Can Capitalism Survive the Technology/Robot Revolution?

Lately I’ve been thinking and researching a lot about robots and the effects their rapid advancement has had on U.S. wage stagnation and more pointedly on how the poor and middle class will fair, given the proliferation of their use, in the near future. I don’t mean, necessarily, robots like CP30 or R2D2, but mechanized means of production or services as opposed to human interaction.middle-class-vs-robots

Prompted by research on NAFTA and whether or not it and other trade policies are to blame for wage stagnation, I wrote an article this past July about the misperceptions that surround NAFTA. Claims about it costing the U.S. millions of jobs by shifting them overseas have been studied extensively by economists and engineers since its twentieth anniversary. All reputable studies show that the jobs  were unsustainable even under “generous” break-even analyses, and that they were doomed regardless of NAFTA.

Now I will say for the record, the Trans-Pacific Partnership (TPP) is a totally different animal. In my opinion, it’s totally unacceptable on sovereignty, copyright, trademark, and a whole host of other issues, and it clearly illustrates that all trade policies are NOT created equal. Three of the most worrisome aspects of TPP are hyper-linked below:

  1. ISDS
  2. Anti-generic drugs
  3. Fast tracking

However, NAFTA had no such provisions.

As for the proliferation of robotics and technology replacing jobs people have traditionally performed, examples are growing exponentially. The use of a “bomb-disarming robot” by the Dallas police in July illustrated how some dangerous jobs are being turned over to robotics. And just last week, a government report prompted me to research the legal implications of the rapid shift taking place with self-driving cars.

But most recently, the claims of job losses being attributed to NAFTA, by both far right and far left opponents of globalization during the current presidential campaign, has led me to take a forward (rather than historical) look at the empirical evidence regarding the economy, jobs, and whether reasonable trade policies will present an overt danger to the poor and middle class employment and wage prospects for the future.

First, the facts. Donald Trump and Bernie Sanders are wrong that NAFTA caused U.S. manufacturing jobs to flee overseas in droves because of NAFTA, but they are not completely wrong that over the last three decades Chinese and other overseas cheap labor replaced a big chunk of U.S. manufacturing. However, “not completely wrong” is not the same as “correct.”

First of all, even when Trump is recognizing an actual problem, his “solutions” are either hopelessly vague, counterproductive, uninformed or all of the above. But Trump clearly has no operative policy prescription for trade, economics or anything else as it relates to governmental authority or effectiveness.

Wage pressure was already leading global firms to leave China in pursuit of even cheaper labor in Vietnam, Pakistan, Bangladesh, and elsewhere, even before Obama’s second term. Of course, countries that succeed in attracting manufacturing because of cheap labor will eventually themselves have to succumb to wages that undercut their chief advantage, just as China discovered. The reason raw materials from China are so cheap is that in steel alone China has over-produced inventory on hand of $1 trillion and they’re practically giving it away. But to blame NAFTA is ludicrous. Correlation is obvious, not causation.

At least fifty-percent of the manufacturing job losses since NAFTA was signed into law is due to automation, but an equal share of manufacturing jobs have also simply shifted sectors from the Rust Belt, “dirty”, manual, and unskilled category to green, clean, and biological sectors. Ask any U.S. historian how coach-and-buggy makers felt about Henry Ford’s mechanical horses and you’ll hear how vehemently they objected.

So, even as U.S. manufacturing output has increased (despite outsourcing), jobs in once-traditional manufacturing sectors have decreased dramatically through obsolescence. And anyone who thinks those jobs are returning is as mistaken as stage coach builders were pre-automobile. And Trump’s tariffs would greatly accelerate and expand the damage to our economy by causing runaway inflation, and fewer choices.

If robotics make products at less expense than workers in Detroit today, they will do the same in Karachi before long…meaning Trump’s xenophobia is misdirected. A more visionary demagogue would be extolling robotophobia instead.

According to the Society of Business Economists, automation and technological advancement has created more jobs than it has eliminated, but that could be rapidly changing with the accelerating growth of artificial intelligence. Studies around the industrialized world indicate that mechanical means could replace half of all jobs in just 20 years.

