Is This Why Productivity Has Tanked And Wealth Inequality Has Soared?

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

Needless but highly profitable forced-upgrades are the bread and butter of the tech industry.

One of the enduring mysteries in conventional economics (along with why wages for the bottom 95% have stagnated) is the recent decline in productivity gains (see chart). Since gains in productivity are the ultimate source of higher wages, these issues are related. Simply put, advances in productivity are core to widespread prosperity.

But that's only half the problem--productivity gains have flowed to the top of the income-wealth pyramid as financialization and cartels have replaced real-world wealth creation as the source of wealth-income.

Longtime correspondent Zeus Y. recently identified one cause of declining productivity and the narrowing of financial gains in the top: the quasi-cartels that dominate our economy profit by introducing and maintaining inefficiencies, not eliminating them. This runs counter to the accepted wisdom in classical free-market capitalism that generating efficiencies increases profits.

Here is Zeus's explanation of this perverse dynamic:

"With Big Data and Big Profit dominating the products, services, and platforms of everything from iOS operating updates to delivery of healthcare, let's make the plain-as-day argument: PROFIT and EXTRACTION MEANS PRODUCING INEFFICIENCIES, NOT ELIMINATING THEM.

They make their money by creating inefficiencies, bottlenecks, and gatekeepings that they can profit from. Every middleman function they can stick in their system is a potential profit source for them.

This was especially apparent to me in all the bugs I have experienced with Apple upgrades on my phone. I have to take the time to fix their screw-ups, which are designed to aggregate my data and usage to profit them. You see this with the manipulation of Facebook, creating a very black and white world that motivates and manipulates people to a froth with filters and algorithms that reinforce their biases.

This is not free and democratic access, but inefficient and narrow manipulation, cutting down on alternatives, possibilities, and better ways to think and do. What would a more efficient and democratic system look like, one where access, freedom, and, yes, real efficiencies (especially democratic and community efficiencies) would predominate?"

Thank you, Zeus. As Marx observed 150 years ago, the most profitable arrangement is monopoly, or failing that, a cartel that controls a specific market. Thus it is no surprise that Google, Facebook and Amazon are attempting to become quasi-monopolies in their respective spaces, just as Standard Oil gained a near-monopoly on the oil market in the early 20th century.

Corporations no longer seek a coercive old-style monopoly that violates anti-trust laws; today they eliminate competition by scaling up to dominate a sector. I covered this in Are Facebook and Google the New Colonial Powers? (September 18, 2017).

Once a corporation achieves dominance, it can impose profitable inefficiencies (for example, healthcare and higher education), force customers to perform labor that was once done by companies as part of their service (self-checkout, endless software updates), and profit from customer data with little fear of blowback: now that you need us, we can extract maximum profit from you without fear of regulation or competition.

Once customers are dependent (or addicted, in the case of opioids, mobile telephony, Facebook, etc.), then corporations can impose all sorts of burdens on their customers and demand annual ransom, a.k.a. software licensing and/or update fees.

Consider Microsoft's dominance in operating systems and Office. Microsoft can sell buggy, insecure software, and require constant purchases of "upgraded" software that has lower functionality than the product it replaces.

The same dynamic is in play with Apple and Android OS in the mobile space. I was recently forced to upgrade my perfectly functional iPhone 4 because some apps only work now in the latest iOS. Meanwhile, Windows 10 is demanding I upgrade my BIOS so my laptop can accept the latest Win10 update. Needless to say, Microsoft offers zero assistance beyond the nag-box.

Needless but highly profitable forced-upgrades are the bread and butter of the tech industry. If we actually valued efficiency and productivity, our system would encourage durability, efficiency and reducing waste. Alas, all three of these worthy traits drastically reduce profits, so instead our maximizing profits by any means available system incentivizes planned obsolescence, inefficiencies controlled by cartels and endless waste of goods, services, customer time and resources.

The immense profitability of inefficiencies controlled by monopolies, quasi-monopolies and cartels is a key reason productivity has faltered and gains flow only to the top. There are other models for distributing software and services, for example, open-source software. There are other models of ownership, for example community ownership of resources and enterprises. But given the financial and political dominance of cartels, these options have been neutered or marginalized.

