It is worth noting that automation will have a negligible impact on the developing world in the short term, the greater cost of capital relative to workers acts as a disincentive for companies to invest in new technology. This bias towards labour intensive industry is shown by the dominance that the developed world still retains over sectors such as pharmaceuticals and automobiles.
Before we discuss the possible catastrophe of a collapse in demand for labour let us look at the advantages of this form of technological advancement.
The first is clear – lower demand for labour means fewer hours worked. This is undoubtedly a positive, more time for leisure, self-development and friends/family are important for a high standard of living. Secondly, machines are cheaper than workers; they cost a few pence of electricity per hour, greatly reducing the cost of finished products. This second factor is of great importance to the developed world. The increase in worker’s rights over the second half of the 20th century has greatly eroded competitiveness (with regards to price) compared to the developing world. The fall in production costs following greater levels of automation will restore competitiveness to some degree propping up current account balances.
At what cost do these advantages come?
There will be three main symptoms of increased automation; capital’s greater share of national income, mass structural unemployment (people in long term unemployment, without the skills needed to get a job) and labour force polarisation (a decrease in the quantity of middle-income middle-skill jobs). Together these will drive up inequality and reduce median wages.
Through the 20th century it was taken that the capital-labour split of GNI (how much people’s income is from the assets they own rather than their jobs) was unchanging; at around 65% for labour. However this is evidently no longer the case. The limited mechanisation we have seen in the last few decades has begun to shift this ratio and will continue to do so. The eventual result of this change in the capital-labour split is apparent when you observe the relative distributions of profits from these two factors of production. The top 10% of earners in the US currently earn around 3-4 times the average income, with the top 1% earning on the order of 12 times the average. This may appear to be alarming however the inequity of the distribution of capital is even more so, the wealthiest 10% in the US own 7 times that of the average and the top 1% owns 35 times that of the average. As the productivity of capital relative to labour increases this greater inequality in wealth will take precedent over the less drastic inequality in income. If capital takes an ever larger share of GNI we risk returning to a society where inherited wealth plays a disproportionate role in determining the quality of one’s life.
The rather glaring danger of a largely automated society is unemployment. As touched upon earlier few jobs are ‘robot proof’ – notably certain high employment sectors such as manufacturing and transport. There are many who believe we will come up with new jobs. This, however, is unlikely to be the case. In a list of most common jobs in the US all those up to number 33 (computer programmer) are jobs that have existed in some form for over 50 years. There is no evidence that humans are simply able to invent jobs when we require them. The extra 3-4m jobless in the UK will bring us to unemployment rates nearing those of the Great Depression. This will; create downward pressure on the wages of those still in employment, increase the likely-hood of political unrest and leave us with a population lacking the necessary skills to work in a modern society.
Thirdly, inequality will be increased by the polarisation of the labour force. The mechanisation we have seen so far has primarily hit routine jobs, such as entering data into a computer or joining sheets of metal. Where these used to be in the middle of the wage and skill distribution large swathes of them have been wiped out; forcing either lower wages upon those still in their jobs or lower paying and lower skill jobs on those made redundant. A shrinking middle class is very dangerous for society; the economic and political security of the golden age of capitalism (1950-1970) is attributed to the growing number of middle income property owners. The increased inequality associated with this division of incomes is a threat to the relatively stable society we currently enjoy.
Without state intervention this collapse of worker’s wages is self-perpetuating. With less income workers spend less in shops, reducing business revenue. While paying their workers more than the market wage is one option it is not the one businesses will take, simply cutting costs, including workers, is far more likely. This spiralling of unemployment and deflation will, if unchecked, bring about the end of capitalism through revolution.
Contributed by Michael Tallent, Editor in Chief