Maybe the Luddites had a point after all, albeit two hundred years too early – Andy Haldane, Bank of England
Agricultural technology in the industrial revolution saw labour shift towards the manufacturing sector. Subsequent automation in manufacturing displaced workers into the services sector. Machines, computers and artificial intelligence are now taking over the services sector, and boosting… which sector? Therein lies the crux of the issue. There is no other mainstream sector capable of absorbing millions of jobs. In April 2012, Instagram had 50 million users and was adding another 5 million a week. Facebook seized the opportunity and bought it for $1 billion. It had thirteen employees. Technology is increasingly acting as a substitute to jobs and much less as a complement. The days when job creation outweighed job destruction are over; but policy-wise, we are far from ready.
Ultimately, the trend of rising (mass) unemployment is inevitable because technology advances at an ever-accelerating pace, while humans evolve extremely slowly. Consider that computer processing power doubles every 24 months – how can humans compete in the long run? Quite simply, technology is catching up with us. Previous advances in agriculture and manufacturing replaced human physical labour, this new wave will replace human cognitive labour. This leaves humans with relatively few advantages over machines, with creativity the frequently cited exception. Indeed, computers can already write very coherent classical music. Andy Haldane diagnosed it concisely, stating: “the space remaining for uniquely human skills will shrink”. In short, if technology continues to progress, replacing the vast majority of human labour with machines is a question of when, not if.
Recent research suggests that ‘when’ is now. The past couple of years have seen sombre predictions: Oxford University estimated 35% of British jobs will be wiped out in the next two decades; journalists, academics and bloggers alike are reaching and writing similar conclusions. If policy reacts to these changes, these technological advances could help move us from a work-based to a play-based society. Keynes envisioned this time of post-scarcity in his Economic Possibilities for our Grandchildren, with the arrival of “the age of leisure and of abundance” by 2030. However, if policy does not adapt, we will move instead to a society burdened with the greatest of economic and social inequalities.
The harms of automated lunches
In the current capitalist system we live in, in order to earn a living, you must be able to provide a good or service that is needed or desired by society. The issue is the two things that humans contribute to the supply-side of the economy, muscle and brains, are both becoming increasingly substitutable with automation and robots increasingly able to perform tasks cheaper, faster, with higher quality and greater efficiency. Technological progress is divisive in this way, creating a huge divergence between those that still have the potential to contribute; and those that, through their lack of relevant human capital (because of education, life choices, or even accident of birth), simply cannot. For those that can use technology to their own end, the opportunities and potential for growth are now virtually limitless. As for those that can no longer contribute to society, they will be left unemployed and often unemployable; their numbers ever-increasing.
Without specific action to combat these harmful market forces, income inequality is almost certain to rise. In Bank of England parlance: “the wage premium for those occupying skilled positions could explode, further widening wage differentials”. The effects of this income inequality are vast and severe. Kate Pickett and Richard Wilkinson have shown how high levels of inequality correlate strongly with worse performance in a wide number of social and health indicators, including trust, mental health, life expectancy, educational attainment, crime, and many more. Greater inequality would likely cause these social indicators to deteriorate, probably coupled with social unrest and the loss of societal cohesion. Moreover, high inequality harms economic growth, with Brueckner and Lederman estimating that a 5% increase in the Gini coefficient reduces GDP per capita by around 5.5% year over five years and 22.5% in the long run – this would mean cutting the UK’s past five years of growth at 10% in half. Technology has reached a critical point where it is about to push millions of humans out of work. To frame the challenge that faces us in Vonnegut’s dramatic words: “The problem is this: how to love people who have no use”.
A canteen of malnutrition
In theory, the advance of mass unemployment could be put off by retraining workers and encouraging youngsters into STEM subjects, where workers are in high demand and will likely stay so for some time. However, it is questionable whether the average low-skill employee is capable of becoming an engineer, let alone where the funding for this retraining will come from. Likewise, if high future earnings does not entice students to study STEM, is there much more that can be done? Retraining policies will not yield dividends for at least a decade or two, and in any case will hinder rather than halt the wider trend of technological unemployment. Thereafter, a policy is needed for coping with the new machine age as a persistent reality.
