Try this on for size:
We’ve been automating for hundreds of years now. The industrial revolution caused a migration of workers from agriculture into the cities to work at factory jobs, and workers that are displaced by new technologies will find new work that didn’t even exist a few years ago.
I assume if you’re reading this article that you’re involved in automation in some way, so you’d actually want to believe that statement, and arguing against what someone wanted to believe would be pointless. I’m going to do it anyway. That statement is wrong. This time it really is different.
To explain this I need you to consider what motivates people here in the “west”. Basically we have some form of regulated capitalism. To boil that down, it means you can own things, and you are allowed to keep some fraction of the proceeds that are generated from those things. This actually applies to almost all of us, even if most people don’t think of it that way. It’s obvious to a farmer: you own land, buildings, and equipment, you grow things and sell them, and after tax you hope to end up with some kind of a profit. Ok, perhaps farming isn’t a great example because there are so many government subsidies involved, but the principle is the same with small business owners, and even employees.
Employees? Most employees don’t think of themselves as capitalists because they can’t see the capital they’re using to generate a profit, but it’s right there in the mirror. You are your own capital. Ever since abolition, this is capital that nobody could take away from you. It’s the first and primary social safety net. No matter how penniless you were, barring illness or infirmity, you had this basic nest egg of capital you could always draw from to bootstrap your life. Most people mistake capital for money, and that’s why they don’t see themselves as capital. After all, you can’t “spend yourself”, can you? Actually, going back hundreds of years, you could. Most slaves around the Mediterranean hundreds of years ago were slaves because they incurred debts that they couldn’t pay off, so they became the property of whoever they owed the debt to, until they could work off their debt.
If it helps, think of the human body as a machine that turns food into… various useful things more valuable than food. Farmers turn small amounts of food into larger amounts of food. Carpenters turn food and wood into houses or furniture. Quantum physicists turn food into transistors and lasers, and you, dear reader, perhaps you’re a machine that turns food into PLC programs. In turn, we trade these things for various useful things that other people have created. Capitalism.
Now I’m a fan of regulated capitalism because it’s an efficient way to organize lots of machines (us) into producing lots of valuable things like cars, houses and episodes of Game of Thrones.
Now here’s the weird part. There’s a huge incentive to use your capital to acquire more capital, which you can then use to acquire more capital, and so on, but very few people do this. You would think that someone who finished 13 years of schooling at the age of 18, worked 47 years and retired at the age of 65, making, let’s say, an average modest wage of $30,000 per year in present-day dollars would have had the foresight to save some of that $1.4 million for their retirement, but it’s clear that many don’t. In fact there are many people with an income far higher than that who not only don’t save any, but go into significant debt and either declare bankruptcy or become virtual slaves to credit card companies. It’s so incredibly common and has such a negative cost to society that governments actually force workers to save portions of their paycheque every week into a government pension program and then pay them a stipend when they retire. I’m not familiar with the way this works in the United States, but in Canada this is referred to as the Canada Pension Plan, and it’s supplemented by something called Old Age Security that kicks in a few years later. This is despite the fact that anyone who bothered to squirrel away 18% of their net paycheque for their entire career into a tax sheltered retirement savings plan and invested it in mutual funds would have a very comfortable retirement – much more comfortable than living on a government pension.
Now part of me thinks this is fine: you made your bed, now lie in it. But this affects everyone, even the wealthiest capitalists. The most basic of government services are the ones that wealthy people need most: military, police (criminal law) and the enforcement of contracts (civil law). These three services of government are what give people the ability to own things. The military protects it from external threats, the police protect it from people inside the country (thieves and vandals), and civil law settles disputes about who owns what.
We keep hearing that wealth inequality is a bad thing, but that can’t be absolutely true. If our system is working, it has to reward the people doing more valuable things with more money, so the only way there could be income equality is if everyone was doing something equally valuable, and we’re not. There should be a way for me to make more money by working harder, smarter, or differently than I am now. That’s the incentive to be more productive.
