In 1850 the French economist Frederic Bastiat published an essay titled: That Which is Seen, and That Which is Not Seen. The essay is most famous for introducing the concept of ‘opportunity cost,’ the limits, alternatives and choices – to obtain more of one thing, we give-up the opportunity of getting the next ‘best thing,’ or because we “can’t have it all,” we must decide what we will have and what we must forgo. That sacrifice is the opportunity cost of the choice.
Many argue that opportunity cost is applied in business, once the cost of marginal labor rises too high, it makes more sense to replace minimum wage jobs with robots or other automated technology – leading to increased production and profits.
Of course this is not a new phenomenon. In his 1850 essay, Bastiat wrote:
“A curse on machines! Every year, their increasing power devotes millions of workmen to pauperism, by depriving them of work, and therefore of wages and bread. A curse on machines!
This is the cry which is raised by vulgar prejudice, and echoed in the journals… machinery must injure labour. This is not the case.”
It is a cry echoed in media today, just as it was 164 years ago – 164 years during which humans have seen the greatest advancement of technological progress, resulting in more luxury goods, improved health, longer life expectancy, better housing, and sanitary, clean water, electricity, instant communication around the globe via the Internet for free, mobile phones, planes and automobiles, heart transplants, and so on. Ninety nine percent of the poorest people in the ‘developed world’ have amenities that the wealthiest people of Bastiat ‘s time could not imagine.
Machinery does reduce some labor, but as Bastiat points out new labor from new industries is quickly created. The very industry, robotics, that is said to be eliminating jobs is in fact creating hundreds of thousands of jobs.
According to the European Union Commission, by 2020, service robotics could reach a market volume of more than 60 billion euros per year, and are forecasting 240,000 new jobs in the EU alone, backed by an investment of Euro 2.8 billion during this period.
The International Federation of Robotics has reported that Robotics will be a major driver for global job creation creating more than one million jobs by 2016.
Many of these new jobs will come from investments into the Robotics sector which is currently experiencing a major boost.
Startup Robotic companies like Jibo blasted through their crowd funding campaign raising $1,270,193 in a matter of days against a goal of $100,000. Much of the investment will allow Jibo to recruit new staff as the company delivers its artificially intelligent robot helper.
Another robotics startup, Airware the drone manufacturer raised an additional $25 million series B round on top of the $12.2 million it raised in it’s A series round. The company said it had raised the new funding: “to build out its staff.”
The South Korean government is mooted to invest $2.5 billion US dollars by the end of 2018 in joint projects with robotics companies, creating more jobs and targeting more than $6 billion US dollars in annual sales.
Japan is building a huge drone fleet. The country will invest ¥3 billion (approximately $372 million) in the coming decade to drastically expand its military unmanned aerial vehicle (UAV) program.
An estimated $6.4 billion is currently being spent each year on developing drone technology around the world, according to a report published earlier this month by the Teal Group Corp.
Whilst jobs will disappear, there are literally hundreds of companies and governments investing tens of billions of dollars in drones and robotics and in doing so creating a significant number of new jobs.
The current generation of engineers and roboticists are making science fiction stories of magical realism come true and creating millions of jobs in the process. As Bastiat put it: “to curse machines is to curse the human mind.”
Update – see also GE Reports on the Cyborg Workplace.
When the first steam powered cars (or locomotives as they were then called) first took to the roads in the early 1860’s it was feared that engines and their trailers might endanger the safety of the public, cause fatal accidents, block narrow lanes, and disturb the locals by operating at night. Many complained the cars were scaring the horses meanwhile the farmers were shooting the cars!
To allay the concerns, restrictions and speed limits were imposed by the Locomotive Act of 1865 (more popularly known as the “Red Flag Act“) which required all road locomotives, which included automobiles, to travel at a maximum of 4 mph (6.4 km/h) in the country and 2 mph (3.2 km/h) in the city – as well as requiring a man carrying a red flag or lantern to walk in front of road vehicles. The Act also included such matters as “Damage caused by locomotives to bridges to be made good by the vehicle owners.” However it was soon discovered that the steam carriages’ brakes and their wide tyres caused less damage to the roads than horse-drawn carriages because of the absence of horses’ hooves striking the road and wheels which did not lock and drag as they did on horse drawn carriages.
