LUDDISM LIGHT?

So should we try to stop the push toward automation? There are in fact good reasons to suspect that some of the recent automation is excessive; corporations seem to decide to automate even when robots are less productive than people.

One reason is the bias in the US tax code, which taxes labor at a higher rate than capital. Employers have to pay payroll taxes (used to finance social security and Medicare) on labor, but not on robots. They get an immediate tax rebate when they invest in the robot, since they can often claim “accelerated depreciation” for a capital expenditure, and if they finance it with a loan they also get to deduct the interest from their earnings. This tax advantage gives employers an incentive to automate, even if it would otherwise cost less to keep the workers.¹⁸ Moreover, even without subsidies from the tax code, the many frictions in the labor market may make managers dream of factories without workers. Robots won’t demand maternity leave or protest a wage cut in a recession. It is probably not an accident that automation in the retail sector (such as automatic checkout lines) started first in Europe, where the labor unions are stronger.

The increase in industry concentration and monopolies could also reinforce this tendency. A monopolist does not fear competition. It has no reason to constantly reinvent what it is offering its consumers. Therefore, the monopolist will tend to focus more on cost-cutting innovations, which will increase its profit margins. In contrast, a competitive firm might go for a moonshot to try to take over the market.

Now it is true that even if a business adopts a highly productive new technology that displaces labor, the increase in productivity also creates new resources that could be deployed to find new uses for the freed labor.

Unfortunately, notwithstanding the grandiose talk about singularities, the bulk of R&D resources these days is directed toward machine learning and other big data methods designed to automate existing tasks, rather than the invention of new products that would create new roles for workers, and hence new jobs.²⁰ This may make economic sense for the companies, given the financial gains in replacing workers with robots. But it distracts researchers and engineers from working on the truly pathbreaking innovations. For example, inventing new software or hardware health workers could use to assist patients in doing their rehabilitation therapy at home after a surgery rather than in a hospital could potentially save insurance companies lot of money, improve well-being, and create new jobs. But the bulk of the automation effort today in insurance firms goes toward searching for algorithms that automate the approval of insurance claims. This saves money but destroys jobs. This emphasis on the automation of existing jobs increases the potential for the current wave of innovation to be very damaging for workers.

That unregulated automation could be bad for workers is also the instinct of most Americans on the right and the left. One place, remarkably, where Republican and Democrat poll respondents agree is in their opposition to letting companies decide how much to automate. Eighty-five percent of Americans would support limiting automation to “dangerous and dirty jobs,” with no difference between Democrats and Republicans. Even when the question is posed in a more politically pointed way, asking whether “there should be limits on the number of jobs businesses can replace with machines, even if they are better and cheaper than humans,” 58 percent of Americans, including half of Republicans, say yes.²¹

This specific force of automation is exacerbating what is always a concern. When a worker is fired, the firm is done with him, but society inherits the liability of his continued well-being.

This kind of argument has traditionally been used to justify making it difficult to fire workers. Some labor laws, like India’s, make it virtually impossible to fire anyone in larger firms. Others, like the French laws, make it difficult and uncertain. The worker can appeal and possibly be reinstated with back pay. The problem with such firing costs is that they can make life very difficult for a manager faced with a nonperforming worker or an urgent need to downsize in order to survive. As a result, firing costs may discourage hiring in the first place, which would exacerbate unemployment.²²

The alternative to restricting firing or banning the use of robots in some sectors is a tax on robots, large enough to prevent them from being deployed unless the productivity gains are sufficiently high. This is now the subject of a serious discussion. Bill Gates has recommended it.²³ In 2017 the European Parliament considered, but ultimately voted down, a proposed “robot tax,” citing concern over stifling innovation.²⁴ Around the same time, however, South Korea announced the world’s first robot tax. The Korean plan reduces tax subsidies for businesses investing in automation and combines it with a tax on outsourcing, so that the tax on robots does not lead to outsourcing.²⁵

The problem is that while it is easy to ban self-driving cars (whether or not it’s a good idea), most robots do not look like R2-D2 in Star Wars. They are typically embedded inside machines that will still have human operators, just fewer of them; how does the regulator decide where the machine stops and the robot begins? A robot tax would likely lead companies to find new ways around it, further distorting the economy.

For some of these reasons, we suspect the current drive toward replacing human actions with robots cannot be prevented from taking a serious toll on the already dwindling stock of desirable jobs for low-skilled workers, first in the rich countries but very soon everywhere. This will add, to a greater or lesser extent, to what the China shock and the other changes described in previous chapters have done to the working class in much of the developed world. It could lead to a rise in unemployment or a multiplication of poorly paid, unstable jobs.

This perspective deeply worries the elites who feel responsible for, and also threatened by, this state of affairs. This is why the idea of a universal basic income has become so popular in Silicon Valley. Most tend to think, however, that robot-induced despair will become a problem in the future, after technologies have improved even further. But the problem of high and rising inequality has already been staring us in the face in many countries, nowhere more so than in the United States. The last thirty years of US history should convince us that the evolution of inequality is not the by-product of technological changes we do not control: it is the result of policy decisions.