Automation will bring growth, but history tells us labour’s share of national income will decline
The World Bank has a reassuring message for those fearful of being made obsolete by automation. The robot age is nothing to be worried about. Just like all previous waves of technological advance, the fourth industrial revolution will create rather than destroy jobs, so fears of mass unemployment are largely unfounded.
Nor should we be concerned that the arrival of the new machine age is going to widen the gap between rich and poor, because the idea that the world is becoming a less equal place is more perception than reality.
Automation, according to the bank’s World Development Report, is an opportunity not a threat. Sure, some jobs will go but others will be created to meet a range of future needs of which we are currently unaware. Since automation cannot be stopped, governments need to do two things. Brain-up their populations through investment in education so that they have the necessary skills for the robot age, and reduce the burdens on business by getting rid of harmful labour laws and restrictions. The need for greater deregulation to prevent companies choosing to use robots rather than humans is a constant theme.
In essence, the World Bank has come up with a rehashed form of trickle-down theory that Margaret Thatcher would happily have endorsed. Private companies should be allowed to do whatever they consider is in their own best interests, and politicians should get out of the way.
Here’s a taste of what it says: “A formal wage employment contract is still the most common basis for the protections afforded by social insurance programmes and by regulations such as those specifying a minimum wage or severance pay. Changes in the nature of work caused by technology shift the pattern of demanding workers’ benefits from employers to directly demanding welfare benefits from the state. These changes raise questions about the ongoing relevance of current labour laws.”
The criticism the report has received from trade unions and anti-poverty campaigners is well merited, not just for its ideological obsession with deregulation but for its lack of historical awareness. Previous waves of technological change caused such deep social tensions that policymakers were forced to intervene. That meant more regulation, not less.
In the 19th century, the development of trade unions, the extension of the franchise, the involvement of the state in education and pressure for higher welfare spending were all attempts to inject equality into the system. Despite what the World Development Report says, without a similar attempt to embed technological change in a political framework that shares the benefits of robot-driven growth, there is the potential for serious trouble ahead.
Why? Because it is not true that inequality is a figment of the imagination. The bank’s evidence is that inequality either fell or remained the same between 2007 and 2015 in 37 of 41 sample developing and developed countries.
Even leaving to one side that this sample relates to only about 20% of the World Bank’s member countries, the period chosen is significant because it begins with the year when the global financial crisis began, and between 2007 and 2009 high net-worth individuals lost a packet.
Russia is used as an example of a country where the share of national income of the rich fell, as indeed it did. The bank is quite right to say that the top 10% of Russians took 52% of the pie in 2008 and only 46% in 2015. What it fails to mention is that oil prices plummeted between 2008 and 2015. That was not good for the oligarchs.
It’s hard to avoid the conclusion that the World Bank has been selective with its use of statistics in order to make a point. The idea that inequality is a matter of perception runs counter to work by others, including the Organisation for Economic Co-operation and Development and the International Monetary Fund. The IMF’s managing director, Christine Lagarde, said at the start of this month that “since 1980, the top 1% globally has captured twice as much of the gains from growth as the bottom 50%.”
The IMF also has a rather different take on the automation debate from that of its sister organisation. It released a working paper in May with a self-explanatory title: Should we fear the robot revolution? (the correct answer is yes).
The authors concluded that the current technological revolution was different from those of the past. Robots will be able to do a range of tasks that have hitherto been the preserve of humans, and do them more quickly and more cheaply. Productivity will go up but wages will go down, the IMF says. The owners of the robots will gain but workers will not. “Our main results are surprisingly robust: automation is good for growth and bad for equality.”
Nor does the IMF think investment in human capital is a magic bullet to counter the march of the robots. Education, it said, can be seen as a way of converting workers from unskilled to skilled, which would strengthen the demand for unskilled workers.
“But can it offset the huge, real wage cuts unskilled labour suffers and the decrease in labour’s overall income share at an acceptable cost? And if the answer is yes, how long will it take for wages to increase for those who remain unskilled?”
The IMF said that eventually stronger growth does translate into higher wages but, even then, labour’s share of national income would decline and inequality would increase. What’s more, “eventually” has echoes of Keynes’s statement that in the long run we are all dead. By “eventually”, the IMF means up to 50 years. In their current angry mood, it is unlikely voters will wait that long.
