TheMarketForIdeas

Science fiction author William Gibson coined the phrase in the title of this article in an interview with The Economist over a decade ago and his observation still stands. Automation and its physical sub-domain, robotization, are taking the world by storm. Automation stands for the reduction of human input in any process, though we will be referring mostly to economic processes. Labor saving devices and processes have been a mainstay of Western economic development since the Industrial Revolution, with their share of detractors, but labor elimination devices are increasingly more capable and more affordable, even for areas previously thought immune to automation. These new avenues for automation include jobs requiring human interaction, clerical work and any other form of labor, even intellectual, that requires a certain degree of repetition. Even where true automation is not possible, the “centaur” option (a chess term, where a human worker is teamed up with a computer) can eliminate plenty of jobs, with the human factor accounting for control and decision making in those instances where the programming is not up to the challenge. In prior economic paradigms, the displaced labor was eventually absorbed into new fields, and the economic gains from new technologies were more evenly distributed within societies, ensuring higher living standards for all. The chance of this happening again has come under scrutiny on account of several structural factors, as they pertain to the economy, the populations that provide the workforce, the global dynamics of commerce and the incentives of decision makers in business and other areas with regards to maximizing profit, minimizing costs and redistributing both the gains and the losses of the new economy.

Looking at history and the general facets of human nature, both for prior leaps in industrialization and with the multi-decade history of the intermediate phases of automation, we can discern several possible patterns which indicate that prudence or at least healthy circumspection might be warranted. There are plenty of evangelists for technology as a cure-all for human needs, both professional and amateurs, but, as British politician Enoch Powell once said: 

The supreme function of statesmanship is to provide against preventable evils. In seeking to do so, it encounters obstacles which are deeply rooted in human nature. One is that by the very order of things such evils are not demonstrable until they have occurred: at each stage in their onset there is room for doubt and for dispute whether they be real or imaginary. By the same token, they attract little attention in comparison with current troubles, which are both indisputable and pressing: whence the besetting temptation of all politics to concern itself with the immediate present at the expense of the future. Above all, people are disposed to mistake predicting troubles for causing troubles and even for desiring troubles: "If only," they love to think, "if only people wouldn't talk about it, it probably wouldn't happen." Perhaps this habit goes back to the primitive belief that the word and the thing, the name and the object, are identical. At all events, the discussion of future grave but, with effort now, avoidable evils is the most unpopular and at the same time the most necessary occupation for the politician. Those who knowingly shirk it deserve, and not infrequently receive, the curses of those who come after.  

Thinking on multiple planes 

What we consider under the heading of new technologies should rightfully be listed as follows:

• Physical automation with robots and drones;
• Automation of cognitive tasks by software - accounting, inventory management, reporting, billing etc;
• Disintermediation through the digital revolution, creating efficiencies, but also eliminating employment with specialized intermediaries;
• In addition to these, we have disruptive technologies that may enhance the above – blockchain, biotechnology, nanotechnology, 3D printing.

These were analyzed also during the 2016 World Economic Forum in Davos, which took place under the heading of “The Fourth Industrial Revolution”. 

Our awareness of automation can be described as inhabiting multiple planes of thought:

• The historical level;
• The concrete, near-future level;
• The systemic level;
• And, last but certainly not least, the tertiary level. 

Usually, when people consider automation, their train of thought stays at the first two levels. The historical narrative is simple – industrialization displaced certain workers, like those in agriculture, who stirred up trouble for a while and then found new jobs, in manufacturing for instance, and everyone was richer for it. The recent movie, “Hidden Figures”, while mythologizing the contributions of a group of people to appeal to modern sensibilities and prejudice, recounted an interesting facet of Western history. Before there were digital computers, there were human computers (that is where the term comes from) who were paid to crunch endless series of numbers for the burgeoning industry, finance, economy and administration of the modern states. Even after rudimentary computers appeared on the scene, veritable armies of people were employed by places like NASA to hand check or perform routine calculations from the upper level scientific staff, since mistakes could always creep in, with disastrous results. 

