November 1, 2014

The Secret Most of the “Occupy Wall Street” Folks Haven’t Realized Is the Struggle Is Not Between the Rich and Poor

Occupy Wall Street

The Occupy Wall Street hasn’t figured out that the reason the bottom of society is struggling isn’t tax policy or the top 1% of wealth. It was spelled out decades ago, with shocking detail and precision, in a prophecy by business thinker Peter Drucker that we are now watching unfold before our eyes.  Image © Hemera/Thinkstock

I’m going to let you in on a secret.  It’s not much of a secret for those who study economics or pay attention to the world.  In fact, it’s been known for some time except to the average guy on the street, who is busy living his life and supporting his family.  He thinks the struggle is between the rich or the poor or between Democrats and Republicans.  It’s not.  

Most of what you are seeing in today’s economy was predicted decades ago, including the timeline upon which it was going to happen.  What is occurring with these movements such as “Occupy Wall Street” was prophesied in one of the most famous business books of all time, Management, by legendary thinker Peter Drucker.

The Coming Economic and Political War Between Manual Workers and Knowledge Workers

Drucker predicted that the rise of the microchip and the inevitable end to the industrial revolution build-up period of the past few centuries would split society into “knowledge workers”, who carried their own financial destiny in their head and didn’t rely on production provided by employers, and “manual workers” who were increasingly being made obsolete by productivity gains due partly to low-cost global labor but mostly due to computer automation.  

Succinctly, Drucker stated: “The knowledge workers, collectively, are the new capitalists”.  They control the means of production.  It’s in their heads; between their ears.  They are the asset.

Peter Drucker warned that the day was coming when the manual workers would wake up and realize they had become obsolete and the spoils of society were going entirely to knowledge workers, leaving them to starve.  Here is an excerpt from page 185 with emphasis added to highlight this point, talking about the fall of the manual worker from the days when it used to be a source of pride to put on a hardhat, pick up a lunch box, and head to a factory; keep in mind the first edition of this book was written almost a quarter of a century ago:

With the rise of the knowledge workers, the manual workers are endangered again.  Their economic security is threatened.  And their social position and status are rapidly diminishing.  In the developed countries, industrial workers see themselves as severely deprived.  They are defeated, losers, before they even start.

Drucker goes on to say: 

The manual workers in the developed countries today have little self-respect.  This inevitably makes them bitter, suspicious, distrustful of themselves, as well as of organization and management, and resentful.  They are not revolutionaries, like their parents, grandparents, and great-grandparents, for it is obvious to them that revolution cannot alter the fundamental conditions.  But they are likely to become militant as the center of social gravity keeps shifting toward knowledge work and the knowledge worker.

The rhetoric of workers’ parties and movements still attacks the profit system.  But the true class war is increasingly being fought between the hard hats – manual workers – and the middle-class knowledge workers.  During most of this century it has been the coalition of manual and knowledge workers that has dominated politics in the developed world – in America’s New Deal as well as in the social democratic and labor parties of Europe.  The major political event for the early part of the twenty-first century may well be the growing split between these two groups.

Drucker then goes on to prophesy that the inevitable result was “severe difficulties for the manual worker’s own institution, the union” and that the vacuum created by the most capable people in society becoming knowledge workers was going to cause the leadership of these political groups to become people driven by resentment rather than ability, revenge and envy rather than hope and progress.  The goal, in other words, would be to “take back” what the knowledge workers had achieved rather than transforming into useful knowledge workers themselves.

Drucker also went on to predict that the work environments for knowledge workers would become increasingly individualized, long before the days of Google’s free use of plug-in electric cars and on-site massage therapists or leadership conferences held at the offices of Facebook.  

Knowledge workers, except at the very lowest levels, are not productive under the spur of fear; only self-motivation and self-direction make them productive.  They have to be achieving in order to produce at all.  

That is why knowledge workers typically have far greater freedoms, from lunch times and bathroom breaks to flexible schedules and benefits, than their manual worker counterparts.  This increasing inequality was going to lead to resentment and envy as knowledge workers captured ever-large portions of the income pie and manual workers struggled to survive; to even feed their kids.  

The Knowledge Worker Will Believe and Behave Differently Than Americans in the Past

Knowledge workers are going to behave and have different beliefs than manual workers of the past.  

