Has Creation Become Too Destructive?
Updated: 4 days ago
As the world moves forward into what is being labelled the ‘fourth industrial revolution’, a fear grows of capitalism’s new bad guy: the robot. For many, on the other hand, describing automation as evil is an alarming oxymoron. Automation leads to significant improvements in total factor productivity, higher economic growth and lower consumer prices. But history has shown that with each revolution, whether it is the liberation of humankind from animal-power, the application of science to mass production or the third industrial revolution's entrance into the world of digitalization, there will always be those who do not reap the benefits.
One of the more famous examples occurred in the UK in the nineteenth century, when mechanized power looms replaced many skilled weavers. The workers, who became to be known as ‘The Luddites’, provide a real-world example of the insensate nature of technology and its capacity to cause structural unemployment. ‘The Luddites’ are not only an important part of history, but they have also become the center of a prominent economic theory. The ‘Luddite Fallacy’ contends the notion that labour saving technology does not necessarily lead to higher overall unemployment in the economy. Rather than destroying jobs, ‘it only changes the composition of jobs in the economy’ (Pettinger, 2017, p. 136). In his article ‘Why Are There Still So Many Jobs? The History and Future of Workplace Automation’, David Autor uses the example of agriculture to demonstrate this idea and draws our attention to how ‘spectacular productivity improvements have been accompanied by declines in the share of household income spent on food’ (Autor, 2015, p. 7). If more efficient production methods exert downward pressure on prices, consumers will benefit from increased disposable income. This will stimulate demand in other areas of the economy, especially in sectors such as leisure where the demand for goods is particularly income-elastic. Thus, ‘the net impact of automation on labour demand depends on how the displacement and productivity effects weigh against each other’ (Acemoglu & Restrepo, 2019, p. 4). Since 1750, there has been a steady and continuous stream of labour-saving technologies, yet in the UK, the employment rate today as a proportion of the total population is around 50%, very similar to levels in the early 19th century (Haldane, 2015, p. 7).
Such is the nature of Schumpeter’s idea of ‘creative destruction’. In his famous 1942 book ‘Capitalism, Socialism and Democracy’, he described it as the ‘fundamental impulse that sets and keeps the capitalist engine in motion’ (Schumpeter, 1942). Often the most cited example is that of the decline of the railways in the 40s and 50s and the accompanying rise of the motorcar industry. In this case, railway workers did not suffer from significant occupational immobility and could easily move across. However, if we take a closer look at recent trends, starting in the latter half of the twentieth century and the beginning of the third industrial revolution, it seems that the transition is no longer quite as plain sailing. Andrew Haldane, chief Economist at the Bank of England, described a ‘hollowing out’ of the labour force in the twentieth century, whereby mid-skill jobs are lost and ‘counter-balanced by employment gains at the high-skill and, to lesser extent, low-skill segments of the workforce’ (Haldane, 2015, p. 10). This appears to be a direct result of the machine’s evolution from not just manual tasks but cognitive ones too. Yet as we begin to move into the fourth industrial revolution, further advances in technology mean machines are capable of thinking and adapting; ‘while white-collar workers in accounting, sales, logistics, trading, and some managerial occupations are seeing some of the tasks they used to perform being replaced by specialized software and artificial intelligence’ (Acemoglu & Restrepo, 2019, p. 4). According to a study undertaken by the Bank of England, 15 million jobs in the UK alone could be at risk of automation and, to make matters worse, the probability of vocational extinction increases as you move down the wage spectrum (Haldane, 2015, p. 13). Writing in 2016, Stephen Hawking claims that automation is accelerating ‘already widening economic inequality around the world’ (Hawking, 2016) and while some may view this as progress, it nevertheless has the potential to be ‘socially destructive’. As the reach of the robot continues to widen, it seems to call into question just how creative Schumpeter’s destruction is and, not for the first time, brings economics’ eternal dichotomy between theory and practicality to the forefront.
