An alternative perspective

15 August 2016

Bringing on the Robots

Dieter Helm, Professor of Energy Policy, University of Oxford & Fellow in Economics, New College, Oxford

Whatever the short-term turbulence, what drives economic growth is technology and the good news is that technical change is coming fast and furious. The debts piled up by governments and banks will cast a long shadow on the economy, and bad economic policies have made matters worse. But even the Great Depression of the 1930s was ultimately washed away in a sea of new technologies. Technology made the twentieth century, and it is doing so again in the twenty-first.

General Purpose Technologies

Some sorts of technologies are more important than others. There are lots of examples of new products and services which change niches in markets; take the Dyson vacuum cleaner, Uber and TripAdvisor. But the ones that really matter are general purpose technologies that change the whole economy. The coming of the trains in the nineteenth century revolutionised transport and hence all the industries which needed access to markets like London and Manchester – from fishing to Cornish flowers to labour. The Haber-Bosch process for manufacturing fertilisers changed agriculture and facilitated unprecedented global population growth. The internal combustion engine and electricity were other general purpose technologies. Trains, cars, fertilisers and trucks have made our modern world.

The new example is the communications revolution that began in the late twentieth century and which is only now beginning to gather its full momentum. Mobile phones, fax machines, the laptop, and the Internet have already transformed every workplace and household. The world of work in 1980 is a foreign land already. Yet it is scarcely out of the starting blocks. The really big effect comes from the ability to digitalise everything. And with digitalisation comes the possibility of creating not just a robotic world, but one with 3D printing and artificial intelligence.

The Robotic Revolution

Robots have been with us for a long time. What is new is the ability to use information technologies to make them intelligent. The early examples are already creeping into our lives. There are robotic lawnmowers, using locational and laser information. Cows can be automatically milked. Older people can be assisted with mobility. Car manufacture is largely robotic. Driverless cars are effectively robots. Medical operations using nanorobots can do things human surgeons could never master.

Artificial intelligence adds a whole new dimension. Much of what we do in our brains can be done by machines, reproducing the features of memory and learning. Indeed machines can already sometimes do this better than humans. Think of all the repetitive tasks done by lawyers in due diligence, by accountants and a host of professionals in the service sector. Machines already write sports reports for the media. More and more data, and better computing abilities, including quantum computing, build layer upon layer of new opportunities. Together, this is the mother of all general purpose technological advances.

Local Manufacture, Global Implications

Robots have many advantages, amongst them that they do not need sleep, do not demand wage increases and need no welfare provision. Whilst this is of course obvious, what is less appreciated is that they are bringing to an end the era when location really mattered, and where cheap labour has been an advantage. The Chinese economic transformation was based upon lots of cheap rural labour pouring into China’s cities and its east coast export manufacturing industries.

Robots are just as happy in Coventry as Shanghai. The implication is stark: China’s cheap labour is no longer such a competitive advantage and the rest of South East Asia cannot now simply follow the Chinese model.

It gets worse for China. A second feature of the technological transformation is 3D printing. This enables any object that can be digitalised to be printed. Its radical implication is that mass manufacturing may be a thing of the past. Everything can be individualised. What matters are the digital image and the design. What does not matter are the large mass-production factories, which dominated the twentieth century.

If the era of cheap labour as a competitive advantage is drawing to a close, then a great hurdle to the competitiveness of the European and US economies will gradually evaporate. The US and Europe have the intellectual capital and in the US, at least, an entrepreneurial culture, built around freedoms of expression and democracy. Whilst China builds layer upon layer of censorship, the US and Europe embrace the explosion of free expression and ideas that the Internet has facilitated. It is no accident that Microsoft, Apple, Google and Facebook are all US companies.

Workers Left Behind

Whilst cheap labour will lose its competitive advantage, the cheap labourers will not go away. The march of mechanisation in the twentieth century has gradually eaten into manual labour. In developed countries not much genuinely physical labour remains. Fossil fuels replaced manual and horse power with the internal combustion engine and electricity. China’s economic transformation ate further into those manual jobs in the West, drove down the wages of the uneducated and cut out many jobs altogether. Across Europe and the US, part of the new right wing political reactions reflect the insecurity this brings.

Now it is the turn of the middle class to see its jobs downgraded and disappearing. The politically important middle class, built around clerical and professional services, is increasingly finding its previous stable and safe careers undermined. The armies of administrators in companies have long gone and management layers have been flattened. Bank mangers are a thing of the past. Now it is the turn of the accountants, lawyers and estate agents.

What will all these people do in the future? How will they cope with the loss of status and stability that all this implies? Globalisation and the China challenge have already caused significant social and political problems in Europe and the US, as large numbers of relatively poor people are left behind. This is, however, only the start: the robots will do further significant damage to their prospects.

The optimists point to a world of abundance, of machines doing our work for us. This might be a utopia of leisure once we have solved the problem of meeting our needs. This is the world of Marx’s Communist state where the masses can go hunting and fishing in the morning and enjoy a relaxing afternoon. An alternative optimistic narrative is around all the new work we will be doing instead, all of which are creative and caring.

The problem this time is that it is not at all clear whether the bulk of the labour force has any competitive advantage in these areas. It is a wholly new challenge. So far the best that commentators can come up with is some sort of safety net, for example, the provision of basic income to compensate for the lack of work and pay. This is the idea that everyone gets an income from the state to cover their basic needs, regardless of whether they work or not. The surplus created by the robots is redistributed.

More worrying perhaps is what happens to all those Chinese and South East Asian workers, and the booming population in Africa. One after another, these countries want to mimic the exporting growth strategy that Japan, South Korea and China have followed for development. We are seeing what the dispossessed in the Middle East can do. Migration, displacement and chronic unemployment are serious threats not just to these countries, but to the rest of the world as well.

Robots are Electric

General purpose technologies transform everything and a further twist to this revolution is in energy. Everything can be digitalised and everything digital is electric. Whereas in the twentieth century everything was powered by oil, gas and coal, the twenty-first century is all about electricity. An electric economy is also one which the new technologies will change radically. New information technologies make cities, networks and energy use smart.

The core control lies with the data. Electric cars, electric industry and electric homes are one vast interdependent data network. This electric world will need to be low carbon and rely on solar and perhaps nuclear power, with some wind and biomass thrown in for good measure. The very technological revolution that lies behind the robots, 3D printing and artificial intelligence will transform electricity generation and supply too.

Coping with Radical Technological Change

How would the world have looked to someone in 1900 looking forward over the coming century towards 2000? Much of the technological landscape would already be known. The Haber-Bosch process, the internal combustion engine and electricity had all been invented. Up until around 1980, the story was largely one of working out the consequences. Nuclear power was added and aviation multiplied. But not much more really radical happened for most of the twentieth century. After 1980, there began another burst of change. Now we are trying to work out the consequences. It can’t be reversed, but it can be managed well or badly. The robots are coming. The question is how well prepared we are for the consequences.

Dieter Helm is an economist, specialising in utilities, infrastructure, regulation and the environment, and concentrates on the energy, water and transport sectors in Britain and Europe.

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