  • Global thinking; a great doctor can work just as easily in London or Hong Kong as he can in Seattle or New York
  • Winner-take-all systems where the best, brightest, and most talented have and expect to keep a bigger chunk of the pie, just like in a sports game
  • Knowledge learning and acquisition will never stop.  You don’t go to school and then expect to have a job for life.  You are constantly learning, updating skills, and putting new data to use
  • Identity revolves around knowledge acquired; e.g., “I’m an anthropologist” or “I’m a therapist” and not just organization, “I work for Acme Industries”.
  • Upward mobility is potentially unlimited but will only go to those most capable.  We’re seeing this now: Of the top 1% of wealth in the United States, 90 to 95 out of every 100 in the class made their money on their own without inheriting it.  That is almost the reverse of what it was when the country was founded.
  • A growing number of knowledge workers who are not in the top of their field will “plateau” in their forties, having achieved all they are going to achieve.  If they are tied up in their work, they are going to be in serious trouble.  Vital to their happiness will be a rich life outside of their profession, including playing in an orchestra, working with kids, donating time to charity, and being involved in community.
  • The split of knowledge based workers will begin when you see women enter fields such as nursing, paralegal, or computer technology because these types of work can allow someone to take 15+ years out to raise children and then renew skills and return to the workforce

The most successful knowledge workers will be those who convert their knowledge into “wins” for the customer.  Just knowing a lot of stuff won’t do you much good.  You have to do something with that knowledge that other people want and for which they are willing to pay you.

How We Deal with the War Between Knowledge Workers and Manual Workers Will Have An Enormous Influence on Society

Drucker goes on to warn us that, inevitably, there is coming a day when the knowledge workers will have to decide how they are going to deal with the manual workers, who by this time are probably rioting or causing political unrest.  

One possibility is that the manual workers demand more benefits including unemployment benefits, retirement benefits, and other “transfer” payments that come directly out of the paycheck of knowledge workers in the form of taxes.  

This might have worked in different times and demographics but will likely result in a call for austerity from the upper echelons of society, who want to cut such programs.  From a psychological standpoint, this makes perfect sense because knowledge workers put themselves through years of schooling at high costs.  They aren’t pursuing worthless degrees, but instead have a marketable skill in demand relative to supply, such as geological engineering for a petroleum company.  With the declining retiree-to-worker ratio and the pressure of student loans, knowledge workers who have “made it themselves” are not likely to look kindly upon those who receive benefits from society, thinking they are lazy, stupid, or made poor choices (all of which may or may not be true; what counts is the social results of such a belief).  This conflict could turn brutal if left unchecked.  

Another option for the knowledge worker and manual worker struggle, which I find much more palpable and reasonable, is a societal investment in institutions that provide low-cost, quality training in knowledge based work.  That way, someone from the poorest demographics can learn to become a plumber, dentist, or doctor without bankrupting themselves.  Upper education would become, for all intents and purposes, a basic human right.  There would still be massive income inequality but everyone would have a shot due to access to the training and skills necessary to succeed.  That does not mean studying things such as music or art would be a human right.  Education must be tied to specific job skills, which is already part of the education reform President Obama signed into law a year or two ago.

Drucker’s Summary

Peter Drucker summarized the big challenges of managing economic life in the 21st century as:

… “the changed psychological and social position of the manual worker (better educated and often better paid, he still sees himself as moving down from yesterday’s self-respecting working class into second-class citizenship); and the emergence of knowledge work and the knowledge worker as the economic and social center of what is the postindustrial, knowledge society.

Proof That the Occupy Wall Street Movement Is Part of This Struggle

I get the impression that some Occupy Wall Street protestors are doing it because they believe that corporations being treated like people is wrong, that bribes from powerful business organizations are undermining and dismantling our democracy, and that our society cannot be beholden to special interest groups.  This is wise, just, reasonable, and true.  I’d wholeheartedly get behind such a movement.  These folks are rational. 

In contrast, a much larger portion of the Occupy Wall Street movement seems to be protesting income inequality and the top 1% of wealth, a different issue.  For these folks, their goals are hopeless until they realize we have entered a third industrial revolution that might as well be called the knowledge economy.  Without that realization, they can’t solve their plight because they don’t understand the core, root cause of the struggle in which they are engaged.  If anything, they threaten to attempt to tear down the very institutions that might, properly harnessed, save them.  It’s a group version of the Dunning-Kruger effect.