One institution most severely maladapted to the arrival of this revolution and the resulting mass unemployment is the British welfare system. The current framework is underpinned by the principle that, for an individual, unemployment should be temporary and benefits are a stop-gap to ensure that all can bridge the transition between jobs. With increasing conditionality and sanctions central in the design of new Universal Credit, its basic strategy is to reduce a claimant’s quality of life to such a level that he is compelled to take up employment in whatever form it arrives. The rate of tapering will be 65%, which means that if you work minimum wage your net earnings will be £2.35 an hour. In brief, it overwhelmingly favours the stick over the carrot. This might be appealing when you’re trying to beat a few stragglers into shape, but not when a large segment of the population find themselves stranded, through no real fault of their own. It is a 20th century approach to a 21st century problem, and is wholly unsuited for a transition which will soon undermine current understandings of even the most fundamental of economic conceptions (‘full employment’, for instance). As Stephan Hawking pointed out: “If machines produce everything we need, the outcome will depend on how things are distributed.”
Towards a decent lunch for all
The solution touted by many is Universal Basic Income (UBI) – where all receive an unconditional income from the state, without any conditions on how it must be spent. Typically, adults, pensioners and children are given different amounts. In the UK, various proposals suggest setting it at between £3,000 and £10,000 a year (excluding housing costs). UBI would indeed strongly counteract rising inequality and its associated costs, but it also offers other noteworthy practical benefits for the economy and society as a whole.
First, at present the unemployed have extremely low purchasing power. With the rise of inequality, more and more of the income and wealth that was previously spread over a large portion of the population will be reserved for the elite minority. One self-evident truth about rich people is that they tend to spend a much lower proportion of their income than the poor; if this continues to hold true then technological progress presents an inevitable crisis of demand, undermining both economic growth and the incentives to innovate. Stagnant wages and minuscule interest rates show that current supplies of labour and capital already exceed demand; yet this era’s demand-boosting measure of choice – quantitative easing – has not been especially effective given the vast quantity of money that has been ploughed into it. In short, this is because it gives money to the financial sector (the rich) in the hope that it will encourage lending (often to the rich). Mainstream economists such as Milton Friedman, Lord Adair Turner, and even Ben Bernanke have suggested that “helicopter-drops” of money into bank accounts (which UBI proposes) could be more efficient and effective in demand stimulation. It is likely that the future economy will require constant redistribution to mitigate inequality and permanent stimulation to maintain levels of demand; UBI achieves both of these in one politically palatable policy.
Second, giving all the base of financial security enables the fostering of creativity, the very advantage that humans still hold over machines. This allows people to use their minds for innovation and entrepreneurial activity, instead of worrying and stressing over whether their budget will last them the week. In an era where originality is marked at a premium, this could help create a nation of self-starters who are empowered to create value and contribute to society. Furthermore, in an era when traditional career paths are dissolving and job insecurity is rife, self-employment becomes more attractive, and UBI encourages this risk taking.
Third, UBI espouses a form of inclusive welfare which will help to change the prejudice and cultural stigma that currently surrounds current political rhetoric benefits system contribute to. Unconditionality welcomes everyone into welfare while also removing the inherent divisiveness that arises from taxing workers to give to the workless. As the ranks of the jobless swell, there will need to be a widespread perception shift which could have positive effects on social cohesion; UBI would facilitate this. Furthermore, many of the challenges that the unemployed currently face – namely mental health – are strongly linked to notions of self-worth and societal expectations. Reducing the stigma surrounding unemployment would improve the wellbeing of the jobless in a way that means-tested income is simply not capable of. The true value of this is impossible to quantify but easy to underestimate.
