In 1930, John Maynard Keynes, a far-reaching influential economist, wrote in his essay Economic Possibilities for Our Grandchildren that they would experience “technological unemployment.” He observed the outpacing of humans by technological advances, and the resulting rise in unemployment as machines took over in traditionally labour-intensive sectors of the economy too quickly, not allowing the needed time for new sectors to expand. This kind of innovation, which leads to greater output and at a cheaper price, is one of the defining features of a competitive product market.
A few weeks ago, two economists from the Massachusetts Institute of Technology Erik Brynjolfsson and Andrew P. McAfee, released their new book: “Race Against The Machine.” In previous works Brynjolfsson and McAfee have traditionally sung the praises of technological innovation, emphasizing the diverse range of new and emerging technologies and how they benefit our lives. However, in their latest book they carry a different message. In essence, they argue that humans are losing the race against the machine. They argue that the competition of machines in the market is having an increasing impact on unemployment over recent years, and that this can be attributed to the development of robotics, numerically-controlled machines, computerized inventory control, voice recognition and online commerce. Jobs which a few years ago leading economists viewed as requiring strictly human capacities, we could soon see taken over by the advances in technology. Driving a car is a strong example of a task which has historically been viewed as requiring “human thought,” yet Google announced last autumn that they have been testing automated cars which have already clocked up thousands of miles on U.S. roads. I’m sure many of the readers of Aliso-Laguna News will have experienced an automated voice machine when they are telephoning a call centre for product or service assistance. This is another example of increased automization in an industry which has typically been human-labour intensive.
What does this all mean for the economy though? Surely, when jobs are already scarce and unemployment high, this kind of technological innovation can only make things worse. Yes, but there is a key difference between machine labour and human labour which can shed light on the precise forces at play in this emerging dynamic. In the short-run, human labour is what economists call a variable cost, i.e. the more you buy the more you can produce, whereas machine labour is called a fixed cost. Machines are traditionally viewed as capital – the necessary requisite for setting up shop. Those companies that have the money to invest in new technologies as they reach the market are going to have a persisting and growing advantage over those that don’t. It will be harder to enter a market in which machines have taken over from humans, and profits are going to soar for those companies that are already in it.
The fact that companies will be reducing their marginal costs (the cost of producing each added unit of output) and at the same time increasing productivity, doesn’t mean they’re going to make greater profits though. The missing element in this dynamic is the consumer! Rising unemployment will cause the market demand for goods to decrease accordingly. This will result in a surplus of goods in the market. For all but those which fall under the category of “essentials” – such as utilities and foods – there will be a surplus of goods in the market. As with every shift in the market, some new opportunities will emerge. More high-skilled technicians will be needed to service, install, and programme the machines, yet the number jobs they provide is overshadowed by the number they replace. What we are already seeing, and will continue to see more and more is an increase in high-skilled work, which will require the retraining of a portion of the displaced workforce, but a significant decrease in low-skilled work.
This is exactly the same as what societies the world over have experienced in the process of industrialization. During the Industrial Revolution this very phenomenon occurred. Within the market there was a shift in emphasis away from human labour and towards capital investment. This is a natural effect of technological innovation and to an extent will always occur, but it is the speed at which it is happening which is causing economists like Brynjolfsson and McAfee to worry.
It is clear that without government intervention the market will crash and unemployment will continue to rise. Though the question still remains, what kind of response can we expect from our policy makers in the face of growing “technological unemployment?” One option could be a limit on the speed companies transition from human-intensive to machine-intensive operations. This would allow time for new sectors of employment to expand as old ones shrink. However, I think this kind of regulation is unlikely. A more plausible policy is a tax break for companies which retain human labour while they utilize technology too. This policy would, of course, also cover provisions to retrain and reskill the otherwise redundant workforce. The bottom line is that technological innovation increases the productivity of each worker in an industry, and thus there are layoffs. The answer, according to Brynjolfsson and McAfee, is “not to compete against machines, but to compete with them.”