In the latter part of the 1800’s the British Motor Syndicate began a public relations campaign to lobby for the repeal of the Locomotive Act, which was declared the main obstacle to wider adoption of the car in Britain. The Act of 1865 was repealed in 1896.
Almost 120 years later we stand at the precipice of a new dawn in the age of the automobile – self-driving cars. Everything, from how we move goods to how we move ourselves around, is ripe for change.
Self-driving cars will require legislators to make new amendments to the current Highways Acts in place. There is already considerable debate surrounding the legal issues of driverless cars, the ethical concerns and questions over the liability of who to sue when a driverless car is involved in an accident.
Nevertheless the case for self-driving cars is considerable, the death toll (from motor accidents) is increasing worldwide with 1.3 million fatalities and 50 million injuries every year globally and around 93% of these accidents are caused by human error, and cost a staggering US$ 871 billion in the United States alone, according to the National Transportation Safety Board (NTSB) – self-driving cars will dramatically reduce accidents significantly. Autonomous cars will also reduce the burden on law enforcement, may also make streets safer and less congested, and allow those with disability greater movement – leading to a cleaner environment and improved quality of life.
Self-Driving Cars — Not if, but when
As well as the technical obstacles that are quickly being eliminated by manufacturers of self-driving cars, there are a few potential barriers that will delay the deployment or growth of self-driving cars, just as the ‘Red-Flag Act’ did in the 19th Century.
One such obstacle is Insurance Liability.
Lloyd’s of London, the insurance underwriter, has recently produced a report about how autonomous car technology will affect the insurance industry.
According to the report, insurance companies will have to create new methodologies on how they measure risk and charge motor insurance premiums:
There could be “significant changes in motor insurance: if accidents reduce in frequency, claims will also decrease, leading to lower premiums and, in turn, tighter profit margins for insurers.”
The report also highlights declining car ownership as potentially reducing the total number of insurance premiums:
Car ownership could decline in favor of a renting model and taxi companies could become owners of rentable car fleets, leading to company-wide policies.
With respect to insurance concerns Lloyds emphasized the problems with transferring risk from the driver to the machine:
With less reliance on a human driver’s input, however, increased risk would be associated with the car technology itself. Computers can do many things that a human driver cannot: they can see in fog and the dark, and are not susceptible to fatigue or distraction. However, they can also fail, and systems are only as good as their designers and programmers. With an increased complexity of hardware and software used in cars, there will also be more that can go wrong.
A new form of driving tests and licensing will be required:
By gradually transferring responsibility from the driver to the car, there is a risk that a driver could misjudge the responsibility they currently have… To mitigate this risk it is important that drivers are well-educated about the limitations of autonomous functions, and how they can retake control of the car when it is necessary.
When we rely on the car we may ‘switch-off’ and not be attentive to what is happening in the surrounding environment when it seems that their input is not needed.
If drivers are expected by law to supervise an autonomously operating car, they may find it difficult to remain focused on this task if they feel able to trust the car.
However the report does acknowledge the higher safety standards of autonomous vehicles:
The advent of autonomous cars could revolutionize the world of motor insurance. Autonomous cars could potentially lead to a substantial reduction in motor insurance claims.
Some might argue that if cars really do become crashless, there may not even be a need for motor insurance.
In many ways driverless cars may make assessments easier because it would be possible to see data such as what speeds the vehicles were travelling at.
An accident caused by autonomous technology, would need software and hardware analysis expertise in order to understand how and why it occurred. As sensors and computers become more commonplace in cars, and some driving responsibility is devolved to the car, an increase in telematics-based policies could be an option. Premiums could be better matched to exposure rather than based on proxies, and in the event of accidents, the car’s ‘blackbox’ could be examined. Whereas at present insurers using telematics devices incur the cost of their fitting, in the future the data may already be collected, making telematics a more viable option.
Whilst some analysts indicate self-driving cars will be on our roads in greater numbers with 3 to 7 years, it may be some time before the new technology earns the public’s trust. Lloyds also commissioned a Google Consumer Survey according to the survey, which was taken by 2,016 people in the UK, 50.4% male, 49.6% female.
People are uncomfortable placing their trust in a computer and they like the process of driving too much to give it up.
Automated driving will become progressively more standard in the near future, but it will require the development of high standard autonomous navigation systems and adequate safety standards, along with the implementation of new legal and licensing procedures. With a shift towards autonomous technology and away from human operators, the landscape of insurance, especially motor insurance, may change dramatically.
