Van Kasper Review July 1993 Font Page

The Information Revolution

Where Have All The Jobs Gone?


As the national economy completes its eighth straight quarter of recovery, the business headlines report the nation's unemployment rate is again above 7%, with the California rate the highest in the nation, spiking above 9%. IBM con- currently announced its plans to slash another 50,000 jobs, doubling its earli- er plans and in California the effects of the numerous military base closures are yet to come.

Hidden by these gloomy front page stories is the fact that the economy continu- es to expand and new jobs are being created. According to the Labor Depart- ment, only 13,000 jobs were created in June, while over 200,000 new workers got a paycheck in May. For the first six months of 1993, the monthly average will exceed 150,000 new jobs compared to 80,000 per month in calendar 1992.

Job growth has actually been stronger than first thought, as the early govern- ment statistics are often significantly changed. The Labor Department's revi- sions now show 400,000 fewer jobs lost during the recession and 450,000 more jobs added during the recovery than their preliminary reports suggested. Never- theless, this job recovery pales by comparison to the post recession recoveries of 1970, 1975, and 1982, leading to our current political and social frustra- tion as well as to those frightening headlines.

The good news behind those headlines is that U.S. industrial production is at a record high with factory output recently reaching new peaks. This strong show- ing makes the U.S. domestic economy stronger than any of its trading partners'. However, 190,000 manufacturing jobs have disappeared since February of this year and 1.4 million since February 1990. Consequently, like other post reces- sion recoveries, the manufacturing sector is significantly adding to gross domestic product (GDP) but unlike any other time in history, this sector is subtracting from, not adding to job growth.

Several factors are contributing to this very unusual phenomenon. The first observation is that our factories have become more productive. We have witnes- sed the necessitated restructuring, plant/equipment improvements and automation of the 1980s that have transformed U. S. manufacturers into stronger interna- tional competitors.

The result of these programs, many of which continue today -- witness the cur- rent IBM announcements -- have created leaner, more efficient organizations. The manufacturing company, especially, has had to become more productive to compete in the world economy and, additionally, has been forced by escalating worker compensation and health care costs to limit its personnel growth. Addi- tional help in payroll reduction has come from the greater use of temporary workers and an extension of hours worked per week. These factors have contribu- ted to an increase in job skill requirements resulting in the unskilled mass production worker of the past being replaced by fewer numbers of better skilled craftsmen. Reflecting on this change, one could characterize yesterday's low skill worker as the true beneficiary of the industrial economy. The industrial revolution took the unskilled worker from an agrarian economy and bestowed upon them the status of middle class. Although lacking great skill or knowledge, these workers achieved the income, social status, and political power of the middle class.

The conclusion of the industrial revolution has been difficult for many of these workers who have lost their jobs and social status and who long for a return to those good old days. The politicians have given us their solutions - Bill Clinton believes we can tax our way back to the old prosperity - Ross Perot believes in middle class prosperity through protectionism - George Bush believes he didn't believe in an economic plan. While the troubled economies of the world look for leaders with vision, they find only politicians who are more often worried about the next election. This lack of leadership is reflected in Bill Clinton's current 38% national approval rating which ironically is the highest of any of the G7 nations' leaders. Forget your political solutions, gentlemen, the revolutionary war you're fighting is as out of date as the one we fought against the Redcoats. You may prolong the ending but the conclusion is inevitable, for the next revolution is already underway.

This coming revolution is destined to change the driving forces of our economy. It is the change from basic industry and construction to high-tech industries and service. It is being boosted by the continuing productivity gains by tradi- tional manufacturers. We believe this resurgence in productivity growth and its resulting use of fewer employees is the beginning of a trend and not a tempor- ary post recession bounce. This is great news for the long-term U.S. economy. But in the short term, as we have seen, it is bad news for job growth.

If the overall economy is creating jobs and the manufacturing sector is los- ing jobs, where has the job growth come from? Of the handful of industries that are demonstrating reasonable job growth, including health services, retail trade, and unfortunately government, the fastest job creation, by far has been in the service sector. These service payrolls have added almost 2,000,000 workers since March of 1991 with business service jobs having demonstrated the highest growth.

Since March 1991, jobs in business services, which include personnel, computer and data processing, have expanded by 645,000. This is not surprising when one considers last year's surge in capital spending for computer and office equip- ment that allowed service businesses to expand by automating to improve effici- ency and cut costs. Although the manufacturing sector is losing jobs, the busi- nesses that add to productivity in the service sector are creating jobs. This will not be'a short lived process for the service sector, as it begins to com- pete in a world economy where it must deliver the same productivity gains as the manufacturing sector achieved over the last decade. The U. S. engineering, accounting, financial service, and law firms must produce accurately and effi- ciently from London, New York, and Tokyo. Seamless information will be the key to their success.