Take a look at the official blog of the Occupy Wall Street movement called We are the 99 Percent.  With the exception of relatively rare medical catastrophes, almost everyone on the site posting their story consists of low-skill, low-wage workers who are in debt, in many cases due to foolishly pursuing a worthless degree that had no marketable skills for which the world was willing to pay.  An engineering degree costs just as much as a history degree; a chemistry degree just as much as a political science degree.  You aren’t going to see a lot of doctors, lawyers, portfolio managers, engineers, chemists, or astrophysicists on there.  Why?  They have wages that are increasing on an inflation-adjusted basis if – and this is the key – they are any good at their job.  The unemployment rate for some of these fields is below 2%.

Yet, the people on the blog, many of whom are my age or younger, think that a magic piece of paper called a B.A., B.S., or B.F.A., is going to entitle them to a good living.  It won’t if you didn’t pursue skills the world demands!  And, remember, both Aaron and I went to school on a classical music performance scholarships as first-generation college students who paid their own way; we know what we’re talking about when it comes to this area.  We’re speaking from experience.

The people who are part of the “we are the 99%” movement are not bad people.  But their movement is misnamed.  They are not representative of the 99%; they are disproportionately made up of the bottom 20%.  They know that something is wrong.  They know their life is a struggle and that it isn’t supposed to be this way (it may not have been for their parents or grandparents).  They see the rich getting richer and because of a mental model called the spotlight fallacy, assume the only way to get rich is through inheritance or being famous when those are some of the tiniest minorities within the super-rich demographics.  They haven’t realized it’s all about a shift to a knowledge based economy.  They are being left behind.  They know it.  They just don’t know why and they are blaming the wrong people.

  • Gilvus

    This explains so much. It’s like the blind men and the elephant; everyone can see these aspects, but few people can piece together the big picture.  Thank you so much for crystallizing all the vague ideas.

    I think this deserves to be one of the featured articles on your blog. You know, the ones that scroll on the front page. Only problem is it may not be relevant in the future when the protests die down.

  • http://www.facebook.com/people/Charles-Hughes/1415446109 Charles Hughes

    The problem with this analysis is that it privileges only one set of skills:  how to turn a buck.  The young MBAs who delve into marketing, banking, and international economics and discovers the paths to power and the locations of the money spigots and devote their lives to amassing wealth like Scrooge McDuck are the ones considered successful.  I doubt that you will find many manual laborers in the OWS crowd, but you will find folks who want to improve the world by teaching our young or cleaning up the environment or by elevating the human spirit with the arts and humanities.  These Liberal Arts treasures are the pearls trampled under foot when the value of everything is based on the dollar.

     Of course the world has changed radically, we all know that, and we have to change with it.  If we want to celebrate wealth, however, let’s look to creative spirits like Steve Jobs and not to those like the Koch brothers who use their wealth to attack unions and the public school systems while protecting their vast, polluting industrial operations.

    • Joshua Kennon

      Charles, 

      I agree with many of your points but my position is a bit more nuanced because I’m not certain you see money for what it is.  Not what society tells it is, but what it actually is, the very nature of the thing.

      What began as a response turned into a 4,000 word essay involving money, liberal arts, and the new knowledge-based economy.  I wrote it after thinking about your comment during lunch today but if you’d prefer I take your name off it, I can make it anonymous, instead.  Just let me know.  Here it is: 

      http://www.joshuakennon.com/occupy-wall-street-two-what-is-money-liberal-arts/

    • Moses2424

      Charles,

      As the article points out very intelligently, if people want to pursue the “liberal arts pearls”, they must be content with the fact that in many cases, they are making a choice to bypass an easier path to wealth if that is what they want.

      Furthermore, your attacks on the Koch brothers are misguided as well. Koch Industries employs tens of thousands of people and has compounded BV at a rate greater than probably 99.999% of American corporations. They are brilliant business people. Their attacks on public school systems are well-founded. How long will it take people to learn that public schools are run in the best interests of the teachers, not the students? In states like California, it is nearly impossible to fire teachers and the teachers’ unions control the politicians. Hence, you have a system that works for those in power but it completely fails the student.  This leads to greater problems as students drop out, commit crimes, etc. It’s not a shock that the states that have the highest percentages of public sector unionization tend to have the largest budget problems.

      I agree that we should celebrate people like Steve Jobs. He was one of a kind and he is celebrated. I also think we should celebrate industrialists who grow productive enterprises and keep America working. Even at a company like Koch Industries, innovation is taught and rewarded.

