The veteran Financial Times columnist Martin Wolf has been thinking big, as usual, with an important pair of articles published in the last week or so. He’s worried about the robots. If Wolf is right, then the current flap about manufacturing jobs in Australia is just the beginning of a revolution in the global economy.
“The rise of intelligent machines is a moment in history,” Wolf wrote. “It will change many things, including our economy.”
Robots are big news in economics right now. In a world of drone strikes, high frequency trading and internet match-making, this shouldn't be surprising. Automation has been a driving force in economic and social change since the nineteenth century, when power looms and steam engines replaced millions of skilled artisans with dark, satanic mills.
Economic theory in the 20th century has generally assumed that the jobs that high technology replaces are low-skill and low-income, and that the greater prosperity that results from high tech productivity gains will more than make up for the transient job losses.
But twenty-first century economists are not so sure. Wolf cites a recent paper by Oxford University economists Carl Frey and Michael Osborne that nearly half of all American jobs are at risk from automation in the next 20 years.
Frey and Osborne’s model has direct implications for all modern economies, including Australia’s. That’s because they argue that the next wave of automation won’t just affect manufacturing, where employment has been falling slowly for decades. They argue that the coming algorithms will transform the services sector. That’s where most of our jobs are.
"Our model predicts that most workers in transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are at risk. These findings are consistent with recent technological developments documented in the literature. More surprisingly, we find that a substantial share of employment in service occupations, where most US job growth has occurred over the past decades … are highly susceptible to computerisation."
It’s easy to see how logistics, supply chain management and back office tasks could soon go the way of pin factories. In a recent article in the New Yorker, Amazon supremo Jeff Bezos tells George Packer that the retailing behemoth is planning to replace most of its packers and warehouse workers with robots.
Similarly, Google’s driverless car shows that transport fleets could one day be drones; in the Pilbara, many of Rio Tinto’s iron ore trains are already driverless. In the process, 380 train drivers were made redundant.
Websites that crawl for the best airfares have replaced travel agents. At the prosaic level of everyday shopping, Coles and Woolworths are rolling out more and more self-service checkouts. Lest you think the humble journalist will be spared, a company called Narrative Technologies has created a sports reporting algorithm. Its output is no worse than much of the dross you can find on the back pages of your daily tabloid.
The impacts of the coming wave of automation will be widespread. Many academics and policy-makers are starting to seriously ponder the likely consequences. Prominent among them are economists Erik Brynjolfsson and Andrew McAfee. In their book The Second Machine Age: Work, Progress and Inequality in a Time of Brilliant Technologies, they argue that automation is accelerating inequality in many societies.
Brynjolfsson and McAfee are experts at the economics of the IT sector; Brynjolfsson in fact famously coined the idea of the “long tail” to describe the sales patterns of online retailing. So when he says he’s worried, it’s probably worth taking note.
In a recent interview, Brynjolfsson was asked what were the human skills that a robot couldn’t replace.
“Every time we think we have a task that can’t be done,” he replied, “we find out shortly thereafter that there’s somebody in a lab at MIT or Silicon Valley that’s working on a prototype 0.1 of exactly a machine to do that task … So it’s a little scary.”
Brynjolfsson and McAfee think that this new technological revolution will accelerate inequality in three main ways.
First, new technologies tend to favour skilled work over low-skilled and unskilled work. We’ve seen this trend for many decades already. Second, automation represents a shift from labour to capital. In a world where capital is highly mobile and volatile, while labour markets are still largely caged inside national borders, this could accentuate the instability of many industries. Third, automation is a winner-take all technology — potentially the most disruptive trend of all.
“We call it superstar-biased technical change,” Brynjolfsson said in his recent interview.
“It’s the fact that technologies can leverage and amplify the special talents, skill, or luck of the 1 per cent or maybe even the 100th of 1 per cent and replicate them across millions or billions of people. In those kinds of markets, you tend to have winner-take-all outcomes and a few people reap enormous benefits and all of us as consumers reap benefits as well, but there’s a lot less need for people of just average or above-average skills.”
The upshot of such rapid economic change is almost certainly going to lead to profound social dislocations. Work is central to our society. Jobs provide social identities. They support stable families. They create social networks and enable human flourishing; think how many friends you've made “at work”. Perhaps you even met your partner there.
The politics of automation are also explosive. In a neoliberal society in which the free flow of capital is allowed to settle wherever it can create the most profit, automation will most likely result in vast wealth accruing to a handful of trillionaires. As Wolf writes, “it is possible that the ultimate result will be a tiny minority of huge winners and a vast number of losers.” Wolf calls that outcome “techno-feudalism.”
Wolf was writing just after the Davos conference, that favoured panjandrum of the global power elite. Automation and its effects on employment and social inequality appear to have finally filtered all the way up to the commanding heights occupied by CEOs and prime ministers. That doesn’t mean anyone knows what to do about it.
After all, we may not be that far away from techno-feudalism right now. The economic rent that accrues to successful tech entrepreneurs such as a Bill Gates, Mark Zuckerberg or Jeff Bezos already comfortably exceeds the wealth available to a renaissance prince or a railway robber baron. The much-tweeted statistic during Davos was that 85 billionaires own half the world’s wealth. That’s a factoid that even Engels might have spluttered at.
The implications of automation are so big, even very sober and serious people are starting to propose quite radical solutions. Wolf, for instance, has called for “a basic income for every adult, together with funding of education and training at any stage of a person’s life.”
You only have to look at politics in much of the rich world right now to see how far away our current political discussions are from such utopian redistributions. Here in Australia, Joe Hockey is preparing for a horror budget that will almost certainly slash social spending in the name of ending the “age of entitlement.” At the same time, his government is abolishing modest regulations on financial planners and dismantling important environmental safeguards at a terrifying rate.
The current debate on departing manufacturing jobs is just a preface to a long saga of economic adjustment that will challenge all the received wisdoms, and threaten the status quo. Long before we mourn the end of manufacturing, we will have to face up to the rise of the robots.