The wealth of humans: work and its absence in the twenty-first century

The Wealth of Humans, by Ryan Avent, a senior editor at The Economist, addresses the economic and social challenges imposed on societies by the rapid development of digital technologies.  Although the book includes an analysis of the mechanisms, technologies, and effects that may lead to massive unemployment, brought by the emergence of digital technologies, intelligent systems, and smart robots, the focus is on the economic and social effects of those technologies.

The main point Avent makes is that market mechanisms may be relied upon to create growth and wealth for society, and to improve the average condition of humans, but cannot be relied upon to ensure adequate redistribution of the generated wealth. Left to themselves, the markets will tend to concentrate wealth. This happened in the industrial revolution, but society adapted (unions, welfare, education) to ensure that adequate redistribution mechanisms were put in place.

To Avent, this tendency towards increased income asymmetry, between the top earners and the rest, which is already so clear, will only be made worst by the inevitable glut of labor that will be created by digital technologies and artificial intelligence.

There are many possible redistribution mechanisms, from universal basic income to minimum wage requirements but, as the author points out, none is guaranteed to work well in a society where a large majority of people may become unable to find work. The largest and most important asymmetry that remains is, probably, the asymmetry that exists between developed countries and underdeveloped ones. Although this asymmetry was somewhat reduced by the recent economic development of the BRIC countries, Avent believes that was a one time event that will not reoccur.

Avent points out that the strength of the developed economies is not a direct consequence of the factors that are most commonly thought to be decisive: more capital, adequate infrastructures, and better education. These factors do indeed play a role but what makes the decisive difference is “social capital”, the set of rules shared by members of developed societies that makes them more effective at creating value for themselves and for society. Social capital, the unwritten set of rules that make it possible to create value, in a society, in a country or in a company, cannot be easily copied, sold, or exported.

This social capital (which, interestingly, closely matches the idea of shared beliefs Yuval Harari describes in Sapiens) can be assimilated, by immigrants or new hires, who can learn how to contribute to the creation of wealth, and benefit from it. However, as countries and societies became adverse at receiving immigrants, and companies reduce workforces, social capital becomes more and more concentrated.

In the end, Avent concludes that no public policies, no known economic theories, are guaranteed to fix the problem of inequality, mass unemployment, and lack of redistribution. It comes down to society, as whole, i.e., to each one of us, to decide to be generous and altruistic, in order to make sure that the wealth created by the hidden hand of the market benefits all of mankind.

A must-read if you care about the effects of asymmetries in income distribution on societies.

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Taxing robots: a solution for unemployment or a recipe for economic disaster?

In a recent interview with Quartz, Bill Gates, who cannot exactly be called a Luddite, argued that a robot tax should be levied and used to help pay for jobs in healthcare and education, which are hard to automate and can only be done by humans (for now). Gates pointed out that humans are taxed on the salary they make, unlike the robots who could replace them.

Gates argued that governments must take more control of the consequences of increased technological sophistication and not rely on businesses to redistribute the income that is generated by the new generation of robots and artificial intelligence systems.

Although the idea looks appealing, it is in reality equivalent to taxing capital, as this article in The Economist explains. Taxing capital investments will slow down increases in productivity, and may lead, in the end, to poorer societies. Bill Gates’ point seems to be that investing in robots does indeed improve productivity, but also causes significant negative externalities, such as long term unemployment and increased income distribution inequalities. These negative externalities might justify a specific tax on robots, aimed at alleviating these negative externalities. In the end, it comes down to deciding whether economic growth is more important than ensuring everyone has a job.

As The Economist puts it: “Investments in robots can make human workers more productive rather than expendable; taxing them could leave the employees affected worse off. Particular workers may suffer by being displaced by robots, but workers as a whole might be better off because prices fall. Slowing the deployment of robots in health care and herding humans into such jobs might look like a useful way to maintain social stability. But if it means that health-care costs grow rapidly, gobbling up the gains in workers’ incomes, then the victory is Pyrrhic.”

Gates´ comments have been extensively analyzed in a number of articles, including this one by Yanis Varoufakis, a former finance minister of Greece, who argues that the robot tax will not solve the problem and is, at any rate, much worse than the existing alternative, a universal basic income.

The question of whether robots should be taxed is not a purely theoretical one. On February 17th, 2017, the European Parliament approved  a resolution with recommendations to the European Commission, which is heavily based on the draft report proposed by the committee on legal affairs, but leaves out the recommendations (included in the draft report) to consider a tax on robots. The decision to reject the robot tax was, unsurprisingly, well received by the robotics industry, as reported  in this article by Reuters.