Data Liberation
The new revolution has now begun and it will continue to grow well into the 21st Century. It is indeed the second industrial revolution for it will change the way we work, play, manage, govern, and view ourselves as members of socie- ty. It will have as big an impact on our lives as the industrial revolution. While we are in the process of winding up the last revolution, the new revolu- tion will develop even faster. We have split the atom, spliced the gene, and digitized the world's information in just a few short years.

We are sitting on the nose of a rocket ship, waiting for it to be energized so our new organiza- tions can be launched. The rocket fuel will be different than in the past, however, for the energy of the future is INFORMATION, and the organization of the future will use it as fuel.

Two hundred years ago all information was concentrated at the top of organiza- tions. It didn't matter if the organization was a government, business, church or an army. The top people had all the data and they were able to convert the data to useful information because of this added knowledge and education. Consequently, information was used for control and the benefit of the few who had access to the data. This trend diminished but continued well into the 20th Century and was the foundation for corporate structure until contemporary times. The vertical structures of the post World War II companies included tiers of management and thousands of low knowledge workers. The grey flannel suit and the company man were the standard of the day. Success was either a high-paying low skill union job on the production line or a long crawl up the organization chart with its tiers of middle management, each tier possessing more informa- tion than the one below. The employees were part of the company, tied to its success or its failure and more importantly, to its information. Business, therefore, became the major avenue for personal advancement and, consequently, business became a huge success and the MBA a revered species.

Technology is changing all of this with the evolution of personal computers more powerful than the mainframe of a decade ago and at an affordable cost. Leading the way was the development of microprocessors that compute millions of pieces of data instantly, coupled with the ability to store those millions of data pieces for instant recall. Software developers took license with these powerful tools creating easy to use programs and tying it all together with wider and wider networks.

The result is that technology has liberated data! Technology has liberated data and made it abundant and affordable! Regardless of one's interest: art, science, sports, business or ...., the data that you need is most likely available. Never again will only the privileged have access to the data. Never again will control of data control an organization. An IBM scientist announced this week that by using a blue laser they were able to store on a standard 5 1/4 inch optical disk the amount of data equivalent to a 540 foot stack of single spaced typewritten paper which represents a column about the height of the Washington Monument. We are deep in data. With all organizations having equal access to practically unlimited data, the successful company of the future will be required to convert that data quickly to useful information. The organization of the future then will rely on data and, consequently, the worker of the future must be able to take the megabytes of data available and turn it into useful information.

Data Plus Knowledge
This transition from data to useful information requires skill and knowledge and will transform the demand for most of today's and tomorrow's employees from the low skilled production worker to a higher skilled specialized knowledge worker.

If you review the following chart on California jobs you'll see these trends have already begun and are expected to continue. The loss of jobs in manufac- turing are being more than made up for by the gains in the professional servic- es sector, as that category is expected to become the largest employer by the year 2005. The transition from a manufacturing economy to a service economy is well underway in California, which is leading this national trend.

This emerging special knowledge worker is only dependent upon the organiza- tion to provide the data or information necessary to complete the job. The knowledge is theirs and is most often transferable between businesses. More than likely, this worker knows more about the job than their boss and may even supervise several of their peers. They become colleagues in the organization rather than employees. The engineer at a consulting firm, the secretary at a word processor, the computer programmer, the tax accountant, the salesperson, the nurse, the MIS specialist: none of these people are solely dependent upon the organization for their employment. They are dependent upon the broader need for their special skill regardless of where that need is, be it in business, at a hospital, museum, or church. The common thread they share between organiza- tions is the computer platform they work on and the programs they use to con- vert data to useful information. To be successful, this worker must be self directed and disciplined and must assume individual responsibility for their performance. Their supervisor is probably also a working specialist who, in fact, does not possess any additional information required by the knowledge worker.

Consequently, much of the need for middle management is eliminated and, as we witness the employee reductions by domestic corporations, we do not expect these management jobs to return. The manager or leader in this informa- tion organization will operate much differently than those of the past. Perhaps the most important role of future management will be to focus the worker speci- alist towards tasks that will be of benefit to the organization's business values. How business utilizes the sum of its knowledge workers will determine its productivity and profitability. It is truly a new revolution.

The next time the news reporter announces that unemployment is at 6.9% or 7.1%, don't be overly alarmed as long as we are continuing to create jobs for the knowledge worker. Keep in mind the next time you hearjobs are being created in the service sector, it doesn't mean only behind the counter at McDonald' s. Think instead of the knowledge worker, for the best news of this revolution is that these specialist jobs are much more fulfilling than any mass employment jobs our economy has created in the past. This transition from industrial econ- omy to information economy will not be easy, but we believe it will be worth it. Of course there will be casualties as in every revolution, but each of our past revolutions has set in place the opportunity for major improvements in our standard of living as we have often proven since 1776. So the next time those politicians or news reporters want you to lament the loss of those manufactur- ing jobs and return to the good old days, tell them to forget it and update their data base, for good data plus knowledge equals jobs.