Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

The economics of the robot age

Whether the futurethe second machine ageis a dystopia or a utopia depends on ownership, not technology

Prime Minister Narendra Modi’s declaration on the ramparts of the Red Fort last year that the world should come and make in India, did not cause the world’s workers to quake in their shoes. Rightly or wrongly, they do not worry that India will eat their lunch. They are convinced that machines are already doing so. This angst is reflected in a spate of recently published books including Erik Brynjolfsson and Andrew McAfee’s The Second Machine Age, and John E. Kelly III and Steve Hamm’s Smart Machines.

Machines have been planning world domination for some time, or at least science fiction writers and futurists have been predicting it for a while.

What kept the angst in check was that while robots were increasingly doing complex things, like in 1997 when IBM’s Deep Blue beat world champion Garry Kasparov at chess, they couldn’t get the hang of simple things, such as walking up the stairs, navigating a busy pavement or having a conversation without a real person guessing that they were talking to a computer. Computers could make human tasks easier but they could not do away with the human altogether and so Nobel Laureate, Robert Solow, was able to say that “we see the computer age everywhere except for the productivity statistics".

But after 50 years of the application of Moore’s Law—where the power of computers doubles every 18 months—that barrier has finally cracked.

Google’s driverless car is around the corner, Amazon’s robots pack delivery boxes in warehouses so empty of people that there is no need for light or a controlled temperature.

This quantum shift was signalled on 16 February 2011, when IBM’s Watson beat Ken Jennings and Brad Rutter, the all time best players at Jeopardy!, an American television game show.

Now that the mental and physical dexterity gap has narrowed the other long-standing advantages of robots come into play.

Amazon’s Kiva Robots lift shelves that weigh around 1,360kg, 24x7, without a toilet break, lunch hour, health insurance or pension plan. They don’t get stuck in traffic or snow and they don’t have attitude.

No surprise then that the world’s largest manufacturer of electronic products, Taiwan’s Foxconn, is considering replacing its workforce with one million “Foxbots".

In The Future of Employment, written in 2013, Carl Frey and Michael Osborne, predicted that 47% of current jobs would be replaced by robots. China, a later starter and the world’s leading manufacturer has become the biggest buyer of robots.

Economists tend to reject the lump of labour idea—that there are only so many jobs and if they no longer exist people would not have work. Back in 1810, 90% of the US workforce was employed in agriculture. Today it is just 2% and the other 88% are not unemployed. But it is possible as John Maynard Keynes put it in 1932 in The General Theory of Employment, Interest and Money that our discovery of means of economizing the use of labour outruns the pace at which we find new uses for labour.

Some believe this process has been underway for a while and underscores a secular stagnation and worsening inequality in the advanced economies. The typical worker in the US has not seen a rise in their living standards since 1979 and since then income inequality has steadily worsened.

However, if one day there is a robot that can do everything I can do, it is only a problem if I do not own it. Whether the future is a dystopia or a utopia depends on ownership, not technology. The narrow concentration of ownership of assets and wealth has been a problem since human society began, robots do not alter that, they just punish us for not tackling it sufficiently well before. A world in which few work and the robots who do are owned by fewer still is not one in which the government is funded by labour taxes, but by wealth and consumption taxes.

The rise of robots also questions whether this is the time for India to don the overalls of the world’s manufacturer and for Indian workers to compete against the Foxbots. In 1983, Wassily Leontief, the economist, predicted 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.

Is the geography of manufacturing not about to change from production economies of scale to a world in which consumers pay to download the software that allows their robot to make the product they want? In which case is this not the time to build on India’s brand as a software powerhouse?

Trying to pick sunrise and not sunset industries is always a hazardous activity.

Perhaps what the government should limit itself to doing is to eliminate the high barriers to doing things in India, whatever it may be, and redistributing enough income to provide greater equality of opportunity for as many as possible. If the robots are coming, we should not try to compete against them or hide from them. We should embrace them, write their code, own them or tax their owners.

Avinash Persaud is non-executive chairman of Elara Capital Plc, emeritus professor of Gresham College in the UK, and non-resident senior fellow of the Peterson Institute for International Economics in Washington.

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