  • http://www.facebook.com/profile.php?id=10214058 Joe Dias

    Nice job on this, you got to root cause with Drucker’s knowledge worker prediction; its a very valid connection.  Coming from personal experience, it is very hard to get to knowledge worker status if you grew up with family that are not knowledge workers, nor have enough sense to tell their kids that THIS is what they should be striving for.  This scenario I just explained  pertains to a wide swath of the U.S. where the kids grow up to be disenfranchised and once they realize it it is very hard to correct, but not impossible (working full time  as a student is painful, but it can be done). ten years ago I was able to dig out using the military as a tool to pay for my education, but I was a small percentage.  Today,  the new GI bill actually provides enough to go to college and not have to work after a 4 year enlistment is fulfilled.  All these protesters should be marching strait to the enlistment office: 4 years of work and a full ride to any state institution with books, tuition, and housing ALL PAID FOR!  Oh but that is far too much risk and work for them.  Their sense of entitlement is preposterous.       

  • Jacob Mast

    I tend to agree with you at least to some extent. However, it seems as though some who are there protesting don’t know why.
    Makes me wonder, why are they blaming corporations? Don’t they know that all of life’s necessities are supplied as a result of usefulness in some fashion? And corporations (businesses) exist because someone deems them to be useful?
     
    BTW, I feel the pinch of that very thing you’re talking about. It is a bit uncomfortable but I’m happily adjusting to a different course in life.

  • http://twitter.com/Atomicrod Rod Adams

    Joe – your experience is not all that unusual. In fact, it is one that is shared by many of the people who are angry at the way that gambling and financial manipulation in the form of such fake securities as Collateralized Debt Obligations have enabled swindlers with spreadsheets and computers to destroy wealth that took decades to generate.

    I qualify as a knowledge worker with skills in computers, networks and nuclear energy. I am fortunate enough to already have a pension from military service and a good, post-military-retirement job. I also sat out the housing bubble as a renter from 2003 through 2010. However, I have close friends and family members who were not so lucky. Some of my skilled friends had their jobs outsourced to India or China. Others purchased decent homes when they were transferred for a three year assignment (fairly common practice among career military professionals) and are now underwater in homes they cannot sell – but with transfer papers that require them to move.

    These are not people with a sense of entitlement, but very intelligent, well read people with a sense of betrayal that their hard work, strong educations, and even carefully stashed savings have resulted in near poverty conditions caused by long term unemployment, rapidly collapsed housing values, and financial manipulation. That sense of betrayal is even more intense as they read about bailouts and stupid government “investments” in inherently unreliable energy systems while failing to even allow nuclear plant construction to begin.

    Count me as one of the 99%, even though I have a Master of Science in systems technology, served as an Engineer Officer on a nuclear submarine and once earned an SAT score that put me in the “top half of one percent” as a National Merit Scholar. I live in a nice home, have few debts, but I am still angry about the way our economy is currently stacked and manipulated by selfish traders who often produce little or nothing of value to anyone but themselves.

    • Joshua Kennon

      Well said!

  • http://twitter.com/myracarmel MG

    The way the world is can not change by Occupying Wall Street. They are all douches. We should occupy the Parliament buildings and the White House and Number 10 etc… To make changes to education. We deserve the right to equal education and education for the masses. We do not want to be bankrupt for the rest of our lives. This is where is begins

    • Joshua Kennon

      That is astute, accurate, and absolutely correct (I don’t know about the “douches” part, since I haven’t gone down to Wall Street to meet any of these people; they might be perfectly nice).  But if the protests were happening against the government and for student loan and education reform, that is a movement I’d support wholeheartedly.

      The United States is in particular trouble because in 2005, a law was passed that made it impossible to declare bankruptcy on student loan debt, getting it wiped out like virtually every other debt one can in life. It was a payoff to the bank lobby and ti has distorted the market. We need to bring back bankruptcy protection so students who have no chance of ever escaping can get an “out” and start over in life.

      In the comments section on this page, we are having a conversation about student loan debt reform that might interest you:

      http://www.joshuakennon.com/occupy-wall-street-two-what-is-money-liberal-arts/

  • Dave

    My son sent me this article. Absolutely brilliant!  I would only be careful about the suggestion here to ‘pay’ for people’s training. It seems compassionate, but I think getting the schooling for ‘free’ is part of the reason many have chosen to study the wrong types of education, and also part of the reason the schools have been able to raise their prices so outrageously high. They must want to learn so badly that they will pay for it themselves. But unfortunately, many will never be able to get smarter because they don’t realize they are dumb.

