The worker vs. the machine: Managing upheaval

  • Article by: THE ECONOMIST
  • Updated: January 17, 2014 - 7:21 PM

Humanity has been through such revolutions before, and it’s starting again. Inequity is inevitable, but it needn’t lead to havoc.

Innovation has always cost people their jobs. In the Industrial Revolution artisan weavers were swept aside by the mechanical loom. Over the past 30 years, the digital revolution has displaced many of the midskill jobs that underpinned 20th-century middle-class life. Typists, ticket agents, bank tellers and many production-line jobs have been dispensed with, just as the weavers were.

For those of us who believe that technological progress has made the world a better place, such churn is a natural part of rising prosperity. Although innovation kills some jobs, it creates new and better ones, as a more productive society becomes richer and its wealthier inhabitants demand more goods and services. A hundred years ago, one in three American workers was employed on a farm. Today less than 2 percent of them produce far more food. The millions freed from the land were not consigned to joblessness, but found better-paid work as the economy grew more sophisticated.

Optimism remains the right starting point, but for workers the dislocating effects of technology may make themselves evident faster than its benefits. Even if new jobs and wonderful products emerge, in the short term income gaps will widen, causing huge social dislocation and perhaps even changing politics. No government is prepared for it.

Why be worried? It is partly just a matter of history repeating itself. In the early part of the Industrial Revolution, the rewards of increasing productivity went disproportionately to capital; later on, labor reaped most of the benefits. The pattern today is similar. The prosperity unleashed by the digital revolution has gone overwhelmingly to the owners of capital and the highest-skilled workers. Unemployment is at alarming levels in much of the rich world, and not just for cyclical reasons. In 2000, 65 percent of working-age Americans were in work; since then the proportion has fallen, during good years as well as bad, to the current level of 59 percent.

Worse, it seems likely that this wave of technological disruption to the job market has only just started. From driverless cars to clever household gadgets, innovations that already exist could destroy swathes of jobs that have hitherto been untouched.

Until now the jobs most vulnerable to machines were those that involved routine, repetitive tasks. But thanks to the exponential rise in processing power and the ubiquity of digitised information (“big data”), computers are increasingly able to perform complicated tasks more cheaply and effectively than people. Clever industrial robots can quickly “learn” a set of human actions. Services may be even more vulnerable. Computers can already detect intruders in a closed-circuit camera picture more reliably than a human can. By comparing reams of financial or biometric data, they can often diagnose fraud or illness more accurately than any number of accountants or doctors. One recent study by academics at Oxford University suggests that 47 percent of today’s jobs could be automated in the next two decades.

The number of digital startups has exploded. Just as computer-games designers invented a product that humanity never knew it needed but now cannot do without, so these firms will no doubt dream up new goods and services to employ millions. But for now they are singularly light on workers. When Instagram, a popular photo-sharing site, was sold to Facebook for about $1 billion in 2012, it had 30 million customers and employed 13 people. Kodak, which filed for bankruptcy a few months earlier, employed 145,000 people in its heyday.

The problem in part is one of timing. Google now employs 46,000 people. But it takes years for new industries to grow, whereas the disruption a startup causes to incumbents is felt sooner. Airbnb may turn homeowners with spare rooms into entrepreneurs, but it poses a direct threat to the lower end of the hotel business — a massive employer.

If this analysis is halfway correct, the social effects will be huge. Many of the jobs most at risk are lower down the ladder (logistics, haulage), whereas the skills that are least vulnerable to automation (creativity, managerial expertise) tend to be higher up, so median wages are likely to remain stagnant for some time and income gaps are likely to widen.

Anger about rising inequality is bound to grow, but politicians will find it hard to address the problem. Shunning progress would be as futile now as the Luddites’ protests against mechanised looms were in the 1810s, because any country that tried to stop would be left behind by competitors eager to embrace new technology. The freedom to raise taxes on the rich to punitive levels will be similarly constrained by the mobility of capital and highly skilled labor.

The main way in which governments can help their people through this dislocation is through education systems. One of the reasons for the improvement in workers’ fortunes in the latter part of the Industrial Revolution was because schools were built to educate them — a dramatic change at the time. Now those schools themselves need to be changed, to foster the creativity that humans will need to set them apart from computers. There should be less rote-learning and more critical thinking.

The definition of “a state education” may also change. Far more money should be spent on pre-schooling, since the cognitive abilities and social skills that children learn in their first few years define much of their future potential. And adults will need continuous education. State education may well involve a year of study to be taken later in life, perhaps in stages.

Yet however well people are taught, their abilities will remain unequal, and in a world which is increasingly polarized economically, many will find their job prospects dimmed and wages squeezed. The best way of helping them is not, as many on the left seem to think, to push up minimum wages. Jacking up the floor too far would accelerate the shift from human workers to computers. Better to top up low wages with public money so that anyone who works has a reasonable income, through a bold expansion of the tax credits that countries such as America and Britain use.

Innovation has brought great benefits to humanity. Nobody in their right mind would want to return to the world of handloom weavers. But the benefits of technological progress are unevenly distributed, especially in the early stages of each new wave, and it is up to governments to spread them.

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