The maid, the clerk, the doctor & their computer: so now, what?

This article is written together with Eduardo Giménez, Professor of Economics at the University of Vigo. It is the first part out of four, which will be published in this blog. The full article will be published in the book "Automatization" , which will be published by the European Liberal Forum at the end of the year.

 

This morning, the newspaper picks up that, as every year, Shanghai hosts the trade fair CES ASIA for the consumer technology industry. A company named Bubble Lab presented at the fair a sophisticated robotic arm capable of preparing tea, coffee, and cocktails. After the service, it even cleans the table and leaves it spotless. Mr. Shen Li, representing the company at the fair, says “I do not know if it's true that is going to end human work, but the fact is that machines can perform ever more complicated tasks”. So far, computers and computer-controlled equipment have replaced human labor in a wide variety of tasks. Yet, as well the above anecdote illustrates, technological developments can widely expand the set of tasks which can be performed by machines. Many already suspect that all tasks not requiring creativity will be made in the near future by machines.

Redistribution

A question then arises: in such event, what shall await all those who do not have the necessary skills, namely, creativity? The American film Elysium, released in 2013, describes a dystopian future in which machines perform most tasks. People who have been replaced by machines barely survive on a degraded planet Earth, while small elite inhabits an artificial satellite orbiting our planet. The film is just science fiction. However, you can imagine a society in which a high-skill minority performs tasks highly complementary for technological capital and concentrates most of income and wealth, while most people survives by producing low-price goods in highly automatized productive process (see Cowen (2013)).

We do not pretend to claim that we shall get to this situation. Nonetheless, thinking a future in which automatization of productive processes and increasing importance of non-rivalries give rise to a polarized society can be convenient in order to consider new and more suitable ways of redistribution. Proposal such as basic income (Van Parijs (1995)), the distribution of ownership of some productive assets (Paine (1797), Roemer (1994)), or a negative income tax (Friedman (1968)) should be discussed, especially the last one. The big challenge comes from combining the new mechanisms of redistribution with the necessary incentives for prosperity. However, the advantages of these redistributive proposals should not be ignored because they would allow reducing direct state intervention in the provision of goods and services such as education, health, social assistance and social insurance.

Education

An education system which fosters creativity and provides the suitable knowledge for the new technological reality is urgently needed in order to successfully meet the new technological challenges. We know, this is nothing but a vague generalization. However, many authors have recognized that educational systems suffer from sclerosis. Goldin and Katz (2008) blame the US educational system for not having sufficiently adapted to the demands of the new reality and they do it accountable, at least partially, for the increase in wage inequality in the United States (see also Acemoglu and Autor (2012)). Brynjolfsson and McAfee (2014) ask for redirecting the educational system from its focus on reading and mathematics, typical of the industrial era, towards a broader set of intellectual and personal skills. Even UNESCO held in 2015 a World Education Forum "Rethinking Education". Thus, this institution is aware that something is going wrong with the worldwide education systems.

We do not want to be so presumptuous to pretend to know what changes the education system should exactly perform. Notwithstanding, we dare to claim our conviction that the inability of the education system to adapt to new times has a lot to do with state interventionism. To overcome atrophy, it is required that the state interventionism in Education decreases. Thereby, new educational alternatives will arise from competition and the subsequent processes of creative destruction. Introducing school vouchers would be helpful (Friedman (1955)). Vouchers already exist in Sweden and Denmark, but not in most of European countries. However, the school voucher is not enough. The state must give up the tight control of the education system. Educational innovation will not be possible if it is subject to the restrictions imposed by a straitjacket.

In a changing world, in which many workers are at risk of being displaced from their jobs by machines, it is important to be very aware the needs of recycling of these workers. Therefore, the reskilling of workers and training support for unemployed are key issues. Once again, the best way to achieve the objectives in this area is to abandon the direct state intervention and to allow that the markets work. To this end, the severance pays should be substituted for periodic contributions to worker's capitalization funds (the so-called Austrian fund), which could be used for reskilling, and the unemployed workers should be provided with training vouchers with which to finance their preferred training courses given by the provider that they consider most suitable.