At the concrete, near-future level, there is a case by case acknowledgement of advances in automation which elicit surprised exclamations from listeners, as well as routine and vaguely optimistic declarations of robots taking all of the jobs. Some of these are fun, others affect only a certain branch of industry, which one can safely discuss without feeling anxious for one’s job:

• Factory robots are, of course, already a reality in numerous countries, including places like China, which has relied on low cost human labor until now, but are trying to get ahead of the trend to maintain competitiveness and use internal demand to develop national capacities in robotics;
• Japan has a fully automated hotel, with a robotic velociraptor manning the reception area;
• There is a pizza making robot being deployed in the US;
• Robots making hamburgers for fast food restaurants;
• Even the American cliché about the educated barista with student debt is going to become a thing of the past;
• Already widespread implementation of automated check-out and ordering systems. ATMs have been replacing bank tellers for a long time and automated service at the airport is becoming increasingly common;
• Amazon is building warehouse robots for inventory management and also preparing to sell them to others, not to mention its fanciful plans for drone deliveries;
• Home care is steadily being automated (labor saving devices have been mushrooming for almost a century);
• Elderly care is being automated as well, especially in Japan;
• Self-driving cars are on the verge of going mainstream;
• Even “stoop labor” picking fruit and other dexterous activities that were as amenable to mechanized agriculture like growing crops is being displaced;
• Automated help systems, through rudimentary, are undergoing rapid improvement. Even telemarketing is now being done by robots, as one Time magazine editor found out to his surprise. Personal assistants like Apple’s Siri and automated concierge and ordering systems are growing rapidly;
• Even journalism has started being automated, with software writing sport, financial and weather sections, especially ever since competition online drove publishers to be the first on the market to comment on new information. 

At the systemic level, we have the first order consequences of such developments. The reduction in need for stoop labor may either close the door for low skilled illegal immigration to the US or simply saddle the welfare system with unemployable people already present there, in addition to the over 90 million Americans who were already outside of the labor force because of very low wages and the presence of a safety net. The former CEO of McDonald’s, Edward Rensi, was adamant about the effect of the new technologies: 

“I was at the National Restaurant Show yesterday and if you look at the robotic devices that are coming into the restaurant industry — it’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging French fries... it’s going to cause a job loss across this country like you’re not going to believe.”

A local report in the state of Idaho in the US on automation in the area listed the areas of maximum displacement – sales and related, office and administration, production, transportation, extraction and construction – and they estimated that half of all jobs will be automated in the next 20 years. 

Automated driving may, in the short term, lead to displacement of long haul drivers in trucking (3 million jobs in the US) but, in the long term, will displace every sort of professional driver. Automated trucks do not need to rest, can have fuel and weight savings through better driving techniques and also form platoons for more efficiencies. The absence of the human driver along can double the effectiveness of transport, as driving 11 hours with a mandatory 8 hours rest is replaced by driving for 24 hours. 

A forecast from researchers at Oxford highlighted that half of American jobs were vulnerable to automation in the next 20 years. Moshe Vardi, a computer scientist from Rice University, predicts a global unemployment rate of 50% in the next 30 years, leading not to a utopia, but a dystopia. 

“We are approaching a time when machines will be able to outperform humans at almost any task. I believe that society needs to confront this question before it is upon us. If machines are capable of doing almost any work humans can do, what will humans do? The question I want to put forward is does the technology we are developing ultimately benefit mankind?” 

A consultancy company, Gartner, has predicted that a third of jobs will be automated by 2025. A PBS report quoted Research Director Peter Sondergaard from Gartner regarding automation: 

“Gartner predicts one in three jobs will be converted to software, robots and smart machines by 2025. New digital businesses require less labor; machines will make sense of data faster than humans can”.  

Not just factories are affected, but also financial analysis, medical diagnostics etc. The same report quoted the authors of “The Second Machine Age”, Erik Brynjolfsson and Andrew McAfee, saying: 

“We are at an inflection point. The first big inflection point in human history was about 200 years ago, when the steam engine started the industrial revolution. That was a period that saw a whole set of new machines come along that could automate muscle power, physical work. In recent years, we are seeing a wave of technologies that can augment, automate all sorts of cognitive tasks and we think, ultimately, those will have as big, or an even bigger effect on humanity as the first industrial revolution.” 

A 2016 report by the consulting firm McKinsey and Company found that 59% of manufacturing work could be automated in the next decade, including 90% of welders, cutters and solderers. 73% of food service work could be automated, 53% of retail work and 43% of finance and insurance work. 

Forrester Research estimated a net job loss of 7% by 2025 in the United States, a more optimistic vision, but one set in the backdrop of low labor force participation and a rising population. A World Economic Forum report, “The Future of Jobs”, published during the 2016 event in Davos titled “The Fourth Industrial Revolution”, placed the number of lost jobs in Western Europe at 5 million. 

