The two economies

by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

jeff-smI think we’re in the middle of a major change of how our economy works, and it has major ramifications both for how our society in general and the wine business in particular is likely to develop.

If you’ve been following the business news recently, we’re seeing what I think is now an irreversible trend. Large businesses are flush with cash, but they aren’t spending it on hiring people. Instead, to the extent they are spending it at all, they are buying new equipment. The bottom line is that it’s cheaper to pay for a piece of equipment to do something than it is to hire people to do the same job.

This isn’t a particularly new phenomenon. In fact, it’s the basic trend from the inception of the Industrial Revolution. In the past, the buying of new equipment has, in the long term, usually ended up creating jobs, albeit different types of jobs. Manufacturing jobs were once a much larger portion of our workforce, but recent history has seen a major decline in this sector, with increases in the service sector. To some extent the decline in manufacturing jobs represents a decline in the overall amount of manufacturing done in the USA. But automation has been a significant part of this trend as well.  And, in the past, increased efficiency has resulted in increased well-being for our nation as a whole.

What bothers me about all this now is that the benefits of this trend seem to be going mostly to those at the top, and the normal guy, who isn’t capable of getting a Harvard MBA, is largely left out. With the ever shrinking safety net that our society is providing, I fear the formation of a huge underclass that, without specialized skills, is essentially competing with workers in third world countries who can perform the same work for much lower wages.

I personally don’t see how you can reverse this trend towards mechanization if, in fact, machines can do the same thing cheaper. But it does seem to me that unless we do something to relieve the stress on the working class, we’re going to end up with a society of haves and have nots.

I see these same trends in the wine business. I think we’re seeing a trend where the biggest operators will increasingly dominate the market. That in part is a function of their better ability to implement mechanization in ways that are beyond the ability of the smaller operator. In part, that results from the market domination of the largest producers by their advantages in obtaining distribution, a subject I’ve discussed in a recent post.

Every trade show I go to I see new and improved equipment. Mechanical harvesting, for example, is greatly improved over what it once was. The cost to us of harvesting mechanically is roughly half of paying for hand picking. For a large company that can own and operate its own equipment, I’m sure the savings are even greater. The long term trend is that every year a larger percentage of the harvest is going to be machine harvested, leaving less work for the people who, not that many years ago, harvested almost 100% of the crop.

Winery equipment, likewise, is constantly being improved, with the result that fewer people are required to run a winery.

These developments in the wine industry aren’t, at least in my view, unwelcome. I know I would personally much rather harvest my fruit mechanically at half the cost than pay pickers to do the same job. In the end, the savings will get passed on to the consumer, who will be able to buy an equivalent bottle for less with each passing year.

But the ability of the wine industry, like other industries, to produce more with less manpower, is going to leave large numbers of laborers without work. As a nation, we somehow need to adapt to this trend, so that a large portion of our populace isn’t left out. It seems that better education and training so that we produce workers who are employable is an important piece of the puzzle. But this isn’t happening at a pace that will absorb the idle portion of our workforce, at least not anytime soon.

As things stand, it looks like we’re heading for an economy that would be healthy and vibrant if only we could eliminate 20% of our population. Since we can’t do that, that 20% will struggle from paycheck to paycheck, assuming that they can find work at all. This doesn’t bespeak a sound foundation for our society.

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