A warning about the robot revolution from a great economist.

Summary:  Our series about experts has discussed our reliance on bad or biased experts. Today we see the opposite: how we ignore insightful exports, people who could help us see and prepare for the future. An economist and Nobel Laureate warned us of what’s happening today. We didn’t listen then but can still learn from him. Also, let’s learn to listen better to our top experts; it might be an essential skill for our survival in the 21st century.  {1st of 2 posts today.}

Automation robot

Introduction

Sixty years ago science fiction author James Blish described a future in which semi-intelligent machines caused massive unemployment. Of course we did nothing to prepare. Thirty years ago a great economist wrote a paper clearly describing the 3rd industrial revolution that’s now begun (even today it’s one of the clearer statements of the situation). It was part of a major report by the National Academy of Engineering, much of which also accurately described these trends. We have done nothing to prepare, not even to study the problem on a large scale, because the majority of economists had a religious-like faith that future industrial revolutions must run like the first two — so we could go blindly into the future.

“National perspective: the definition of problems”

By Wassily Leontief, Nobel Laureate in Economics.
A chapter in Long-Term Impact of Technology on Employment and Unemployment.
National Academy of Engineering (1983). Red emphasis & headings added.

The great Industrial Revolution triggered by the invention of the steam engine has by now run its course; the age that we are about to enter will be dominated by the sign of the electronic chip. The new wave of tech­nological innovation will carry us forward at least as fast and as far as the last. However, to make full use of these opportunities, our eco­nomic, social, and even cultural institutions will probably have to undergo a change as radical as that experienced during the tran­sition from the preindustrial society to the industrial society in which we live today.

The introduction of successive generations of more and more complex machinery made possible by the discovery of new sources and forms of mechanical energy over the last 200 years not only led to an unprecedented rise in the output of various goods and services, but at the same time freed working men and women from the toil and trouble associated with physical exertion. The role of labor as the dominant factor of production was not reduced but enhanced. The control and guidance of increasingly powerful and intri­cate machinery required that each worker exercise mental capabilities of progressively higher and higher order. The competitive market mechanism translated this steadily increasing demand for labor into higher and higher real wage rates.

As the earning power of an average work­ing family increased, it naturally chose to allocate some part of those earnings to acquiring more leisure time. One might speak of this progress as an increase in voluntary technological unemployment. One hundred years ago, the number of hours worked in the average week in the United States was over 70; by the beginning of World War II, hours per week sank to 42.

Computers and robots replace humans in the exercise of mental functions in the same way as mechanical power replaced them in performance of physical tasks. As time goes on, more and more complex mental func­tions will be performed by machines. Not unlike large bulldozers assigned to earth-moving jobs that could not possibly have been carried out even by the strongest laborers or draft animals, powerful computers are now performing mental operations that could not possibly be accomplished by human minds.

Any worker who now performs his task by following specific instructions can, in princi­ple, be replaced by a machine. That means that the role of humans as the most important fac­tor of production is bound to diminish — in the same way that the role of horses in agricul­tural production was first diminished and then eliminated by the introduction of tractors.

Horse

The general theoretical proposition that the worker who loses his job in one industry will necessarily be able to find employment, possibly after appropriate retraining, in some other industry is as invalid as would be the assertion that horses who lost their jobs in transportation and agriculture could neces­sarily have been put to another economically productive use.

Reduction in the price of labor — that is, in the real wage rates — can and in certain instances did postpone its replacement by machines for the same reason that a reduc­tion of oats rations allocated to horses could delay their replacement by tractors. But this would be only a temporary slowdown in the process; improvements in the efficiency of tractors and other inanimate means of pro­duction can be expected to proceed without any limits, while reductions in feed rations or wages have definite limits. In the case of human rations, or real wages, these limits are narrow and are very sensitive indeed.

Effects of automation

Assessing the effects of technological change and economic growth on employ­ment, one must take into account “lateral shifts.” For instance, with a rise in the per capita income, consumers tend to spend a larger and larger part of income on pur­chases of various services rather than on food, clothing, or even housing and appliances.

Moreover, the increasing division of labor has led to service sectors that specialize in selling services to business that the businesses for­merly provided for themselves. This lateral shift would proceed even without any tech­nological change. In fact, computers and other electronic devices replace human mental functions in service industries even faster than in the old smokestack industries.