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Five Star's picture

The wealth effect transfered earnings from the 95% of people with a bank account to just a few with lots stocks, who spend less of their income

LawsofPhysics's picture

Correct.  taxes are just a distraction. It is easy to transfer assets and wealth when only a select few in BANKING/FINANCE can access all the currency they want FOR ZERO INTEREST!!!!


the raping of savers continues along with the socialization of private losses!!!


"Full Faith and Credit"

shitshitshit's picture

Communism => disaffection.

Watch the babel towers collapse someday.

What goes up can only stay up due to collective efforts...



Bes's picture

Good thing we aren't about to let


and AT&T merge


and who gives a fuck about CNN.  They represent literally pennies on the dollar compared to the rest of the deal.

bobcatz's picture

"controlled by monopolies, quasi-monopolies and cartels"

The biggest cartel of them all is the Federal Reserve, controlled by a bunch of IMPOSTORS who in turn wag every other institution in America.

eclectic syncretist's picture

Gee Chuck,...YA THINK????!!!


Justin Case's picture

Corporations are buying back their shares to meet bonus targets as sales decling. Extend and pretend. IBM is the biggest buyer of their own shares. That's is what replaced productivity.

Vilfredo Pareto's picture

Well, if capital gains are treated differently than dividends it makes little sense to give a dividend.  Share buybacks are the new income stream lol.

Endgame Napoleon's picture

Too many American workers have unearned income, which means they do not have as much need or incentive to be productive. These people often work the 96% of new, part-time and temp jobs created since 2005 in lieu of full-time jobs.

A few — not many — of these workers have unearned income from inheritance, like dividends, trusts funds or whatever.

Some are retired, with SSA checks covering their major household bills, like rent. Before Reagan changed this, people could not draw SSA and earn over a certain amount. When people with SSA checks work, it lowers wages for people without unearned income because of their willingness to work part time for less pay, in the same way that single moms lower the wage base when they comply with the welfare-reform requirement of 20 hours per week of work. They work part time for low wages, staying below the less-than-$1,000-per-month income limit for welfare.

It lowers wages for those without unearned income, dis incentivizing hard work AND productivity.

The same thing happens when immigrants with sole, male breadwinners and free food and rent due to multiple, US-born children accept low wages.

This makes hard work less and less worth the effort for all of the many Americans who lack unearned income. They cannot afford rent on EARNED-ONLY income, no matter how hard they work and no matter how productive they are.

I do not complain about this as much, because I do not know the work rules for this program. I did not work in this part of social services, and when working at the Department of Human Services, I did not see many people getting free EBT food and monthly cash assistance in this category.

But this country also has an explosion of SSI recipients. Are more people getting injured on the job in an era of hyper OSHA regulation?

The majority of workers with unearned income are not in the above-mentioned categories, however.

The majority have unearned income from spouses that covers major bills. They have unearned income from ex spouses in the form of child support that covers major expenses, like their rent. Or they have monthly welfare for reproducing while single that covers their rent and groceries, with a child tax credit each April that, at the max level of $6,269, equals 4 months of full-time, take-home pay for HALF of the workers in states with per capita income hovering around $19k, like TX, KY and TN.

$19,617 — Per Capita Income for an INDIVIDUAL in the state of Texas

$6,269 — max child-tax-credit check for part-time momma workers with free rent and free food

That one check is almost 1/3rd of the yearly take-home pay for workers with zero unearned income. Many make less than $19,617 per year with no unearned income.

$19,617 is the AVERAGE yearly income for individuals in the state of Texas, a state with a so-called economic boom.

A once-a-year check from government to reward sex and reproduction is more lucrative than 3 or 4 months of work in that boom state.

Womb productivity pays MORE than work productivity.

The rest of us have no unearned income.

We must live on earned-only income when rent absorbs half or more of our pay.

Hard work AND productivity — i.e. the number of sales generated compared to others, the number of accounts retained compared to others, etc. — counts for nothing in most workplaces. In most of the industries where I have worked, employers prefer to hire and retain 99% moms who can accept very low pay in exchange for huge lenience on matters of absenteeism.

