Technology vs. Jobs

The Economist magazine (January 18th edition) recently had a major article about whether new technology will replace workers.  We’ve all heard the stories and have seen the movies about robots and computers replacing humans in the work force.  In these scenarios, the displaced worker either becomes the billionaire owner of a tech start up or ends up living in a cardboard box.  The Economist says that the reality is subtler than this.

In the last great displacement of workers during the Industrial Revolution in the late 1800’s, machinery replaced cottage industries.  The great textile factories of England did away with the artisan weavers who worked in their homes or in small collectives.  Automated looms sped up production and increased worker productivity by allowing fewer people to produce more goods.

However, instead of there being great masses of humans without jobs, the increase in productivity allowed ancillary businesses and services that had not previously existed to come into being.   Businesses such as the importing of raw materials and exporting of finished products were born since textiles could now be a global industry and not just a local one.  In fact, one can say that the British Empire was established because manufacturers were looking for more and more markets around the world for their goods.  New colonies and settlements meant more markets to ship goods to and more customers to buy them.  Colonialism and capitalism went hand in hand, eventually leading to some of the staples of today’s business world such as limited liability companies and stock exchanges.

This is not dissimilar to what we’ve seen in the creation of tech companies over the last twenty years.  Workers displaced from traditional jobs have created new business to take advantage of the changing economy.  Apple and Google come to mind as companies that have created products and markets that didn’t really exist prior to the technology revolution.

Of course, there were people who did not make the transition and you have to look at the change in employment and society over the course of time over several decades.  The Industrial Revolution also gave rise to the government welfare system – a safety net of subsidies, housing, and pensions to help those who were left behind or couldn’t pick up the new skills that they needed.

This time around, the digital revolution is replacing repetitive and linear work.   Robots and spreadsheets are doing monotonous jobs such as assembly line work and crunching numbers.  The result of people being displaced by technology seems to be that more and more craft businesses are opening – artisan food suppliers and product makers – which is the opposite of what happened during the Industrial Revolution.  The big question is going to be whether the U.S. and global economies can absorb all of these small businesses.

I think that the most significant result will be a widening of the gap between the upper income earners and the lower income earners – the wage disparity issue that has been so often in the news recently.  This is because, once again, increased labor productivity will displace workers and, unless a worker can show better productivity than a computer, employers are going to go with the more productive resource.  In other words capital will be put into assets (computers, robots, technology, etc) rather than labor (workers) because investors can get a better return on their money.

So, what are we to do?   I’ll have some ideas on this question in my next couple of posts.