What employment statistics show is the combina­tion of essentially opposite effects of two simultaneous but quite different processes: lateral shifts into the service industries and technological displacement of labor by electronic devices. Without a much more detailed, factual analysis of the second process, sys­tematic numerical interpretation of the employment figures will be impossible. The lateral shift is bound to slow down, however, after 60, 70, or even 90% of total output is provided by service industries. As it slows down, the effect of downward pressure on demand for labor in service industries brought about by continued computerization and automation will ultimately prevail.

This brings us to the problem of labor income, which obviously cannot be sepa­rated from the problem of employment.

While eliminating the role of labor as a source of physical energy, the first industrial revolution increased the critical importance of labor’s mental contributions to such an extent that real wages rose steadily in the United States and other advanced industrialized countries over the last 200 years. With the spread of computerization and automation, the same competitive forces that brought about a rise not only in the price of labor but also in labor’s total share in the national income are likely to begin to operate in the opposite direction.

Robot vs worker

Productivity

Before turning to the problem of income distribution, a few words must be said about the ambiguous meaning of numbers com­monly used to measure the “productivity” of labor. These numbers are usually obtained by dividing the total output (expressed in phys­ical units or in constant dollars) of a single plant or entire industry by the number of workers (or better, of labor hours) employed in its production. Given this definition, consider the change in productivity of telephone opera­tors in an exchange during a period in which old-fashioned manual switchboards are gradually replaced by automatic switch­boards, while the number of telephone calls handled by that exchange remains constant. At the beginning 1,500 operators might be engaged in that operation. As new equip­ment is installed, the number of operators decreases.

Dividing the same total number of calls served each year by a smaller and smaller number of operators kept on the job, we find that productivity steadily increases. It becomes very large when only one opera­tor remains. When the last operator is dis­charged, the productivity of labor in that installation becomes infinitely large. Describing the process in common language, one would say that technological change gradually reduced the role of labor in that particular production process, and after 5 or 10 years the need for labor input was reduced to zero. Using the procedure described above to measure the productivity of the automatic switchboards, we find that as their number increases, their productivity goes down. It reaches its lowest point when all calls are handled automatically.

An employer operating within a competi­tive market economy can assess the contri­bution of labor that might be employed along with other inputs; consequently, he can only decide how many workers or labor hours to employ by comparing the combined total cost of all the inputs required to apply each of the alternative technologies to produce the envisaged output. It is in this sense that the introduction of tractors can be said to have reduced the usefulness of horses in agricul­tural production. In assessing the long-run implications of the introduction of new tech­nology, one has to admit that it might indeed reduce the demand for labor and, unless for demographic or some other reasons the total labor supply adjusts accordingly, bring about what might be called involuntary technolog­ical unemployment.

Trade

Reducing the growth of labor inputs in production is bound to affect the structure of international trade because the competitive strength of less-developed countries now depends largely on comparatively low wages. Years ago, labor-intensive industries such as simple textiles migrated from the United States, Japan, and Western Europe to India, Brazil, and other less-developed countries. Low wage rates provide advantages to Korea and Taiwan even in the production of simple electronic goods. That advantage inevitably will shrink as these industries become auto­mated and the wage bill becomes a smaller and smaller part of total cost. The expatriate industries will tend to move back to the advanced industrialized countries.

Solutions

Solutions

Turning to the question of adjusting our economy and our society to a situation in which technological change will progres­sively reduce the role of physical and mental labor as an indispensable factor of produc­tion, it is important to realize that the invis­ible hand of the competitive system equilibrating the supply and demand of all goods and services by means of appropriate price adjustments would not solve the prob­lem, or rather it would tend to solve it in the same way as it did when it efficiently elimi­nated the use of horses in agriculture.

Had horses had an opportunity to vote and join the Republican or Democratic Party, that solu­tion would have been very different from what it actually was. Had we for instance wished to maintain the 20 million unemployed horses by putting them to pasture, we certainly could have done so. To get the necessary appropri­ation from Congress, it might have been suf­ficient to declare such action to be necessary for national defense and to include its costs in the military budget.