Lastly, we have the tertiary level, where things become not only interesting and uncertain, but also dangerous. 

King Ludd’s revenge 

The tertiary level is where the labor displacement reverberates throughout the societies and economies of the countries undergoing transition, impacting individual lives, choices and incentives to the extent to which they profoundly affect society itself. Labor has always been a part of the sphere of necessities to which human beings partly surrender themselves to ensure their continued existence. As such, it has shaped the pattern of human societies, mirroring their own increasing complexity. Labor is a basic element of one’s class and station in society and it also ensures, for the majority of people, their only stake on the allocation of scarce resources in society. Therefore, even as some (like John Maynard Keynes) predict a life of civilized and productive leisure as technology advances, the reality in the short and medium term is that massive structural unemployment has been, is and will be hugely disruptive to established patterns of life. 

The Market for Ideas has repeatedly linked the Trump phenomenon in the US to the economic, social and moral decline of the middle class (especially) and of the traditional chance at upward mobility. We have quoted Charles Murray, whose ample work described the effects of joblessness on family formation and stability, community involvement, the appearance of vices like alcohol and drugs, Church attendance and so on. He noted that “a significant and growing proportion of the American population is losing the virtues required to be functioning members of a free society”. Automation was a large part of the explanation why the middle-class jobs lost during the Great Recession of 2008 never came back, but were instead replaced by more lower wage, part time jobs without benefits and with low skill requirements. On an absolute basis, the number of jobs eventually rebounded, but the quality never did, increasing the fiscal stresses on the social safety net. 

The United States has not only experienced automation itself (which is why its industrial output is the highest it has ever been, while employment has fallen to historic lows), but has also mimicked the effects of further job loss through automation by outsourcing jobs to other countries and by bringing in historically unprecedented levels of legal (and illegal) immigration that undercut native wages. Interestingly enough, in one of the most contested and acrimonious races in the history of the United States, second only to Lincoln’s election before the Civil War began, every subject became a matter of political one-upmanship, except for automation. Neither of the candidates, Trump and Clinton, ever dared to communicate a position on this issue, because they have no solution for this particular problem. Not one that will be politically palatable or even sustainable in the long-term. Immigration is a solvable equation for someone willing to go through with the painful solutions, but automation is not something one controls, since it is a diffuse phenomenon. 

And what are the dangers of automation? 

Firstly, it has been stated that prior labor force displacement resolved itself and it might do so again. But what has been forgotten in the telling of the tale is that the transition took decades, during which time wages in the cradle of the Industrial Revolution, Great Britain, rose very little or actually fell in real terms, according to Gregory Clark (to the extent such economic archeology analyses are trustworthy), while also fostering the phenomenon of the “Satanic mills” that inspired William Blake in 1808. The smog, the dangers, the child labor, the occupational diseases and the mind-numbing nature of much of the work were transitory phenomena (though still in evidence in 1906, during a later phase of the Industrial Revolution, when American Upton Sinclair published “The Jungle”), but the impressions remained. 

The upheavals of the period still echo today. Every Western country has a farming lobby extracting generous subsidies for an industry that still employs only 1% of the population. The subsidies are a testament not just to the importance of food security, but to the power of the farming lobby and its claim to cultural importance. 40% of the EU budget is still dedicated to agriculture, sometimes explicitly to prop up bucolic and traditional lifestyles on small farms that would otherwise be economically unsustainable. There is very little of this romanticism in the daily grind of US politics, regardless of outward professions of love for the famers, but powerful interest groups tend to get their way. 

New ideologies appeared, given form by ensuing class struggle for the division of the economic surplus between labor and capital. The US Gilded Age was famous for its violent strikes and its strikebreaking Pinkertons, and US syndicalism remained strong until the 1980s, when neoliberal economic policies brought it down in the private sector and coopted Union leadership to establishment power structures in the public sector. Other forms of struggle existed – chartists in England, Catholic distributism beginning with the “Rerum Novarum” encyclical encyclical issued by Pope Leo XIII on 15 May 1891, also entitled “Rights and Duties of Capital and Labor”, which stated:  

“Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.”