Picture source: 1st picture – Red Flag Act and 2nd picture Lloyds Report
Drone Dogfight: Big Defense Firms vs. Techies — The users and makers of smaller drones are focusing their frustration with the FAA onto larger drone makers, who aren’t in such a hurry for rules. (The Wall Street Journal)
Humans 1, Machines 7 — It is easy to underestimate how quickly robotics is improving. (The Economist)
The Rise of the Robots — What impact will automation – the so-called “rise of the robots” – have on wages and employment over the coming decades? (Project Syndicate)
Even greater workplace disruption lies ahead. Labor markets may once again be entering a new era of technological turbulence and widening wage inequality. (Project Syndicate)
In his book The Moral Consequences of Economic Growth, Benjamin M. Friedman posits that steady economic growth: “fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy.” Friedman’s hypothesis is defended with an impressive range of evidence from disciplines including economic and political history and other relevant sources. He also highlights our understanding of the relationship between economic growth and our willingness to cooperate by drawing on literature in psychology and especially behavioral economics and he emphasizes that economic growth transforms society into a “cooperative venture for mutual advantage.”
But when economic growth stagnates society has less tolerance and social unrest coupled with people less willing to cooperate and more focused on satisfying their own basic needs – a me, myself and I world. Some authors have predicted we are already in a Great Stagnation, others indicate that economic growth, in ‘advanced economies’ will continue at a nominal rate of growth of circa 1 to 2 per cent for many years, possibly decades.
The big question is – are we likely to see the growth rates of the 20th and early 21st century again? Even though much of it was built on a house of debt!
The economic boom after the Second World War was predominately built on two sectors: housing and automobiles – which collectively accounted for 40 percent of the high growth rates. In more recent years we can see the same sectors responsible for the high growth rates in emerging markets such as Dubai, Abu-Dhabi and other Emirates and in Europe countries such as Poland which emerged from Communism some 25 years ago, a housing boom and flourishing car market quickly followed. The same is happening today in China.
Flourishing housing and automobile markets have many spin-offs: fuel, highways, transportation, associated household equipment, mechanical parts, banking, finance, etc. As history shows, housing and automobile markets do slow and the consequences are now being felt across the developed world.
Without such markets how will we get the levels of employment near to 95 or 100 percent?
The facts are; new flat screen TV’s, smartphones, tablet computers, laptops, mobile Apps, etc. will not generate anywhere near the level of economic activity that is required to grow the economy and put people back to work.
Historically, technological innovation has provided the momentum for long-term economic expansion. The area with the greatest potential for technological innovation today is advanced Robotics and the associated technology of Artificial Intelligence. But let’s not kid ourselves, there is no point in developing these technologies unless they serve a significant purpose – and the overall purpose for robots and A.I., especially within the workplace, is greater efficiencies and reduced costs. Much of these reduced costs will, in the long run, come from reduced headcount – people.
I am a strong proponent of the advances in robotics. Our lives can be greatly enhanced by exoskeletons, driverless cars, artificial assistants and so on. In the short term these sectors will create more jobs, but over the next two decades the full economic benefits of investing in robots will mean one thing – less people working.
Government investment in infrastructures, green energy and other advanced technologies will of course help spur the economy. But these will have to be paid for from somewhere and with Government debts at record levels few countries can sustain the levels of investment required to make meaningful long-term investments.
This is where I believe a new welfare state is increasingly becoming one of the only sensible options. Many are calling for a ‘living wage’ or Basic income Guarantee. Seattle in the United States and Switzerland, where approximately 45% supported such a motion in a recent referendum, could prove to be very informative test cases. The former US Secretary of Labor Robert Reich has said:
We’ve got to seriously think about how we widen the circle of prosperity, how we get shared prosperity. Otherwise, who’s going to be the customer? And a minimal guarantee with regard to income, it seems to me as almost inevitable in terms the direction that the structural changes of our economy are taking us in.
With excessive household debt, low savings, wage stagnation, almost 2 in 5 on the poverty line in advanced economies it will take something of the order of a basic income guarantee to spur economic growth or we can be sure to witness Gartner’s prediction of mass social unrest in the coming decade.