Employees who take many mornings, afternoons, days and weeks off, in addition to PTO and multiple maternity leaves, are NOT productive in most cases, no matter how fake feminists spin it.

They HAVE child care. They still take the excused time off.

The mom managers backscratch and back watch, hiring and retaining mostly other moms who do the same thing that they do in terms of excused absenteeism in many cases. Some dad managers do it too. It is the thing to do.

I think the reason they get away with it is automation; computer programs do more of the work.

Managers also get bonus credit for overall sales numbers, not the individual sales of any one productive (and churnable) employee, so they often churn hard workers who come to work every day and stay through the entire day, selling a lot as a result. Managers then get credit for the churned workers’ sales, while keeping the frequently absentee, low-selling momma clique that provides a labor cost savings, that watches their back during their babyvacations and that they might feel less competitive with, even when they have no need to feel that way. I have worked in many places where I was selling a ton, and I was never competing for the manager’s job, just working hard and selling a lot.

They prefer the absentee and lackluster, low-selling, low-energy (to borrow a Trumpian phrase) momma-gang workers.

They prefer them because of their unearned income from spouses, ex spouses or welfare and child tax credits.

They prefer them because unearned income makes it easier for mom-gang workers to accept low pay AND part-time hours in industries where volume often fluctuates, making it harder to hire full-time workers.

Employers prefer workers with unearned income who are often not productive; THAT is why productivity is low.

Employers want it to stay low.

Remove some of the workers with unearned income by incentivizing people to raise their own children, rather than working part time for low wages.

He-He That Tickles's picture

We get it. Like most problems, this problem was created by and solely exists because a government made it the way things are done.

sgt_doom's picture

Ever heard the name, Andrew Carnegie Rockefeller?

Thought not . . .


I'd say he had unearned income . . .

mvsjcl's picture

Monopoly. The game of choice for the uber wealthy.

LawsofPhysics's picture

let them keep playing it and eventually we will be forced to eat the rich...

no matter, eventually evolution will re-assert itself.

In the meantime...

"Full Faith and Credit"

Seasmoke's picture

let them keep playing it and eventually we will be forced to eat the rich...

no matter, eventually Revolution will re-assert itself.

In the meantime...

"Full Faith and Credit"

/Fixed it for you !!

LawsofPhysics's picture

LOL!!!  Revolutions require a tremendous amount of energy and resources.

Sorry, this is not available, nor are people actually that motivated or really willing to risk their lives.

Fuck em, maybe they will be once they are starving.

same as it ever was.

Endgame Napoleon's picture

Well, the rich create the jobs, so unless something changes, that [lunch] would not lower UNDERemplotment or raise productivity.

HRClinton's picture

And that is also precisely why the big corporations are actually behind MORE REGULATION: The "cost of doing business" goes up and up and up, to the point where only the biggest ones can afford to comply, and the smaller ones are forced into mergers or bankruptcy. 

Aren't private cartels great?  And here we thought that "Free Enterprise" was dead.

Free Enterprise is free. It's more "free" for some than others.

Isn't it great to be a (((Plantation Owner))) or Deep Plantation employee?  The rest -- the 90% of us -- are just Plantation Niggers & Sharecroppers.

Last of the Middle Class's picture

Financial cartels use their power and government collusion to introduce “profit” bottlenecks at every opportunity. Anytime you read anything about a new law (read database) you have just introduced another bottleneck (and profit center for the elite) into our economic system.

Kayman's picture

The Fed- the monopoly of money/credit creation, is the fulcrum upon which all the uber wealthy are levered. Most of their wealth is in inflated shares of corporations that have little to no earnings.

As for Productivity- it is a ratio.  The more people you lay off, the greater productivity becomes, up to a limit.

Endgame Napoleon's picture

How does the churning of temps, part-time and high-turnover enployees affect that ratio? I do not understand.

Bam_Man's picture

"The beatings will continue until productivity improves."

