The "protocol economy" and the recalculation argument (30 Dec 2009)

In the NYT, David Brooks has a column about what he calls the "protocol economy":

In the 19th and 20th centuries we made stuff: corn and steel and trucks. Now, we make protocols: sets of instructions. A software program is a protocol for organizing information. A new drug is a protocol for organizing chemicals. Wal-Mart produces protocols for moving and marketing consumer goods. Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass.

That sounds a lot like a conservative take on what Italian Marxists like Virno and Negri call the "post-Fordist economy," which relies not on raw manufacturing capability but on "immaterial labor" produced collaboratively in the "social factory." Virno, in A Grammar of the Multitude calls this "the general intellect," drawing on some tentative formulations Marx made in the Grundrisse.

In so-called “second-generation independent labor," but also in the operational procedures of a radically reformed factory such as the Fiat factory in Melfi, it is not difficult to recognize that the connection between knowledge and production is not at all exhausted within the system of machines; on the contrary, it articulates itself in the linguistic cooperation of men and women, in their actually acting in concert. In the Post-Fordist environment, a decisive role is played by the infinite variety of concepts and logical schemes which cannot ever be set within fixed capital, being inseparable from the reiteration of a plurality of living subjects. The general intellect includes, thus, formal and informal knowledge, imagination, ethical propensities, mindsets, and “linguistic games.” In contemporary labor processes, there are thoughts and discourses which function as productive “machines,” without having to adopt the form of a mechanical body or of an electronic valve. The general intellect becomes an attribute of living labor when the activity of the latter consists increasingly of linguistic services.

Labor, that is to say, now consists mainly of interpersonal communication and consumption skills. As more-traditional economists would put it, we build various forms of communication skills to reduce transaction costs, increasing the trust between parties to various inter-organizational exchanges. When we have drinks with co-workers, we have an easier time working with them efficiently on the job. To translate into the terms Brooks uses, "a nation has to have a good economic culture ... what really matters [are] attitudes toward uncertainty, the willingness to exert leadership, the willingness to follow orders." In other words, labor practices in the capitalism we know are often about building the hierarchy, reinforcing the chain of command while disguising the coercion involved. The value of an enterprise more and more lies precisely in that discipline, which promises that the organization can spring into action and work quickly to accommodate demands.

Not only is hierarchical communication important; Brooks claims that "a strong economy needs daring consumers." By working at our consumption, making sure we do it more efficiently, we become more valuable to our employers. When we use computers at home, for instance, we become more efficient users of them at work. And by being "daring" about what we consume, we help sustain the cycle of novelty -- making old but still functional goods seem uncool and thus obsolete. (This seems at odds with the New Austerity position Brooks occasionally pushes, but that's another topic.)

Both of these tenets of "good economic culture" point toward the end of the hard-and-fast division between work and nonwork time, since we are constantly working on building trust and "innovating" in our relationships with people and the products we use. The blurring of the lines between work and leisure then changes what it means to be employed. More and more of us are producing value in our leisure time (filling out customer-satisfaction surveys, writing product reviews online, disseminating information about what trends are hot, file-sharing, mapping out our social networks, etc.) -- and finding ourselves otherwise unemployed, without a traditional wage-paying job. The media industry is particularly implicated in this change -- reporters are being laid off while the work of unpaid "citizen journalists" is being harvested. (See here.)

Among the economists Brooks cites is Arnold Kling, who for some time has been developing the argument (derived from Austrian economists: Schumpeter, Ludwig von Mises, etc.) at the blog EconLog that the current recession can be explained in terms of "recalculation" (and not in traditional macroeconomic terms as a "lack of aggregate demand" or "liquidity preferences"). Unemployment is thus structural rather than cyclical. The gist is that people can systematically plan their investments poorly, including how they invest their "human capital," as Kling explains coldly:

people take a lot of idiosyncratic risk, particularly in terms of their human capital, which is for most people their biggest asset. I think that in the last 18 months, an unusually high number of people have had their plans go awry. They wish they had made different choices in terms of their education and occupations. Digging out from these mistakes is going to take a long time. A lot of recalculation needs to get done, and the problem is really daunting.

