A New Capitalism for the Robot Age

The economics of a post labor economy

 

 There has always been tension between technology and capitalism. On the one hand capitalism rewards innovation and efficiency. That’s why capitalism has always outperformed managed economies. If a company builds a better mousetrap for less money, then people will have a better mousetrap for less money. Without capitalism it’s unlikely we’d all have smartphones in our pockets that we can use to have pizza delivered to our door within the next 30 minutes. I don’t want to live in a world where I can’t have pizza delivered to wherever I happen to be within 30 minutes.

I just read an article that calculated the modern cost of manufacturing a shirt using pre-industrial revolution technology. Manually creating the thread, weaving it into cloth and then sewing it into a simple shirt would require about 579 hours of labor and cost $4,200. That’s just for the labor at the current federal minimum wage. It doesn’t include the cost to grow the cotton or raise the sheep to get the raw material for the shirt, or the cost associated with running a retail establishment to sell the shirt. Today that shirt might cost $20 with a fraction of the labor, and it would probably be a better shirt.

Societal Cost?

Yet, our cellphones and cheap clothing come at a societal cost. The 579 hours of labor required to produce that shirt put food on the table of a lot of workers. The invention and refinement of the powered loom over the course of the 19th century made cloth exponentially cheaper, but also put thousands out of work. It’s not just workers that often have legitimate fears of technology. A company can easily find itself made irrelevant as well.

The Radio Corporation of America (RCA) was one of the largest corporations in the country for decades. Beginning with producing radios, they adapted to making televisions and were the model of a high-tech innovator. But when electronics transitioned from vacuum tubes to solid state electronics, they were slow to adapt. By the 1980s they ceased to exist as an independent company, and the RCA brand was licensed to other manufacturers. Blockbuster video rental is probably the quintessential example of a company that became irrelevant because of advances in technology.

Despite these advances, which eliminated large numbers of jobs, and even whole sectors of the economy, we still have near record low unemployment. That’s because new technology has opened new areas of employment that have offset the ones that were made obsolete. Google, Microsoft, Apple and Amazon have a combined 2 million employees. Those are all jobs that didn’t exist when RCA was at its peak.

Becoming Irrelevant

The question going forward is will that continue to happen. Will jobs eliminated through technological advancements be offset by new jobs? Jobs we likely can’t even imagine at present. This is a real source of debate in economics. Time and again we’ve seen the cycle play out, jobs being eliminated through automation only to be replaced with new types of jobs. This time it feels different though.

A couple years ago everyone was talking about self-driving vehicles, but it turned out to be more difficult to implement than some envisioned, but it’s almost certainly coming. Combined with robotics nearly all trucking and delivery jobs could be eliminated. Even garbage pickup could be automated. We already have prototype fast food restaurants that are all automated. Warehouses are likely to become entirely run without humans. We now have AI writing basic news articles. It’s hard to say where it will end, but it seems likely, even in the near term, that the rate of automation will only accelerate. Looking further out, the question isn’t what jobs robots will be able to do cheaper and better than humans, but will there be any jobs left for us flesh and blood people.

The Problem

That’s what this article is about. What happens when people are largely unnecessary to provide the labor and services needed to make the economy run? There’s a couple of fundamental ideas we need to look at. Yes, it may be possible to eliminate the need for humans to run the cogs of a capitalist economy, but demand is the real driver of the economy. Robots can make stuff, but robots don’t buy stuff.

There’s the real possibility of a dystopian future if we do nothing. One where you have a relatively small number of rich people keeping the system running and a large permanent underclass living off the scraps of the elite. Without planning, it’s very possible that’s the future we could stumble into. Ultimately, that future doesn’t serve anyone’s interest, including the monied classes. Having most of the population living hand to mouth creates an atmosphere ripe for chaos and violence directed at the elites, but it doesn’t have to be that way.

The Fix

The means to prevent this is pretty simple, at least theoretically. Implement a universal basic income. I know alarm bells are going off for some with the word “socialism” flashing in neon colors. But, this isn’t socialism. I’m not suggesting the government take over control of the economy or eliminate open markets. This would still be a market-based, demand driven economy.

A universal income that is great enough to live a modest middle-class life would create the demand needed to keep the economic engine chugging along. Under this plan, I’m not talking about an entirely blank check from the government. The universal income would represent a social contract. The very wealthy would fund the payments resulting in economic and social stability that would safeguard their lifestyle from social upheavals. Those who choose to receive the payments would have a requirement to perform some useful community service for 15 to 20 hours a week.

The community service is where we will need to decide what jobs do we want human interactions with. It’s possible to have distance learning schools in which all the teachers are AI bots, but I don’t think people want that. With all the jobs eliminated through automation, we could have many more people working in schools as teachers, counselors and advisors. Nursing homes and hospitals are other endeavors where we would likely want more humans working, even if automation could do the work cheaper.

The Promise

Just think of how many ways we could make society better with this arrangement. Parents could spend more time with their children resulting in less juvenile delinquency, and likely less crime in general. Most of the social safety net programs like food assistance and housing vouchers could be eliminated because no one would need them. Not having to worry about where their next meal is coming from would almost certainly help the mental health of millions of Americans.

This wouldn’t be a mandatory system. Some people would choose to work for wages in private industry and would likely earn more money working full-time. Some people may accept the universal income with the community service requirement, but then also choose to supplement that income with other part-time employment. This system would likely be a boon to entrepreneurial enterprises because people could afford to take a risk knowing they won’t be destitute if it fails. Being dependent on wages and benefits from private employment is often a disincentive to someone taking a chance and striking out on their own entrepreneurial enterprise.

We’ve done this before. In the late 1800s America had an unregulated capitalist economy. This led to monopolies with mega wealthy tycoons who made Bill Gates look middle-class. It also resulted in large numbers of working poor who labored in unsafe conditions, producing unsafe products. This large, disaffected working class gave rise to a nascent socialist movement in this country. Worker safety laws, minimum wage, social security, child labor laws, and a whole slew of other worker and consumer protection laws stopped the socialist movement in its tracks. These reforms made capitalism in the industrial age sustainable for the next century. Our economy is facing another sea change that will transform American society. We need a national conversation on how to make this new economy work for regular people.

Conclusion

In practice, it’ll be complicated coming up with a workable system. There will almost certainly be attempts to game the system. We’ll likely see the creation of a cottage industry in ways to avoid the community service. However, the rewards for making it work would be considerable. Perhaps more important, the risk of not seriously addressing a post labor economy could be catastrophic.

This transformation of our economy has already started and will play out over the coming decades. America has a democratic system of government. That means we make the decisions, and we can choose to make an economic system that works for everyone. If “we the people” don’t make that decision, corporate America will, and not for our benefit.