No hidden calories
There are, however, two practical worries surrounding UBI that must be refuted: the disincentive effects it would have on the unemployed, and its overall cost. Unfortunately, there is a lack of studies to fully evaluate the disincentive effect, but all evidence that exists is relatively positive. Studies in North America, most of which tested a negative income tax (similar to, but not the same as UBI) and had relatively high tapering rates, saw decreases of just 5% in hours worked, driven almost exclusively by single mothers and teenagers who had given up work to spend more time with their families. Furthermore, studies of UBI from developing countries showed increases in hours worked, though admittedly the applicability of these to countries like the UK is not assured. The lack of a strong disincentive effect can equally be understood through a thought-experiment: would you, the reader, be satisfied with an income of £6,000 (or less) a year? In fact, in other ways UBI increases the incentive to work hugely, as there is no simultaneous withdrawal of benefits when you start earning. The strength of these opposing effects and their interplay has not yet been studied in Britain, though the Netherlands, France and Finland are all planning pilot schemes. The UK should follow suit.
Turning then to cost, which here are based on a recent RSA proposal. In the UK, depending on what level it is set at, UBI would require between £15 billion (£3700/year) and £120 billion (£6000/year) more expenditure than the welfare system it would replace. Although this is admittedly a large spend, there will need to be relatively more expenditure on redistribution in the future. Moreover, if a £6,000/year UBI was implemented, UK spending would rise from 38% to 44% in 2019, far below from what Austria and France spend. If economic growth accelerates faster, as one would expect it to with such a radical technological revolution, then this figure would appear much smaller as a percentage of GDP.
Not just the flavour of the month
On a practical level, UBI makes good sense; but it also has support from economic theory. One great dichotomy in economic management is the conflict between efficiency and equity. Collectively we recognise that intervention is needed to reconcile these issues and so we address them with jobseekers allowance, housing benefits, pensions, and so on. Instead of these piecemeal actions, UBI raises the entire economic floor to a point where capitalism no longer clashes with human morality and dignity. Furthermore, as Thomas Paine and Henry George suggested, UBI could be implemented as a “citizen’s dividend”, paid in return for the granting of rights from society to individuals. Most notable among these is property rights, and so a land value tax established to fund a UBI would act as a payment from these individuals to society. This is in line with economic theory as it creates a pricing mechanism for holding onto land – instead of just its purchase – and in doing so irons out existing inefficiencies such as speculation by internalising externalities and encouraging the improvement of land. The barriers to implementing a land tax have historically been practical, with how to appropriately assess the value of all land in the country. Yet technology can also help here with better regression techniques and new tools such as GIS (geographic information system) easing large-scale application.
Finally, perhaps the most convincing argument in favour – which, given the strength of the evidence above, often need not be resorted to – is the moral perspective. Quite simply, the government’s basic ethical mandate is maximising living standards for all. If a large segment of the population is unemployed, the only way to meet this duty is to afford them a reasonable quality of life. Even if the two principle worries – about disincentive effects and overall cost – were supported, to sacrifice the wellbeing of 20-30% of the population (over 15 million people) because people would be slightly less motivated to work or because it is a bit expensive would be one of the most conceited decisions that a government could make. In fact, many commentators consider that UBI should be seen as the bare minimum reaction to mass unemployment. Indeed, it is by no means a panacea and would ideally be simultaneously supplemented by other initiatives. What it does provide though, is a flexible foundation upon which to build a welfare structure suited to the challenges posed by the 21st century.
UBI is sometimes characterised (and criticised) as a “free lunch”. But there are many other such lunches that are also granted – such as private property and intellectual property – because their benefits outweigh the costs. In this way, the lunch is not free, but paid for indirectly. UBI is likely to be one of these cases, paying for itself through increased incentives to work, entrepreneurship, demand-preservation, lower health and poverty costs and much higher levels of life satisfaction for the unemployed.
Following Kant, it is also useful to remember that humanity should never be treated “merely as a means to an end”, but rather as ends in themselves. Should participation in society and a life free of hardship be seen as a something that needs to be earned? Or should it be an individual’s right as a member of a rich and modern society? Detractors would argue that rights come with responsibilities – in this case, an economic contribution to society – but these questions will not be so easily answered when millions find themselves unable to accomplish this imposed responsibility through little fault of their own.
Robots will soon be able to produce a huge supply of sandwiches at negligible cost. Their owners will get fat and probably obese. Under the current system, the less fortunate receive barely half a sandwich, and even then, only on the condition that they strive to improve their inadequate sandwich-making skills. Because we can afford to, because it will have many economic benefits, and because it would be deeply unethical not to, they should be given a free lunch.