Industrial Revolution, Again : Is this Time Different?
In 1872, Samuel Butler wrote a book called Erewhon, in which he suggested that in the future, machines may develop consciousness. More recently, Daemon by Dennis Suarez hypothesizes on the power machines will have in the future. Somewhere in between, academia also began to analyse the extent of the effects automation and robots will have on human society. The most radical thoughts are that the increasing automation will lead to a jobless future for everybody, and wealth will be concentrated in the hands of those who own these machines. For all the technological progress, there will be a mass of unemployed people, barely surviving on the fringes, while a tiny percentage control all the wealth. Sounds unreal? The more optimistic view is that technological progress will push human society to the next level, where there will be new jobs which are unimaginable today. We will be more prosperous than ever before in our history, where everyone has to work less and will enjoy a better standard of living. Does this sound unreal as well?
Past Experience
These are the two predominant views that feature in all discussions. However, the concern that technological progress will reduce employment are not unique to today’s world. There have been 3 Industrial Revolutions before this, each which changed how human society works. Introduction of machines killed off small craftsmen and embraced factories. The advent of electricity helped these factories truly enter the realm of mass production, drastically reducing costs. Computers, meanwhile, digitized a significant portion of repetitive, mind numbing work, killing off plenty of jobs. In each of these cases, similar concerns about jobs were voiced. The Luddites burnt and destroyed machinery to protest against weaving technology that required less manpower. Many Indians protested the introduction of computers in post offices and banks, arguing that these were mass employers and computers would take away all their jobs. As time tells us, these concerns were unfounded. The mechanization led to complementary jobs being created. It also led to the field of product innovation, which was not a formal job in the past. Still, despite the lessons of history, many are concerned that this time could be different after all.
How are Growth and Employment Related?
As a society, the argument breaks down to whether economic growth or employment is a more serious issue. There is consensus that technological advancement will have a positive effect on economic growth. What is less certain, however, is whether this economic growth will increase or decrease unemployment in the long run. Economic theory has something to say about this — Okun’s Law. Arthur Okun, a famous economist, in 1962 empirically observed that a 1% decrease in unemployment leads to a 3% increase in GNP. While not an iron clad rule, the US Economy has generally followed this trend in the past. Surprisingly, this no longer seems to be the case. In the aftermath of the recession, the US Economy has picked up, but employment has lagged behind. There are still over 7 million jobs that need to be recovered to reach pre-recession levels.
With technological advancement, it is becoming cheaper and cheaper to employ capital instead of labour. If this were not true, automation would not replace labour in the first place. Agriculture in India has much more workers per acre than in the US, where they employ machines to do the work for them. This is primarily due to the higher wages needed to pay workers in the US. However, as technology becomes cheaper and cheaper, workers either need to lower their wage demands, or find another job. Most of today’s generation hasn’t encountered a bank teller, such is the spread of ATMs across cities. Wages cannot drop beyond a point, simply due to the sustenance requirements a human being faces. As technological progress does not seem to be coming to a halt anytime soon, workers jobs seem to be in peril.
However, there is a counter argument to this. Many argue that robots cannot take over humans simply because they cannot do everything a human being can. They do not possess intuition, which is a very important factor in several types of jobs in art, business, or even the job of a barber. Society will develop new jobs that complement the new technology. Just as how the production of cars made it necessary for mechanics and car washers to exist, future advancement will create new jobs which we cannot envisage today. They quote history to demonstrate that just as humans could not foresee the new jobs then we cannot foresee them today. Despite this, there seems to be a clear trend in the quality of jobs being lost to machines in the short run. Moravec’s Paradox says that “it is comparatively easy to make computers exhibit adult level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility.” Technically called job polarization, it is being observed that the production jobs are the ones being lost, whereas high skill jobs like doctors and scientists have continued to grow, as these jobs require intuition and creativity (which machines do not possess currently). Alongside these, jobs which require the ability to communicate, identify a situation and interaction (and are hence done in person), such as serving food, security and nurses, have also been growing in the last few decades. Though these are considered low quality jobs, the intermediate jobs like operators and clerks are the ones being lost to machines. David Autor, a Professor at MIT, reasoned that this was because the intermediate jobs are the easiest to codify, and are hence the easiest for machines to perform. He called this trend of polarization as Polanyi’s Paradox, which says “We can know more than we can tell” (a machine to do).
How do we fight it?
So should we be concerned with the declining quality of jobs, especially if economic growth will be stronger with these machines? We probably should be. As jobs are being taken away, machines are also becoming smarter, which means that more high quality jobs will be lost. This is currently being seen in the IT sector, where mass recruiters like TCS and Infosys are slowing hiring on the back of new technology and increasing automation. One can envisage a future where all the high quality jobs are taken from humans, leaving us all fighting for the menial jobs that remain, unless new ones are created. Education is the key here — as robots become smarter, society as a whole must keep pace. The so-called college premium, the financial advantage one obtains with a college degree has never been higher. However, despite the existence of this advantage, college enrollments are struggling to keep pace, for a myriad of reasons, not necessarily economic. Without this going for us, it is difficult to envisage what will happen of the (uneducated) youth of the world, with nowhere to work. But we’ve excluded one thing — can robots develop intuition and creativity and human qualities, and what happens if they do? This will be dealt with in a separate post.