In fact, that’s what really matters: does the average person believe they can improve their standing? Because if they don’t, they get unruly and do wild and crazy things. Things that make wealthy people uneasy because in the west those unruly people can really mess with the government that’s providing all those military, police, and civil services they depend on.
Imagine you work in a factory in the Midwest U.S. that makes air conditioners. Chances are, you don’t think of yourself as a machine that turns food into air conditioners. You’re not thinking about how to make that machine more efficient, or more valuable. You’re already working 6 days a week, and your family never sees you. All you know is that sooner or later the guy who drives the fancy BMW is going to move your job to another country, or replace you with a robot, and since all the other plants around here have closed, you might not be able to send your kid to college. How would you feel? Maybe you’d be inclined to vote for a politician that promised to punish companies that moved their factories to Mexico.
I think the crux of the matter is that this worker no idea what to do. The incentives are still there: learn a new skill, invest in yourself, be more productive. But few people do it, for the same reason that few people save for their own retirement.
I’ve spent a few years around people who’ve been running small businesses, and I’ve tried to pay attention. It took me years to really understand that there was nothing magical about running a business. That’s because, like almost everyone else, I was brought up with the idea that innovative geniuses come up with brilliant new ideas and start companies that make billions of dollars. Outside of a few small cases, that’s simply not true. Look hard enough and you can find an industry that’s in demand and growing. If the demand is high, there will always be companies in that industry that are poorly run but still make a profit. You can make money simply by doing the same thing as everyone else and simply not being the worst at it. That’s how capitalism works – it gives you incentives to provide products and services that are in demand.
I have a relative that got laid off many years ago. There was a jobs program where they gave him classes on how to start a small business. He learned how to keep books, write an invoice, and how to do his taxes. They hooked him up with a small business loan. A few months later he’s running his own business and a couple years after that he’s hired an employee. Now he has the opportunity to invest in himself, like buying better equipment and improving his skills.
Let’s say you’re a PLC programmer. Your company likely pays you upwards of $50,000 a year. How much did they spend on your computer? Did they cheap out? Does it make any sense to handicap a $50,000 a year resource with a cheap laptop? If you were in business for yourself, you’d quickly realize there aren’t many things you could invest in that would make you a more efficient or valuable PLC programmer, but a faster computer is a no-brainer.
Automation is increasing productivity and with self-driving trucks and expert systems being developed, the rate of productivity increase is set to explode. However, these are expensive investments and there’s no way for displaced workers to take advantage of this automation. If I gave a truck driver a bigger truck, they produce more value per mile driven, but if I replace the driver with a computer, they have no value at all.
Increased productivity stopped producing higher wages back in the early 70’s. A bank teller makes the same now as they did back then (adjusted for inflation) even though most of the drudgery has been offloaded to ATMs. In fact, ATMs allowed banks to open more smaller branches and the demand for tellers to staff those branches has actually increased the number of tellers total, but despite automating the simple tasks and increasing demand for tellers, they’re not making any more in wages.
The same people who are currently blaming immigration and outsourcing for their problems are soon going to realize that automation is what’s really eating their lunch. Unlike in the industrial revolution where displaced workers could participate in this new economy by switching from farming to factory work, during this transition workers will either lose their jobs and have to completely re-skill, or at best they’ll keep their jobs but not see a penny more for their increased productivity.
That’s because old automation made people more valuable, but new automation seems to make them less valuable. That means it’s devaluing the one bit of capital they have.
This is where someone usually suggests a universal basic income so everyone can share in the increased productivity without everyone contributing to it. I’m not convinced the numbers add up. What we really need is to encourage this idea of viewing yourself as capital, not as an employee. An incentive and a safety net for people starting a small business should be less expensive and more effective than paying people to sit at home. How about teaching this stuff in school (I figure teachers are pretty clueless about starting a business). How about making it easier to start a business than going on social assistance? How about making in-demand skills training free?
I’m glad we’re talking about this because it does matter. A lot of this is tied in with what’s going on in the world right now. There’s a general sense that the next generation won’t be as well off as their parents’ generation, and that’s pretty much unprecedented. That promise that anyone could make something of themselves is slipping away, and we need that back.