           Taxes and regulations

Tax systems should also be adapted to the new technological reality. In many countries, Spain is a good example, labor incomes are excessively burdened by taxes. If machines and overseas labor are replacing domestic workers in performing many tasks, labor income can no longer bear the tax burden. In particular, welfare state funding should not mainly fall on labor income any longer, as it currently happens in many countries. The contributions to social security and other charges on labor should be cut back, as well as more flexible labor relationships should be allowed.

Reducing the tax burden on labor without a dramatic increase in other taxes, it might be only possible if welfare state efficiency is improved. This would likely require new organizational models in public services. Greater individual freedom to choose and increased competition would help to promote efficiency. Higher capitalization of the pension systems, accompanied by a higher level of private participation in their management, a higher weight of the private sector in providing health services, and a higher private participation in employment insurances and active employment policies are some directions to improve. Moreover, substituting machines for workers and the growing importance of new forms of human capital might affect the birth rate, which would have significant impact on the pension system.

The market regulations could hinder innovation. The regulation of GMOs in Europe or the difficulties faced by the so-called share economy –a silly name, certainly- to enter in hyper-regulated markets are some examples of how regulation can hinder innovation. Particular consideration should be given to financial regulation. The regulation of financial markets should also be cautious. Otherwise, innovative activities may suffer due to difficulties to be financed. Thus, eliminating some regulatory barriers and rethinking regulation seems necessary to face the new technological reality.

Moreover, polarization of the labor market reflects that large sections of the middle-class may currently be adversely affected by new technologies, at least in the short term. Everyone is aware of the importance of the middle class preferences in determining public policies in a democratic society. The reaction to technological change may lead, therefore, to successful demands for greater barriers to trade or to technological adoption, as well as to pressures to implement redistributive policies in favor of these sections of the middle-class (more public employment oriented to these sections, for instance).  One cannot help thinking that some recent political processes in Europe follow this logic.

Convergence

Information and communications technologies are expanding and facilitating access to information (and, thus, to knowledge and technology) to everyone anywhere. This, together with reduced transport costs and the elimination of political obstacles to mobility of goods and productive factors, is facilitating interactions at a global scale and technological adoption by developing countries. Friedman (2006) asserts that, after the end of the eighties, we are in a new stage of globalization (which he calls globalization 3.0).

If technological progress is equalizing opportunities for countries (flattening the world, as Friedman (2006) likes to say), then one should not be surprised to observe in the near future the proliferation of spectacular economic miracles and a rapid change in the geo-economic map. However, the spread of prosperity-promoting institutions around the world cannot stop. Institutions securing property rights and ensuring a free and open society are indispensable for innovation and accumulation. If so, access to information facilitates technological adoption and, consequently, the rapid convergence of the laggards to the most advanced will be seen. However, it must be borne in mind the flip side. A country that rest on its laurels may experience a rapid relative decline.

Democracy

Finally, the main problem that any organization must to solve is to transmit all relevant information to all concerned agents. The information and communications technologies facilitate processing and transmitting information. Therefore, the development of information and communications technologies might induce, in the near future, institutional changes that would improve the functioning of state.

References

Acemoglu, D. & Autor, D. H. (2012). What does human capital do? A review of Goldin and Katz's The race between education and technology. NBER Working Paper 17820.

Brynjolfsson, E., & McAfee, A. (2014). The second machine age: work, progress, and prosperity in a time of brilliant technologies. WW Norton & Company.

Cowen, T. (2013). Average is over: powering America beyond the age of the great stagnation. Penguin Publishing Group.

Friedman, M. (1955). The role of government in education. Economics and the Public Interest.

Friedman, M. (1968). The case for the negative income tax: a view from the right. Issues in American Public Policy. Ed. JH Bunzel. Englewood: New Jersy, 111-120.

Friedman, T. L. (2006). The world is flat: The globalized world in the twenty-first century (pp. 3-543). London: Penguin.

Goldin, C., & Katz, L. (2008). The race between technology and education. Cambridge, MA: Harvard.

Paine, T. (2004). Agrarian Justice (1797). In The Origins of Universal Grants (pp. 3-16). Palgrave Macmillan UK.

Roemer, J. E. (1994). A future for socialism. Harvard University Press.

Van Parijs, P. (1995). Real Freedom for All: What (If Anything) Can Justify Capitalism?. Clarendon Press.