PHOTO DATE: 12-12-13 LOCATION: Bldg. 32B - Valkyrie Lab SUBJECT: High quality, production photos of Valkyrie Robot for PAO PHOTOGRAPHERS: BILL STAFFORD, JAMES BLAIR, REGAN GEESEMAN

Image courtesy of NASA/Bill Stafford, James Blair and Regan Geeseman, available at Wikimedia Commons.

 

 

India considers the adoption of Universal Basic Income

A recent article published in The Economist reports that India is considering the adoption of a Universal Basic Income (UBI) scheme to replace a myriad of existing welfare systems.

Unlike the discussions that are taking place in other countries, this discussion about Universal Basic Income is not motivated by advances in technology and the fear of massive unemployment. The main aim of such a measure would be to replace many existing welfare mechanisms that are expensive, ineffective, and misused.

The scheme would provide every single citizen with a guaranteed basic income of 9 dollars a month ( hardly a vast sum ) and would cost between 6 and 7% of GDP. The 950 existing welfare schemes cost about 5% of GDP. Such a large scale experiment would, at least, contribute to make clear the advantages and disadvantages of UBI as a way to make sure every human being has a minimum wage, independent of any other considerations or the existence of jobs.

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Photo by Amal Mongia, available at Multimedia Commons.

Will the fourth industrial revolution destroy or create jobs?

The impact of the fourth industrial revolution on jobs has been much discussed.

On one side, there are the traditional economists, who argue that technological advances have always created more and better jobs than the ones they destroyed. On the other side, the people that believe that with the arrival of artificial intelligence and robotics, there will simply not exist enough jobs that cannot be done by machines.

So, in this post, I try to present a balanced analysis on the subject, as deeply as allowed by the space and time available.

Many studies have addressed the question of which jobs are more likely to be destroyed by automation.  This study, by McKinsey, provides a very comprehensive analysis.

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Recently, The Economist also published a fairly balanced analysis of the topic, already posted in this blog. In this analysis, The Economist makes a reference to a number of studies on the jobs that are at high risk but, in the end, it sides with the opinion that enough jobs will be created to replace the ones technology will destroy.

A number of books and articles have been written on the topic, including “Raising the Floor“, “The Wealth of Humans: Work, Power, and Status in the Twenty-first Century“, “The Second Machine Age“, and “No More Work“, some of them already reviewed in this blog.

In most cases, the authors of these books advocate the need for significant changes in the way society is organized, and on the types of social contracts that need to be drawn. Guaranteeing every one a universal basic income is a proposal that has become very popular, as a way to address the question of how humanity will live in a time when there are much less jobs to go around.

Further evidence that some deep change is in the cards is provided by data that shows that, with the begining of the XXI century, income is being moved away from jobs (and workers) towards capital (and large companies):

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On the other side of the debate, there are many people who believe that humans will always be able to adapt and add value to society, regardless of what machines can or cannot do. David Autor, in his TED talk, makes a compelling point that many times before it was argued that “this time is different” and that it never was.

Other articles, including this one in the Washington Post, argue that the fears are overblown. The robots will not be coming in large numbers, to replace humans. Not in the near future, anyway.

Other economists, such as  Richard Freeman, in an article published in Harvard Magazine agree and also believe that the fears are unwarranted: “We should worry less about the potential displacement of human labor by robots than about how to share fairly across society the prosperity that the robots produce.

His point is that the problem is not so much on the lack of jobs, but on the depression of wages. Jobs may still exist, but will not be well paid, and the existing imbalances in income distribution will only become worst.

Maybe, in the end, this opinion represents a balanced synthesis of the two competing views: jobs will still exist, for anyone who wants to take them, but there will be competition (from robots and intelligent agents) for them, pushing down the wages.

European Parliament committee approves proposal to give robots legal status and responsibilities

The committee on legal affairs of the European Parliament has drafted and approved a report that addresses many of the legal, social and financial consequences of the development of robots and artificial intelligence (AI).

The draft report addresses a large number of issues related with the advances of robotics, AI and related technologies, and proposes a number of european regulations to govern the utilization of robots and other advanced AI agents.

The report was approved with a 17-2 vote (and two abstentions) by the parliament’s legal affairs committee.