This is not simply a story of evolution from a manufacturing economy to a service economy. Services can be–and are being–automated too. Twenty years ago, a displaced factory worker might find work, albeit less rewarding work, as a taxi driver. In another decade (or much less), that avenue will be shut out, as self-driving taxis will make driving taxis go the same way as elevator operators.

Everything consumed in the U.S. other than locally grown produce has, at some point in its life history, been on an 18-wheeler. Freight companies are already testing driver-less 18-wheelers. There are currently 3.5 million long-haul Truck drivers and 8.7 million employed in the industry overall. If you throw in the truck stops, repairs, and other services directly dependent on trucks that number explodes to over 14 million full-time jobs. That’s just over 11% of the entire U.S. workforce. And they could conceivably all be gone in just fifteen years.

U.S. Restaurants have begun using iPads at each table to reduce the need for wait staff although I’ll believe a robot scattering, covering or smothering and serving up hash-browns when I see it.

There is even a robust debate being waged over how much work that necessitates abstract thinking (such as practicing law or accounting) can be automated (nicely summarized by Frank Pasquale and Glyn Cashwell in this 2015 article). But even if one takes a skeptical view of the capacity for automation of more complex mental tasks, the very near future still looks decidedly much more computerized.

In fact, more and more doctors are performing diagnoses and prescribing treatment options by video conferencing between the doctor’s office and the patients home. My own insurance company provides a list of the ones in my area that do so.

The forecast is predictable–absent drastic change, catastrophe, or other unforeseeable disaster, there will not be enough jobs for all the people who want them in the not-too-distant future.

Now Democrats vociferously point to the steady improvements in the unemployment rate, but the graph of labor force participation (LFP) over the last forty years is pretty clear. If you want to see it click here: (source: Bureau of Labor Statistics website):

Nearly all of the increase in LFP between 1976 and 2000 is the result of women entering the workforce in large numbers. As another BLS publication states, “women reached the peak of their labor force participation in 1999.” That peak is very close to the overall LFP peak in 2000, after which LFP declines substantially, well before the Great Recession of 2007. The timing is self-evident as coinciding with computer technology yielding substantial increases in productivity and simultaneous job losses.

It is certainly possible that new technologies will create all sorts of new jobs that we have not imagined yet, and that the sheer number of people looking for jobs will decrease as the baby boom generation passes into retirement, but that is not the effect automation has historically provided.

So, assuming the future holds countless fewer jobs than people that need them, what happens then? The answer, unfortunately, lies with economics and politics. A normal society would treat the end of the need for work as liberating by guaranteeing that everyone had reasonable access to the fruits of the automatons’ labor. People would be free to develop and pursue loftier goals.

But will everyone have access to the economic benefits of automation? Theories (such as this one) assume that in the absence of either socialism or massive benevolence from future tech multi-billionaires, our existing capitalist structure will lead to a society in which the benefits of automation are disseminated as unequally as is income now. Capitalists who own the means of production and a small corps of super-skilled workers will reap the benefits, while a vast underclass lives in relative distress.

Optimists believe that we will learn from past mistakes and point to Henry Ford’s understanding that if he paid his workers a decent wage, he would have not only contented workers but that they would also be customers to buy the cars they were making. If the advantages of technology are beyond the means of the majority of the population, it severely limits the capacity for capitalists to profit from mass demand. They sure as hell won’t thrive selling only to each other.

And without mass demand for the products or services being offered, it doesn’t matter how many tax cuts you give business owners. They aren’t going to hire additional workers unless the workers they have or the automation they own simply can’t handle the demand.

For that reason, it is not that hard to imagine that one path to a redistributionist future runs through capitalism rather than around it. Knowledgeable capitalists understand that they need customers even if politicians don’t. As automation continues to reduce the number of available jobs, customers can only be ensured sufficient discretionary income (to spend on wants instead of barely getting by on needs) through government-provided subsidies to individuals and families in the same manner that they are provided to big business..

My point is that the future of capitalism is limited by the fact that the wealth in question depends on the existence of customers. Trade policy alone doesn’t address the problem of a shrinking middle class while automation marches forward and reduces the number of jobs available. Only government has the means to address the legitimate concerns of the people in the non-deplorable basket as well as those in the deplorable basket. Unless people realize this and vote accordingly, long-term solutions will continue to elude.

Harvey Gold