  • http://twitter.com/Koregano Jerry Griffis

    There is no entitlement!  Life is not supposed to be easy.  Welcome to the new world!  http://www.joshuakennon.com/the-secret-most-of-the-occupy-wall-street-folks-havent-realized-is-the-struggle-is-not-between-the-rich-and-poor/

  • Anonymous

    The reason that our economy is shifting is the outsourcing of jobs overseas. It started with manufacturing and is moving up the food chain. This outsourcing is facilitated by government policies that lobbyists of the large corporations push. This article misses that point. I was an engineer for a large high-tech until retirement, and I saw this affect even guys with grad degrees from MIT.

    • Joshua Kennon

      The entire idea of globalization and outsourcing is implicit in the knowledge worker versus manual worker paradigm shift, as well as being discussed in the five part essay on how to solve the trade deficit.  They are not two separate ideas you can evaluate independently of one another.  

      There is no reason to bring it up in this essay because rehashing what has been extensively discussed elsewhere on the blog would be a waste of time.  Mostly, though, it is because none of that is mentioned on the Occupy Wall Street “We are the 99 Percent” blog.  None of it.  Almost everyone there is young and suffering from a debt problem brought on by excessive borrowing for low-return college degrees or they have experienced some form of crippling mental illness that interferes with their ability to work.  Like it or not, that is the official face of the movement.  That is their blog.  These are not the displaced factory workers or auto workers you heard about in the 1980’s.  Those folks are mostly retired or dead.  That was 30 years ago.

      But as for discussions about globalization, blaming outsourcing for all, or even most, of our employment woes is – let’s be honest – intellectually lazy.  Just yesterday, we talked about how there are between 240,000 and 600,000 manufacturing job openings in the United States that companies can’t fill because the employees don’t have the necessary skills.  In that sense, you’re correct.  As that article points out, the United States will never again pay $30 an hour for shoving boxes through a machine at a GE light bulb plant.  In low-return industries, wage arbitrage is occurring  (e.g., if a field earns $50 an hour in America and $1 and hour overseas, in a perfect world of free trade, the jobs will eventually equalize at $25 an hour).  That will continue until someday you wake up and nations like China have the same GDP per capita as the United States.  At that point, the total economic standard of living of the planet will have raised exponentially.  I consider that outcome good for humanity as a whole.  

      P.S. Wage arbitrage will always occur as an economic force in a free society when travel is unrestricted.  When the Interstate Highway System was constructed under Eisenhower, small department stores and town squares collapsed, leading to giants such as Wal-Mart, who could offer better prices on cheaper, more distant land.  Globalization is nothing more, and nothing less, than a manifestation of that same phenomenon created by faster shipping via plane, rail, highway, and ship.

      The only way to protect yourself would be to have a job that required physical presence to fix a time sensitive problem.  A guy who owns a commercial and residential plumbing business in an affluent suburb is probably always going to be fine and earning well above the median American family.  If your toilet is running over and it won’t stop, you don’t have time to bring someone in from overseas to fix it.

      • Anonymous

        Hi Joshua,
        Thanks for the reply. My comments are below, offset by $$. Thanks for the interesting blog.

        • Joshua Kennon

          I’m not seeing your comments. Can you resubmit them? I checked to see if they accidentally got flagged by the spam filter but they aren’t in there so I’m not sure what happened. I look forward to hearing your thoughts!

  • friend of a friend

    “the world” isn’t demanding the destruction of any social commons or an economic caste system.

    • http://www.joshuakennon.com/ Joshua Kennon

      Yes, they are. In free societies, people get what they vote for with their dollars. They often don’t want to accept this reality, but it is an indisputable economic fact.

      If you want to save a little bit of money by purchasing cheap goods from a third-world country, you can’t say you aren’t voting for slave labor and environmental destruction. You are. You are directly incentivizing other individuals to provide you those goods at that price. You are just as culpable as the plant manager who runs the subpar conditions or the corporate executive who razes an ancient forest. You want it, even if you say you don’t.

      Every dollar you spend is a vote. People get exactly what they want, not what they say they want. Look at airline tickets – service has gone to hell, meals done away with, and seats cramped. Everyone says they don’t want this, but they do. Why? Because they chose the slightly cheaper ticket every time and drove the other businesses with higher service to bankruptcy. They prioritized a few more dollars in their pocket over the experience, saying that just getting to their destination was more important than enjoying the journey.

      This is basic economics.

  • Matt Baen

    The problem with your thesis is that knowledge workers, even the highly skilled and specialized ones, will increasingly be replaced by computers, robotics, crowdsourcing, and digital media (e.g MOOCs). Academia, medical, finance, administrators, etc. will increasingly be in the same boat as manual workers. Demand for all kinds of work – labor and knowledge – will continue to erode and finally crater.

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