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Among many other issues addressed, the report considers:

  • The question of legal status: “whereas, ultimately, robots’ autonomy raises the question of their nature in the light of the existing legal categories – of whether they should be regarded as natural persons, legal persons, animals or objects – or whether a new category should be created”, advancing with the proposal of “creating a specific legal status for robots, so that at least the most sophisticated autonomous robots could be established as having the status of electronic persons with specific rights and obligations…”
  • The impact of robotics and AI on employment and social security, and concludes that “consideration should be given to the possible need to introduce corporate reporting requirements on the extent and proportion of the contribution of robotics and AI to the economic results of a company for the purpose of taxation and social security contributions; takes the view that in the light of the possible effects on the labour market of robotics and AI a general basic income should be seriously considered, and invites all Member States to do so;”
  • The need for a clear and unambiguous registration system for robots, recommending that “a system of registration of advanced robots should be introduced, and calls on the Commission to establish criteria for the classification of robots with a view to identifying the robots that would need to be registered;”

 

Finland flirts with basic income

In an experimental trial started January 1st, 2017, Finland started to attribute a basic social income to 2000 unemployed persons. Unlike a standard unemployment income, this subsidy will still be paid even if the recipients find work.

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Under this scheme, unemployed Finns, with ages in the 25 to 58 range will receive a guaranteed sum of €560, every month, independently of whether they have or find any other income. This value will replace other existing social benefits. A number of articles, including this one, in the Guardian, provide additional information about the scheme.

The move comes on the wake of a promise made by the centre-right government coalition elected in 2015, to run a basic income pilot project. The objective is to address concerns related with the disappearance of jobs caused by technological changes.

Other countries, cities and regions are running tentative experiments in basic income, including the Netherlands, Canada and the city of Livorno, in Italy. However, many concerns remain about whether this mechanism is the right mechanism to address the challenges brought in by the advances of technology.

Photo by Mikko Paananen, available at WikiMedia Commons.

What if jobs are the problem, and not the solution?

In a fascinating article, worth reading in its entirety, James Livingston, author of No More Work: Why Full Employment Is a Bad Idea, asks a key question about the future of work: Why do we believe that every productive, adult, human being should have work, and get paid for it?

As he puts it: “For centuries – since, say, 1650 – we’ve believed that it builds character (punctuality, initiative, honesty, self-discipline, and so forth). We’ve also believed that the market in labour, where we go to find work, has been relatively efficient in allocating opportunities and incomes. And we’ve believed that, even if it sucks, a job gives meaning, purpose and structure to our everyday lives – at any rate, we’re pretty sure that it gets us out of bed, pays the bills, makes us feel responsible, and keeps us away from daytime TV. These beliefs are no longer plausible. In fact, they’ve become ridiculous, because there’s not enough work to go around..:”

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His point is that, in the future, there will simply not be enough interesting, well-paid, jobs to create full employment. Of course, I am not forgetting the favorite argument of traditional economists, that technological revolutions have always created more valuable jobs than the ones they destroyed.

James Livingston has this to say about that argument: “But, wait, isn’t our present dilemma just a passing phase of the business cycle? What about the job market of the future? Haven’t the doomsayers, those damn Malthusians, always been proved wrong by rising productivity, new fields of enterprise, new economic opportunities? Well, yeah – until now, these times. The measurable trends of the past half-century, and the plausible projections for the next half-century, are just too empirically grounded to dismiss as dismal science or ideological hokum.”

It is time to face the truth: this time is different, the fourth industrial revolution will not create jobs enough to keep everyone employed, at least not with the full-time, well-paid jobs that we came to associate  with economically advanced societies. The fraction of GDP that is being paid in salaries shown an unmistakable tendency, since the beginning of the 21st century. Technology will only exacerbate this tendency, as more and more well-paid jobs are lost to machines.

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Livingstone makes the point that we can, indeed, afford, a minimum guaranteed income for everyone (let’s just call it “entitlements”). In his words: “But are these transfer payments and ‘entitlements’ affordable, in either economic or moral terms? By continuing and enlarging them, do we subsidise sloth, or do we enrich a debate on the rudiments of the good life? … I know what you’re thinking – we can’t afford this! But yeah, we can, very easily. We raise the arbitrary lid on the Social Security contribution, which now stands at $127,200, and we raise taxes on corporate income, reversing the Reagan Revolution. These two steps solve a fake fiscal problem and create an economic surplus where we now can measure a moral deficit.”

Whether you want to call it a minimum guaranteed income, or just a overhaul of the social security system, it is time to face this truth, and to think of the mechanisms that should be put in place to address the social challenges. caused by technology.

Face it, jobs are the problem, not the solution!