Intelligent choices in the present economy: embracing robotization and Artificial Intelligence

Filip Norén // 6 March 2017

A European Parliament resolution calling for EU-wide ethical and safety standards for robotics and Artificial Intelligence (AI), passed on 16 February, is evidence that the field broke with science fiction long ago. With billion dollar investments, many picture mass-layoffs and social exclusion as people become redundant. However, by looking into the past as well as into the future, we find that there are several fiscal and educational reforms that can help Spain and other economies through this transformation. Some healthy anxiety over great social change aside, there are plenty of reasons to stay positive about the future of work.


In his Institute for Economic Affairs (IEA) articles on AIs, Ryan Khurana captures past developments: “in the 19th century we automated the dangerous, in the 20th century the dull, and in the 21st century the routine.” Since innovations that increase efficiency of production often lead to higher consumption of any product, it could be that the increased efficiency of AI-empowered humans results in added demand for human labor. In general terms, this has been the case since the Industrial Revolution as greater productivity results in higher wages.


The dilemma is whether the AI wave will mimic this historical trend and unleash productivity, creating faster economic growth, or whether we will see spiking technological unemployment and wages that drop in parallel with the relative efficiency of human labor. Most likely the long-term effects will be positive, but the replacement of manufacturing workers as well as certain skilled occupations, would result in rising unemployment in the short-term. Fortunately, the potential policy solutions in response to the latter scenario would be useful even if such a downturn were not to occur.


A major concern is a wage split, in which all but the most skilled workers would compete alongside robots and earn low(er) wages, creating much greater income inequality. Rather than relying on redistributive policies to offset this, employees need to own more capital and thus earn a significant portion of their income from ownership of the company rather than the work they actually do. Andy Haldane, chief economist at the Bank of England, and economist Richard Freeman argue in favor of this solution. Also, Freeman points out that companies in which employees have stakes as part of their payment tend to perform better than they otherwise would. Whereas legislating towards such a remuneration system would constitute an attack on civil liberties and free enterprise, governments can encourage the adoption of these systems.


Expanding capital ownership is also a better option than Bill Gates’ proposed robot tax, as pointed out in this week’s Economist. Such a tax would go towards retraining and unemployment benefits, but it makes it more expensive to invest in productivity-raising automation in ways that can jeopardize the much-needed return to growth.


To allow firms and society at large to adapt, regulations that frustrate the setting up of new businesses need to be reduced. Spain’s ranking as the 87th most attractive country to start a business in is not exactly flattering (The World Bank’s Doing Business report 2016). As business outside of major cities and the manufacturing sector are relatively weak, easing regulation to encourage innovative startups ought to be prioritized given the crucial role of such enterprises in harnessing AI productivity and creating employment. Similarly, relaxed labor laws would contribute to strengthening the economy’s chances of adapting to new technologies. The Spanish government’s labor reform of 2012 took steps in the right direction, but more can be done.


In addition, our structure of education is becoming obsolete. Studying for a period of time and staying in work for decades afterwards will likely be unusual in a rapidly evolving, AI-enhanced labor market. Instead of such a linear education-work pattern, imagine a chain; phases of circular education-work-retraining patterns, where each link represents a sector of the economy or a profession. An education system that better reflects this circular composition of a person’s professional life can help retrain people as their previous jobs cease to exist on account of automation.


When discussing the need for retraining, it usually does not take long before someone mentions the introduction of a living wage to offset the income loss when robots replace people, setting people, particularly blue collar workers, “free.” Not only is it likely that many economies will be unable to pay for it – including that of Spain– but such a policy is also undesirable for social reasons. The discussion regarding what laid-off, or “liberated” workers will do all day and what will happen to the social value of work, including contact with colleagues, the feeling of self-worth and being needed, is as worrying as it is important. Furthermore, the reliance on a government for handouts is an unthinkable infringement on personal liberty for many. Therefore the way forward is to design an economic landscape where as few people as possible are no longer retrainable and kept permanently out of work as their skills are trumped by automation.


These reforms, from new patterns of education to the removal of barriers to entry in markets and new models of employee ownership in business, would benefit economies even if robotics and AI do not transform the landscape of labor as much as we think. By improving the conditions for businesses, they would improve economic growth. For a recovering Spain, that cannot be a bad thing.


The question remains of whether we are in fact on the verge of entering into a new era – one of lower stress levels and improved quality of life. After all, there are those who say that the point of innovation is for us to spend our time reading more and undertaking social work to improve humanity. With the help of Artificial Intelligence and sound economic reform, we can make this happen.


For more on this topic, see the following article by Ryan Khurana for Institute for Economic Affairs (IEA), republished by EPICENTER.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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