The analysis hinges on the problems incipient in the time lag between production and consumption (the period in which capital is circulating and surplus value is realized, from Marx's point of view -- when the exploited are definitively separated from the exploiters). Producers plan today for uncertain demand tomorrow, without guarantee that what's produced is socially necessary. The future's uncertain and the end is always near, as noted economist Jim Morrison put it. When the planning has gone poorly, the economy will begin to painfully reallocate resources (including labor) by means of the market sending some blunt signals -- i.e. lots of layoffs.

This view has a kind of pitiless frankness going for it; it plays as a promise not to reinflate the same bubbles or protect moribund industries or embedded rent-seekers. It seeks to rid us of unsustainable economic practices -- in our case, perpetual consumer borrowing to sustain a consumerist-driven economy. At the same time, though, it makes a deity of market signals: the divine plan indicated by these signals must be obeyed. But of course the whole recalculation problem arises because we can't reliably discern what we should do from the signals the market conveys. The signals themselves encode various distortions and asymmetries and scams that lead us to misallocate our financial and human capital. There seems to be a need for government industrial policy of some sort to corral those signals, simplify them, supply them with parameters that allow the message they send be more easily interpreted.

In the U.S., the call for industrial policy often ends up being a plea for a return to the glory days of manufacturing -- when America actually made stuff instead of easily copied "protocols;" when we made steel, not software and entertainment goods that can be pirated; when labor was material and delineated, not immaterial and uncompensated in a nebulous service economy. Ryan Avent, at The Economist's Free Exchange blog dismisses this (and articles like this TNR piece) as a liberal-left shibboleth:

What about the question of whether manufacturing ought to make up a set share of output? Think about this. Technological innovation has significantly reduced the cost of many technologies; in real terms (and especially in quality-adjusted real terms), televisions, computers, phones, appliances, and so on are far cheaper than they used to be. One consequence of these reductions in cost is that such products contribute less to measured output.
For many service activities, by contrast, the principal cost factors aren't easily reduced. Many health care services, for instance, are skilled-labour intensive. Until technology can reduce the labour inputs required for such services (or until their is a significant increase in the supply of the necessary skilled labour) it will be hard to cut costs, and meanwhile, demand is steady or increases. As a result, prices go up, as does the value of the contribution to output.

Avent is basically restating the recalculation thesis with a slightly different emphasis: workers need to retrain for the service economy, not ask the government to protect their outmoded, deskilled manufacturing jobs now being exported to countries where labor (and human life) is currently cheap. The U.S. apparently needs to focus even more on education (the customary panacea for economic ills), but this threatens to produce an education arms race instead of increase in the skill set of the workforce. People need higher and higher education degrees to do the same simple office work. (This seems to threaten an education bubble, where people stay in school as long as possible and then graduate to become educators themselves.) (Avent has more worth reading on this subject at his personal blog, looking at the American Prospect's special issue on urbanism.)

The fetishization of education also has the effect of encouraging the plethora of highly educated people to manufacture complexity for its own sake, in order to justify bigger salaries for then managing that complexity. This seems to be what happened in the finance industry, which dropped all pretense of serving an intermediary function (matching investments with spare capital) and nakedly served itself, sullying the market signals that are supposed to aid economic recalculation and ease/prevent structural unemployment in the first place. (See here for a good explanation of why the financial sector's norms are out of whack -- basically bankers care about earnings only, their "mission" precludes an ethic based on the rewards of their work itself.)

It seems like economic/industrial policy should be geared toward fixing the "economic culture" in such a way to prevent the elaboration of "protocols" of self-serving complexity. We need to encourage education while discouraging the abuse and perversion of the advantages and innovations it can supply. Hence the focus on income inequality, arguably the evidence of such perversions -- at least if one holds to the ideal that knowledge is its own reward rather than a mere tool to get money, which is then presumed to be able to buy something better than wisdom.