Wise Gold's picture

Good article Tylers.

shankster's picture

I'm sure it has nothing to do with The Fed or the IRS or the thousands of rules and regulations and endless taxes for businesses and citizens or the constant interfering into the lives of citizens and small business by the gubmit...sure none of that applies...move along sheeple, move along.

shankster's picture

Give the people The Fair Tax and watch the economy grow and expand..even though that would eliminate the IRS and give power back to the people, that's why they don't even whisper the words 'Fair Tax' on Capital Hill.

Banana Republican's picture

The only path to achieve that leads through a violent revolution.

shankster's picture

"Those who have been once intoxicated with power and have derived any kind of emolument from it can never willingly abandon it." -- Edmund Burke

jamesmmu's picture

Panic set in today, DOW to crash 200 pts at least.

shankster's picture

Sheeple you must have and you need the latest in tech crap even though the stuff you have now is just as good but you need to buy the new product. You also need the latest pharmaceuticals too and a good lawyer...don't you understand sheeple?

Endgame Napoleon's picture

The consumer-driven economy on overdrive is not working, but iPhone 4 needed to be replaced at this point.

RedBaron616's picture

"Once customers are dependent (or addicted, in the case of opioids, mobile telephony, Facebook, etc.), then corporations can impose all sorts of burdens on their customers and demand annual ransom, a.k.a. software licensing and/or update fees."

Comparing Apples and Oranges again. If you are prescribed opoids and follow the prescription, you won't have a problem. The problem is people who believe that if one is good, two is great, and a handful is super. Mobile phones do not fall into this category as you can still buy quality phones for a low price and there is genuine competition among the carriers. My cost has actually dropped in the last couple of years.  None of the above applies to mobile telephony unless you are a Apple fanboy that always has to have the latest model and you get what you so richly deserve: To be ripped off.

I don't do Facebook, but last time I checked, there weren't any annual ransoms or fees involved.

brown_hornet's picture

No ransoms and fees that are readily ascertainable anyway.

Endgame Napoleon's picture

People are not addicted to FB; they are UNDERemployed with time on their hands. Sadly, this is true whether or not they are at work. FB is a digital scrapbook for moms to show off their babies and for dual, high-earner couples who concentrate the salaried wealth in this country to show off their houses and trips. It is place for young girls to show off their new, fashionable clothing. It is a platform to promote businesses.

sgt_doom's picture

Exactly, and target those corrupt practices to squeeze out ever more profit to the detriment of their so-called client base.

Take for instance, Big PHRMA and opiate addicts.  Next they come out with extra-strength laxatives, aimed at that population since while they still live, their gastrointestinal tracts are screwed up, causing problems with defecation, requiring super-laxatives, most conveniently provided by the biopharmaceuticals.

DisorderlyConduct's picture

So the author thinks that Microsoft makes the BIOS in his laptop. Uhm, no. Microsoft derives no profit from working to find and report BIOS incompatabilities. That's a huge and costly pain in the ass, and a service to customers. What do you want - an OS that ignores these problems and then fails? LOL. Like Windows needs to fail more. ^_^

And I suppose Apple should freeze iOS development, and app developers should never update their products. Uhm, no. I have a better idea - don't like it, don't buy or use it.

I'm on board with fighting the rent-seekers, but come on - have someone proof your work.

monero's picture

I don't buy it.  Just because the author doesn't see any improvements in software upgrades doesn't mean upgrading software is a waste.  The real issue is central banks and also the inappropriate relationships between giant corporations and governments.

Vilfredo Pareto's picture

These are just small examples of exploitation of market inefficiencies to increase profits.

Endgame Napoleon's picture

iPhone updates automatically.

Except for a few exceptionally skilled people, automation is eating up all of the substantive jobs, the type of jobs that enable you to cover all household bills on one stream of earned-only income.

And the chat heads on CNN and the rest of the MSM ignore it, getting paid millions by the Establishment for ignoring it.

earleflorida's picture

fantastic read and analysis

thankyou 'CHS'

'real median`family income' graph' says it all 1945- 1980 and the 'trickle-down'--- classic

and then the 'big bang' duopoly? cherry on the top!

keep em comin-)

pitz's picture

The H-1B visa has been devastating for American productivity as a good chunk of our best and brightest innovators can't find jobs.  Firms being addicted to recruiting STEM personnel based on their price, not based on their talent. 

