Summary: Slowly more people see, slowly emerging, one of the great challenge for developed nations’ societies: increased productivity creates wealth unimaginable to earlier generations, but its benefits go to those who own the machines. Inequality of wealth creates inequality of income. Marx might have just been right, but early. Today we have a note from Jeremy Grantham describing this future. At the end see links to other posts about this engine of inequality.
By Jeremy Grantham.
Excerpt from the GMO Quarterly Letter.
November 2012. Red emphasis added.
… as economies mature and jobs move toward services, productivity per man-hour becomes harder to achieve. This headwind will continue into the indefinite future until one day, perhaps, we will reach what has been called a singularity. The last handful of humans engaged in manufacturing – all engineers and designers – are supervising intelligent robots making and designing yet another generation of even more productive and intelligent robots.
… This deepening of capital and technology almost guarantees that productivity will continue to be high in manufacturing even as the percentage of the total workforce employed there dwindles away toward zero. As the rest of us do each other’s art appraisals and investment management we can fantasize about productivity, but it will mainly represent hard to measure qualitative improvements.
On a hypothetical island where services are outlawed and only manufacturing exists, the final position is that automation, and thereby capital, produces everything while all of the mere mortals sit on the beach. And starve? The worthless unemployed who are obviously not carrying their weight?
… Up the beach, in a protected, cordoned-off section is the capital owners’ club. There a handful of equally “unemployed” owners sit, enjoying tea and the ocean. How material goods and sustenance are divvied up will determine the future of that island, for the unemployed will be 100 or 1000 times the number of dividend counters.
Is there not a growing element of this unfortunate hypothetical island in our current world, for basically the same reason? Capital deepening and technology (and offshoring) steadily replace manufacturing and farming jobs until one day perhaps there will be no manufacturing jobs at all. The task of maintaining growth then has to be borne solely by service jobs where measuring productivity has always been quite flakey.
It seems true, though, that the most important values that are generated, particularly when things start to go wrong, are in necessities, all of which seem to fall under the heading of “manufacturing”: think about the trade between (necessary) bread and (luxury) haircuts as times get tough: 7 loaves per haircut quickly become 7 haircuts per loaf!
Earlier more philosophical economists than the current generation, like John Stuart Mill, Adam Smith, and Keynes, seemed to take pleasure in the idea of a distant future where citizens had vast amounts of leisure time to enjoy the world’s beauty. They saw that as a sensible response to increased wealth. Unfortunately, they did not tell us much about the problem that, when that day arrives, capitalists – at least those in manufacturing – will own everything and the “unemployed” manufacturing workers nothing.
About the Author
From the GMO website:
Mr. Grantham co-founded GMO in 1977. Prior to GMO’s founding, Mr. Grantham was co-founder of Batterymarch Financial Management in 1969 where he recommended commercial indexing in 1971, one of several claims to being first. He began his investment career as an economist with Royal Dutch Shell.
Mr. Grantham is GMO’s chief investment strategist and is an active member of GMO’s asset allocation division. He is a member of the GMO Board and has also served on investment boards of several non-profit organizations. Mr. Grantham has been featured in Forbes, Barron’s and Business Week and is routinely quoted by the financial press. He earned his undergraduate degree from the University of Sheffield (U.K.) and an M.B.A. from Harvard Business School.
For More Information
The new industrial revolution has begun. New research shows more robots = fewer jobs. Also see the famous book by Wassily Leontief (Nobel laureate in economics), The Future Impact of Automation on Workers (1986).
- A warning about the robot revolution from a great economist.
- How Robots & Algorithms Are Taking Over.
- Economists show the perils and potential of the coming robot revolution.
- Three visions of our future after the robot revolution.
- The coming Great Extinction – of jobs.
- Lessons for us about AI from the horse apocalypse.
Books about the coming great wave of automation.
Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford (2015).
The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies Erik Brynjolfsson and Andrew McAfee (2014).