the

U.S. of a positive correlation between wealth and the rate of unit

non-response in its main wealth survey, the Survey of Consumer

Finances (Kennickell & Woodburn, 1997)

 

Statistics Canada attempts to address differential unit non-response

among high-net-worth families by oversampling geographic areas

known to have higher income and believed to have higher wealth

(Statistics Canada, 2018a). However, similar approaches to

oversample high-net-worth families using geographic or income-

stratified geographic information in several European countries have

been shown to be of limited effectiveness in accurately measuring

the wealth of high-net-worth families (Vermeulen, 2018).

The idea of the new database developed by the Parliamentary Budget Office is to get around the problems mentioned above---which mostly boil down to rich people being surveyed about their net worth: the surveys not actually asking the right questions, people fibbing on the surveys, and, not filling out the survey at all.

The old method of seeing how much the wealthy own of Canada is disturbing enough to contemplate. Take a look at the following graph they provide based on 2016 data: 

There's a phrase that has become current during this pandemic that I think should be applied to the stratification of wealth as expressed in this graph: we need to "flatten the curve".

Now let's look at the table that they provide that shows the latest figures, using their new methods.

Take a moment to contemplate the above table. I may not know much about the tax code, but it seems pretty obvious to me that there is a lot of money accumulating in a small number of people's hands. If we want to have a democratic society and some measure of justice in society, government needs to build mechanisms that can drag significant amounts of this wealth away from the richest people in society and get it back into the hands of everyone else. I happen to think that the best way to distribute the money (no matter how it is raised) is through an expanded Guaranteed Annual Income program.

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There is a thing that people call "the dignity of labour". It's generally something that people who grew up with money tend to blather on about to excuse refusing to share their obscene wealth.

I believe in the dignity of labour, whether with head or hand; that the world owes no man a living but that it owes every man an opportunity to make a living.

John D. Rockefeller 

In contrast, I tend to agree with Herman Melville, who had actually worked as a common seaman on both whaling and navy ships before becoming a famous author. He said 

They talk about the dignity of work. The dignity is in leisure.

Herman Melville 

I mention it here because this is one of the most common arguments against a Guaranteed Annual Income that I've heard. That is, that in some way it is very good for people to get up in the morning and go to work. If you don't force people to do this, for some reason I don't understand, people will descend into a pit of existential despair. The worst possible thing that society could do, according to this line of thinking, is to hand people some money that they didn't have to work for.

But the fact of the matter is that a lot of work is dangerous, demeaning, evil, or, totally devoid of any value for society. Moreover, even work which could be none of these things gets poisoned by managers who organize it in a way that makes it needlessly tedious, dangerous, and/or, demeaning. 

Of course, it's true that many people do like the work they do and would never be content to just live off a stipend. (I'm probably one of them.) But the issue with a GAI isn't that the government gives you money so you don't work---it's that the government gives you some money so you don't have to take the only job that comes along, no matter how awful, just to keep from starving. This would stop the Walmart Effect in its tracks because it would mean that businesses could no longer depend on being able to hire desperately poor people who are willing to work at anything. With a GAI people have something to fall back on if a job doesn't pay a decent amount or is in some other was too miserable to be worth doing.

No one advocating for a Guaranteed Annual Income is suggesting that the amount of money being paid out should be so high that it supports an upper class lifestyle. Instead, the idea is that it should be set low enough that the majority of people can live on it, but they would probably like to augment it through some sort of employment. Moreover, the money would be clawed-back once one reaches a specific income threshold. 

The idea is that if people want, they would be able to use the GAI to work on building up a trade or small business. It might not ever be something that they could exclusively live off, but with the financial subsidy it might be enough to live a good life none-the-less. Remember, however, that the core reason we would be giving people the Guaranteed Annual Income (beyond keeping people from starving or rioting) is because the economy needs some mechanism to recycle money from the wealthy to other people so we can keep up consumer demand. That's why some very wealthy people (like Elon Musk) are in favour of a GAI. They can see that without some way of redistributing wealth the wheels will eventually fall off the economy. That would hurt everyone, rich or poor.

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So what would the economy look like if there really was a baseline salary that everyone could depend upon? 

I think we can see the beginnings of it in the so-called "Maker" movement. For those of you have never heard of it, there are a lot of young people who are really interested in learning arts, crafts, and, technologies that allow them to truly develop mastery in a given field. I'm tremendously interested in it, at least partially because my spiritual path---Daoism---teaches that to become a "realized man" it is necessary to develop a "kung fu", or, "excellence developed by sustained, thoughtful work". 

Kung fu is a type of meditation leading to spiritual growth that can be pursued by anyone who really tries to get very good at a particular discipline. (In my own case, I practice two kung fus: tajiquan and writing.) Here's an excerpt from the television show Marco Polo that explains kung fu fairly well. (The character narrating---100 eyes---is supposed to be a Daoshi, or, lineage initiate from a Daoist Temple.)  

If you know what you are looking at, you can see the Makers all around us. The people at Diyode are Makers. As are many of the people at the Tool Library. The artisanal bakers, brewers, butchers, cheese makers, etc, that have popped up downtown and in the Farmer's Market over the last few decades are Makers. Artists and musicians are Makers too. One of the first Makers I ever met is a local guy who propagates wild plants and spreads the seeds around to help keep local biodiversity going. The hackers who developed the software that I use to create this blog are Makers too. Makers are everywhere already and they are becoming an increasingly important part of our economy. 

The key points of the Maker movement that come to my mind are:

• an emphasis on creating beautiful and elegant products
• personal growth through development of real skill
• prioritizing quality and beauty over mass production and profits
• a commitment to preserving and passing on skills and wisdom to future generations

One of the key things that is fueling the Maker movement is the Web and You Tube in particular, which has allowed people to create thousands of channels where people can share their knowledge with others. Just to give you an idea of this, my significant other has spent our period of self-isolation teaching herself how to do woodworking according to both the Japanese and European traditions. She is far from being a cabinet maker, but I have been totally impressed as she has learned how make increasingly good dovetail joints and amassed a set of self-made tools including a frame saw, a shooting board, a fairly good work bench, etc. 

My writing and her wood working has gone a long way towards keeping our sanity, and, give meaning and purpose to our lives. We can afford to follow these passions because of our savings and my pension. But I can imagine what a totally different society we could build if a GAI allowed more people to do these sorts of things with the same sort of commitment. 

If you wonder about what I'm talking about, I'll leave you here with an example of an amazing skill that I saw a Maker talk about on the Web:

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Moreover I say unto you, we have to deal with the Climate Emergency!