We also need to realise that this isn’t an event; it’s a process. Advancement in technology is already dislocating traditional jobs. Across developed and developing countries, this is being recognised as a Fourth Industrial Revolution, where high-level discussions are happening on how society will tackle this. The theme for this year’s World Economic Forum was precisely this — Mastering the Fourth Industrial Revolution.
Is India worst placed for this technological explosion?
India is also struggling to create jobs, though this may be related with both a lack of capital as well as technology taking away jobs. However, the famed ‘demographic dividend’ that economists and policy makers talk about in the case of India, may turn out to be its biggest nightmare. Essentially, because of India’s young average population, we will soon be reaching the stage when a significant majority of our population will be of working age. This is called the demographic dividend of a country. Logically, if more of the population is independent (working age, between 20 and 60) and less is dependent (children and senior citizens), there is less pressure on the independent to spend on the dependent population. Consequently, savings of a nation are relatively high during this period, which boosts economic growth via more investment. Apart from this, the country has a large amount of labour and skill during this period, which, if it effectively uses, can boost economic productivity. US had this period between the 1950s and 1970s. Japan had theirs around the same time. To make use of the advantage, they invested heavily in education and developed infrastructure that could absorb these workers. Though there is debate where it was just the demographic dividend that helped the economy, or greater productivity played a part too, there is no doubting the positive economic effect of the additional workers.
Now, India has a dual problem here — firstly, investment in education remains as pitiful as ever. Recent World Bank data shows that India spent 3.8% of its GDP on education in 2012. In comparison, South Africa and Brazil, competing developing countries, spent nearly 6% of their GDP in educating their future. Developed countries, who have passed their demographic dividend spend more on education too. US and UK both spent roughly 5% of their GDP on education. Clearly, this is a time bomb waiting to explode. India needs to add 100 million jobs in the formal sector in the next decade to absorb the inflow of workers. But this does not seem to be happening. Many have spoken about the leapfrogging of the Indian economy — moving from an agrarian economy to a service based one, without a strong manufacturing base. History tells us that manufacturing is a major employer for countries who have a growing workforce.
But alas, these are not ordinary times. As touched upon above, these manufacturing jobs are the easiest to automate, reducing the need for labour. With India’s economy more open to the global market today, even if foreigners set up factories here, they will set up capital-intensive ones as it is increasingly becoming cheaper to do so. (China is also losing its comparative advantage in industry as wages rise). This is bad news for the country, as these workers cannot be absorbed here. With the advent of innovation like 3D printing, India’s comparative advantage of cheap labour is also being lost. The Indian education system is suffering from chronic underinvestment, and considering the fact that even if education investment picked up today, it would take years to see the benefits, a majority of Indians seem to have a bleak future ahead of them. Countries like China, who have millions employed in manufacturing, will need to undergo a radical shift to tackle technological advancement. In a way, being a service-oriented economy already will reduce the structural change society will go through as manufacturing jobs are phased out. However, that leaves more people scrambling for low quality services jobs like those of security guards and drivers. (And hey, Google’s self-driving car seems more and more like reality, with time). The resentment brewed by these youth could be a ticking time-bomb; once patience runs out with the government, protests and riots are not far away.
What was once touted as India’s strength, may actually become its biggest weakness. Even China’s population has recently begun ageing, while developed countries are facing the same problem. Jobless growth may not be such a bad thing for them, because the (jobless) increased economic growth will cater to the needs of the ageing. But for young nations like India, it has the potential to become an unmitigated disaster, not helped by already weak employment figures. The data shows the same trends — GDP growth is near 6–7%, but employment level increase was only 1.8% in 2011, according to the Census. The Make in India week 2016 attracted 225 billion dollars of capital in India over the next 5 years, but will create only 6 million jobs. Where will the jobs come from?
The Future
Whether the future does take away our jobs or creates new ones, one thing is clear. There are strong reasons to believe this time may be different; those worrying about future jobs are not being paranoid. Economic fundamentals have changed, or perhaps they have reached the stage a great man foresaw. Karl Marx predicted that in the future, as capitalists acquire more and more machinery, there will be a large reserve army of unemployed people. The fruits of economic growth will be with those who own the machines — the capitalists. While we may be beyond the problem of scarcity as a whole, distribution will become society’s biggest problem. In the future, will everyone receive a basic income irrespective of work, on which they can manage a decent standard of living? Will human life fundamentally move away from spending half their lives at work, to one abound with leisure? How will developing countries cope? These are all questions that will arise in the near future. In the meantime, let’s all hope we choose the right job so that robots don’t replace us in 5 years.