On March 28, 1955, Time magazine reported on a new generation of machinery called computers. The cover featured a drawing of IBM’s Thomas Watson, Jr. in front of a cartoonish robot drawn by Boris Artzybasheff, over a headline that read, “Clink. Clank. Think.” The story marveled at a computer built by IBM, working inside a Monsanto office building. “To IBM, it was the Model 702 Electronic Data Processing Machine,” the story reported. “To awed visitors, it was simply ‘the giant brain.’”
Time equated the IBM computer with the advance of civilization. “The prospects for mankind are truly dazzling,” the article said. “Automation of industry will mean new reaches of leisure, new wealth, new dignity for the laboring man.”
The Time magazine article has echoes of Keynes prediction from his 1930 essay Economic Possibilities for our Grandchildren, that the working week would be drastically cut, to perhaps 15 hours a week, with people choosing to have far more leisure as their material needs were satisfied. In his essay Keynes may have been looking towards 2030 when he wrote: “What can we reasonably expect the level of our economic life to be a hundred years hence?”
Even though his essay was written in the second year of the Great Depression Keynes highlighted the advances in technology that contributed to the impressive economic growth that the West attained since the industrial revolution:
From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.
Keynes then gave a warning of ‘a new disease in the years to come, namely, technological unemployment.’
This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.
Major current debate concerns whether new technologies are creating ‘technological unemployment’ whereby many workers are displaced by new technologies and find it difficult to become employed again.
Much of this debate points to robots as the main culprit of displacing people from the workplace. Professor Robert Gordon of Northwestern University, in a Financial Times article, invites us to: “think of every employee you’ve had contact with in the last two or three days, and think, is that person going to be replaced by a robot in the next 20 years?”
Thomas Watson Junior believed the introduction of machines into the workplace would not lead us (the average workers) into technological unemployment but provide more wealth and more leisure time and also free us up for more creative activities. From the1955 Time magazine article:
President Watson hopes to mechanize hundreds of processes which require the drab, repetitive “thought” of everyday business. Thus liberated from grinding routine, man can put his own brain to work on problems requiring a function beyond the capabilities of the machine: creative thought.
This creativity aspect is something author Tyler Cowen emphasizes in his book Average is Over, and venture capitalist Mark Andreesen screams: “Robots will not eat the jobs but will unleash our creativity.”
The fact — automation is driving technological unemployment, jobs are being obliterated. According to the International Labor Organization (ILO) there are 200 million unemployed people worldwide. Many of these, such as millions of professionals that worked in banks, insurance companies, travel agents, retail, and other service industries have been displaced as software automates their jobs.
Robots in, jobs go up
But so far companies that implement robots (a mechanical hardware and software device that incorporates movement/action) are actually adding jobs. Our research shows 76 companies that implemented industrial or factory/warehouse robots actually increased the number of employees by 294,000 over the last 3 years. Amazon famed for the acquisition of Kiva Robotics has in fact added more than 89,000 new staff to its payroll over the last 3 years. The company now employs over 117,000 people, more than four times the 28,300 employees it reported on June 30th 2010. Tesla Motors, manufacturer of electric cars and with one of the most sophisticated robot manufacturing sites has added over 6,000 new jobs.
Hundreds of thousands of new jobs are being created in drone manufacturers, industrial robot makers and other sectors of the robotic arena. The EU recently announced the world’s largest investment in robotics and a target of an additional 240,000 new jobs in the region.
It is highly probable over a million new jobs will be created in the robotics sectors in the coming 5 years. Whilst significantly less than the ILO cited numbers to solve the world’s unemployment problems, nevertheless it is a step forward – when others are screaming that robots ‘ARE’ eating jobs – let’s be realistic, software IS eating jobs; robotics is currently creating jobs.
Whilst I am optimistic about the near future for job creation in the robot sector, in the long run it is also highly probable that robots will displace people from jobs. How this will play out in 2030 is anyone’s guess – it is not too far away so I would suggest asking the same question as Professor Robert Gordon above. I also know robot manufacturers are very aware of the likely societal impact robots can have on jobs. As Melvin Kranzberg said: “Technical developments frequently have environmental, social, and human consequences that go far beyond the immediate purposes of the technical devices and practices themselves.”
It’s better to be prepared than caught out. My advice to young people — now is a good time to join the robot sector.
Update – Business Insider has a nice summary and other pointers on this article – This Settles The ‘Robots Will Take Our Jobs’ Argument Once And For All