This creates an argument for active intervention to reconcile theory and real-life experiences. As technology moves forward, so must public policy and the best place to start is with the education and re-training. There is little doubt that there is creativity in the robot’s destruction; jobs have been created in ‘programming, design, and maintenance of high-tech equipment, such as software and app development, database design and analysis, and computer-security-related tasks’ (Acemoglu & Restrepo, 2019, p. 5). But these are highly specialized jobs that cannot easily be moved into by an accountant or sales manager. Thus, there is a need for huge investment in re-training programs. Things such as ‘nanodegrees or microcredentials provided by online education platforms such as Udacity and Coursera can be used for mid-career adjustments at low cost’ (Cerf, et al., 2019). These will be vital in the prevention of mass structural unemployment. In other words, it is time we started to realise that we can, in fact, ‘teach old dogs new tricks’ (Cleaver, 2013, p. 121). But this is not enough. For too long, the education system has revolved around ‘developing the core cognitive competences, for example, reading, writing and arithmetic’ (Haldane, 2015, p. 15), which technology is now capable of replicating. In his book ‘WTF?’, Robert Peston alludes to the UK’s recent shift back towards an education system that is primarily focused on producing students with the best exam grades and that ‘disproportionately rewards the ability to memorise and meet deadlines’ (Peston, 2017, p. 308). Education needs to move away from the sort of automated exam-grade production line that it is has become if we wish to stay one step ahead of the robot. We must re-focus the attention on where the human has comparative advantage, namely in the ability ‘to negotiate, build relationships, empathise, instill confidence, win trust, create great art, or any of the other emotional and intuitive activities that are central both to highly paid careers and the joy of being alive’ (Peston, 2017, p. 308). These are things that machines are unlikely to be able to do in the near future (I hope).
The problem is that reforming the education system is a long-term solution. It does not provide a good enough answer to the issues of short-term unemployment and widening income inequality. This is not to say these long-term policies are ineffective, but it does make a case for more imminent redistributive measures to ensure income differentials do not grow larger as automation increases. Former democratic presidential candidate, Andrew Yang, is one of many strong advocates for a form of Universal Basic Income. The concept is simple: all adult citizens receive a sum of cash from the government with no strings attached, to cover the basic costs of living. Many think the revenue should be raised via a sort of super-tax on the huge tech corporations, thereby ensuring the benefits of automation are more widespread. Further justification for UBI is summed up quite aptly by a quote from historian Rutger Bregman – ‘poverty is not a lack of character; it’s a lack of cash’ (Bregman, 2017). There is an optimism that UBI should increase entrepreneurship by providing a platform on which potential entrepreneurs can flourish. Therefore, providing less reliance on what has become an increasingly feeble theory of trickle-down economics. Many critics of UBI argue that handing out free cash will reduce the incentive to find employment but also to work hard. Yet there is evidence to the contrary. One of the largest UBI experiments, in an advanced economy, occurred in Canada in the 1970s. The project asked the question of whether giving cheques to working poor would reduce their motivation to work (Lum, 2017). It did not. One explanation is that, unlike other forms of welfare benefits, UBI will be handed out, regardless of employment status. Consequently, most people will look to find additional income. The only people who did work slightly less in the Canadian experiment were mothers and students, who merely stayed in school for longer (Bregman, 2017). Given the nature of jobs being created by recent technology advances, children staying in education longer is becoming increasingly necessary. The idea behind UBI is not a society where everyone lives for free; according to Bregman, it is better thought of as ‘venture capital for the people’.
Perhaps then we should not view the take-over of the robot as an inevitable apocalypse. However, there is little doubt that failure to plan and adapt could lead to a level of destruction Schumpeter’s free-market model could not have foreseen. It leaves us with a rather intriguing paradox: if we wish to live in harmony with the robot, we cannot afford to view the economy as a preprogrammed machine.
Acemoglu, D. & Restrepo, P., 2019. Automation and New Tasks: How Technology Displaces and Reinstates Labour. The Journal of Economic Perspectives, Volume 33, pp. 3-30.
Autor, D., 2015. Why Are There Still So Many Jobs? The History and Future of Workplace Automation. The Journal of Economic Perspectives, 29(3), pp. 3-30.
Bregman, R., 2017. Poverty is not a lack of character; it's a lack of cash. [Online] Available at: https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash/transcript#t-38439 [Accessed March 2021].
Cerf, M., Burke, R. & Payne, S., 2019. 3 Practical Solutions to Offset Automation’s Impact on Work. [Online] Available at: https://singularityhub.com/2019/03/11/3-practical-solutions-to-offset-automations-impact-on-work/ [Accessed March 2021].
Cleaver, T., 2013. Understanding the World Economy. 4th ed. Oxon: Routledge.
Haldane, A. G., 2015. Labour's Share. Trades Union Congress, pp. 1-35.
Hawking, S., 2016. This is the most dangerous time for our planet. The Guardian, 1 December.
Lum, Z.-A., 2017. This City Eliminated Poverty, And Nearly Everyone Forgot About It. [Online] Available at: https://www.huffingtonpost.co.uk/entry/city-eliminated-poverty-mincome_n_6392126?guccounter=1 [Accessed March 2021].
Peston, R., 2017. WTF. London: Hodder and Stoughton.
Pettinger, T., 2017. Cracking Economics. London: Cassell.
Schumpeter, J. A., 1942. The Process of Creative Destruction. In: Capitalism, Socialism and Democracy. London and New York: Routledge, pp. 81-87.