Speaking seriously, the problem of tech­nological unemployment is likely to be solved by an appropriate combination of labor shar­ing and income policies. Instead of having one part of the population fully employed and the other totally unemployed, the labor hours might be shortened, the number of workdays in the week reduced, the length of regular vacations increased, the retirement age low­ered, and the entry of young people in the labor force delayed through longer school­ing.

But how about the labor income? An increase in wage and salary rates sufficient to compensate for shorter work time would obviously be counterproductive because it would only accelerate the rate at which labor­saving machinery is introduced. To keep the cost of accounting or private business straight, the market price of labor should continue to reflect the competitive advantage of using labor-saving technology.

Accompanying labor sharing, income pol­icy would have to consist of supplementing normal wage earnings with income transfers lying outside the operations of the competi­tive market mechanism. As a matter of fact, we have been practicing such income policies for many years in the form of social security, unemployment insurance, Medicare, and many other methods that are used to supple­ment the income of those who either earn nothing or do not earn enough. Needless to say, such a policy would require strengthen­ing many of the existing social institutions and creating new ones, a process that cannot be expected to be accomplished easily or smoothly.

Open Mind

Conclusions

But what is more, shortening of labor hours — that is, a gradual increase in leisure or freely disposable time — would mean a change in the way of life of large masses of American people. Such a change can hardly occur without a change in our cultural and personal values. The Puritan work ethic, born in the sixteenth century, served the needs of nineteenth and twentieth century industrial society; now it will have to yield gradually to a somewhat different attitude toward life. Those who ask what the average working man and woman could do with so much free time forget that in Victorian England the “upper classes” did not seem to have been demoral­ized by their idleness. Some went hunting, others engaged in politics, and still others created some of the greatest poetry, litera­ture, and science the world has known.

While speaking at length of the physical and mental capabilities of men, I have not men­tioned creative imagination, the only faculty that seems to be irreplaceable by machines. Without creative imagination, neither art nor science could possibly advance. It is also an indispensable ingredient of any kind of lead­ership — entrepreneurship in particular.

However, only the creative imagination of a relatively few outstanding individuals acquires common currency and is regarded accord­ingly. In private everyday life an individual’s own imagination plays a most important role as the source of a great variety of cultural pursuits. While training for the exercise of productive skills will certainly remain one of the principal objectives of formal education even as computers and robots take over, the other, more general objective of education, the development of taste and of capabilities for nonremunerative cultural activities, will become more and more important.

—————————————–

About the author

Wassily Wassilyovich Leontief (1906 – 1999) was a American economist notable for his research on how changes in one economic sector may have an effect on other sectors. Leontief won the Nobel Memorial Prize in Economic Sciences in 1973, and 3 of his students have also been awarded the prize (Paul Samuelson 1970, Robert Solow 1987, Vernon L. Smith 2002).  {From Wikipeida.}

For More Information

See all posts about experts. and about the 3rd Industrial Revolution now under way. Especially see these posts:

For deeper analysis see these recommended books:

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4 thoughts on “A warning about the robot revolution from a great economist.

  1. re: cultural creatives

    The following scholar’s work was largely oriented toward attempting to resolve the issues of meaning and purpose within religion and spirituality with rationalism and modernism, and postmodernism. As such, it might inform the discussion of how post-industrial culture will reconfigure. Some people that study holistic-integral spirituality and Rifkin’s work feel that Bhaskar’s work compliments, or corrects, Ken Wilber’s integral theory.

    https://en.wikipedia.org/wiki/Roy_Bhaskar

    As always, please correct or comment.

    Liked by 1 person

  2. From a national perspective, it would seem best for good institutions to organize these affairs.

    However what should people do on an individual or family level?
    Should they try their best to become capitalists themselves, by living very frugally and investing part of their savings into stocks benefiting from automation?
    This seems very difficult for the average individual to do, but there must be some ways for individuals to share in the benefits of automation.

    Liked by 1 person

    1. Saif,

      The major theme of the FM website is that individuals and families are almost powerless against the great forces reshaping America. As usual, everywhere and always. We’re powerful only when standing together. That’s the lesson the Founders left us, by both their words and deeds. We’ve not only forgotten it, we seem blind when reminded. Until that changes we will remain sheep to be used by our betters. That’s the Great Circle of Life in action.

      Like

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