The best thing that Trump could do would be to send every H-1B guest worker packing so highly skilled and talented Americans can finally get back to work in a dignified and respectful manner.

earleflorida's picture

sadly, mr trump is/has opened the floodgates ...--- quite the contrary from what were told by the 'fake (his highness or their[s] whomever they are?) news' that mr. trump can use as 'double-speak `box'd-n-square' at no cost, WOWzyee!?!   

purdySun's picture

Yes! Why do we ignore such practices?? Former son-in-law works for State Dept of Agriculture. When more closely alligned some 6 years ago, he shared that his building had an entire floor of H-1B IT workers. Location? Middle of the TX A&M campus in College Station. Maybe a high-priced grad w/o employment should investigate.

Iconoclast421's picture

It's true. Word from 20 years ago is better than it is now. All the old bugs are still there. Like when you copy and paste text it just randomly changes the font. lol. Amazing how a bug can persist through 20 years of bloat. But the new crap takes 5 seconds to open, and Word 97 takes 0.1 seconds to open. You just try opening 50 documents. Your computer chokes and dies if its new Word. But Word 97 just flies through it. WTF are you getting by accepting all that bloat? Nothing. Seriously nothing. Excel has a couple decent features but all they do is save you some time, but its not worth the time you lose simply due to the bloat.

44magnum's picture

hey but its profitable for microsoft, so theres that.

earleflorida's picture

MSFT [etal.] : america's 'state-own'd-enterpri[z]es' that only 'free western capitalism' can paint 'red/white/blue' with a pinky hue...--- pleasing to thy 'Big-EYE'!?! 

Vilfredo Pareto's picture

I have not needed any increased functionality since windows 97.  I bet 90 percent of people don't need anything more complicated.  However Microsoft wouldn't survive without constant upgrades.

Yogizuna's picture

XP was all I ever needed. 

Vilfredo Pareto's picture

Lol.  Yeah.  Some peeps think we are dinosaurs resisting technology in healthcare but we are hosed by the cartelization of software.  Mandates are so complex and ever changing that most organizations just outsource it and accept the fact they will be charged $20,000 per physician for a system that at its core has a word processor, file sorting capabilities, a cloud back up, and encrypted communications.


The government  mandates keep changing to add additional functions.  That is a sure fire recipe for a subscription service that can charge whatever they want.  It is hard enough for adoc to do healthcare right.  There is no way to deal with all the rest, so most organizations are trapped.  

Hubbs's picture

Microsoft is the epitome of the Johnny come lately. Never innovated on anything. Originated off the IBM software, stole and muscled out Netscape for the internet browser. Microsoft has done only one thing "well" and that is to have  perfected the art of the monopoly, which Apple early on, busted this up, but too has now realized it is far more profitable to join them rather than compete. 

So in response to the quaint little jingle: "How was your  banking or shopping experience?", it is now "How was your "computing experience?" Fuck you Microsoft and Apple! I have paid for Word for Windows over and over with each new Microsoft "upgrade which goes from stable 95 to 98 to XP to sucky Vista, then selling you Windows 7 to undue the damage, back and forth so they make sure to sell you something you already own as many times as they can during your lifetime, with no essential functional benefit. One report noted Apple's trouble shooting iOS site gets googled more times just before they release their new phone (that the sheeple just have to have), suggesting that Apple deliberately screws up the functionality of the expired phone to force people into buying their latest brainwasher.


Moore's law should have the processing power of the integrated circuits to the moon, but my printers, my Word for Windows copy and paste functions, which should be the simplest stone age functions by now, are FUCKING BUGGY AS HELL today. I don't know whether the programmers are doing this deliberately or whether the software is getting bogged down with so much God-damned spyware/malware that they can no longer function.

Got all Ham radio ratings, Elecraft KX3 radio and looking forward to spending increasing time off the internet and back on the radio where it all began. Next, work on Linux.