And, of course, Karl Marx, whose most prodigious years coincided with the height of the first Industrial Revolution’s displacement effects and the new struggles. His political and economic legacy far outlasted the conditions which inspired him. At the same time, even with Communism restricted to a handful of irrelevant countries, other variants of Marxist thought proliferate in the world in true abundance, whether we are talking about the Fanon-Marxism of post-colonial Africa or the cultural Marxism of the Western World. If it is true that the current anticipated labor displacement will eventually be resolved through a mechanism we are yet unable to foresee, then we will still likely be saddled with the political and ideological consequences of the upheavals for decades, if not centuries. These upheavals may include new patterns of wealth redistribution, new patterns of work and relation to the government’s provision of services from the public purse, new ideologies regulating access to resources and social status formation and so on. We can even see some trends that have already formed in Western countries and are likely to continue in the future:

• The propping up of consumption capacity through personal debt or public, to cover for wage stagnation;
• The increase in make work activities, that do nothing but keep a person occupied and with a reasonable social status while drawing a paycheck. This is obvious in government administrations, but also in the proliferation of administrative personnel in places like Universities.

• For people who cannot be assigned to socially prestigious make work activities and who become a social danger, extreme alienation becomes possible, and we have the development (especially in the US) of the prison industrial complex (with its attendant lobbying groups). Even education is becoming a form of warehousing for unemployable people to keep the most disruptive elements (young men especially) busy with something;
• The traditional ways of tempering the proclivities of young men (work, marriage, child rearing, the military) have become increasingly distant options, contributing to (self)destructive tendencies. The lack of a way to attain social status with positive externalities for the rest of society is a driving factor in the related phenomena of men dropping out of the road to normal life (books like “Men on strike” by Helen Smith, the “Hikikomori” of Japan) or even engaging in alternative social status building through criminal gangs, jihadism or anti-social activities;
• With the disappearance of jobs, education has become a “silver bullet” for all of society’s ills, despite the obvious impossibility of everyone being a college educated professional, both with regards to labor and to the actual distribution of cognitive ability in society. The wide-bodied American social class, especially, incorporated large number of people who could be described as “wealthy proletarians”, not all of whom had the specific qualities for jobs involving human contact or higher education;
• This “magical thinking” regarding education led to rising demand and lower standards, as well as increased costs for tuition which fueled the expansion of the Universities. Having destroyed the scarcity and signaling value of all but the most prestigious Universities (which did not expand student bodies to match demands), graduates are left neither with sufficient jobs fitting their skillset (even nominally in demand jobs, like STEM related ones) and with high levels of debt that cannot be discharged;
• This further affects the potential for savings, especially for retirement, but also affordable family formation, compounding issues with birthrates;
• The issues with employability and marketable skills start early, since the employment of young people has dropped significantly with the rise of automation, the rise of immigration, changing preferences and work patterns for people staying in education longer than ever before and the actual mismatch between a difficult labor market and the kinds of education that are pursued. This leads to worse outcomes later in life; 

Ultimately, we face the rise of zero-sum mentalities regarding economics, international relations and outcomes of political processes. The reduction in cooperation may lead to worse results and various forms of polarization, including conflicts between groups divided along predictable lines (geography, race, religion, social class, age etc.). Democracy may be imperiled by the results of welfare dependency (and solutions like universal basic income) and lack of personal stakes in society, as well as the demoralizing effects of a lack of agency over one’s life. 

As an example of the serious debates which these problems are fostering in many areas of the political spectrum, one can highlight the special issue on automation of the leftist magazine “The Social Contract”, but also the numerous reports highlighted throughout this article. 

What does this mean for Romania? 

This Fourth Industrial Revolution and the growing strength of automation present both challenges and opportunities for Romania. Since Romania has low levels of automation, significant investment will be required to grow productivity and stay competitive, so as to escape both the middle-income trap and move past our attraction as a low-cost labor market. We will, however, have to pay attention that automation does not, in fact, cut off significant swaths of the citizenry from the path towards upper mobility by evicting labor from the most productive areas of the economy. Education will be key, but we should not fall into magical thinking, that every Romanian is a budding nuclear physicist and robot programmer waiting for a magic wand. The key to social stability and continued national solidarity among classes and generations lies in shared wealth and improvement. Neither should we fall into the idea that redistribution is a solution since, as previously, noted, we have very little inkling (and none of it good) regarding what low levels of labor participation and dependency on the “servile state” will do to a people and its morals. Ultimately, this is a problem that Romania must face, but, unlike countries at the frontier of productivity and technology, Romania has many avenues still open to it for inclusive growth, “thanks” to its prior lack of performance in accessing them – building infrastructure, creating trade ties, better education as opposed to more, and accessing new markets for exporters. 

Romania also has the opportunity, in such disruptive times, by leaping ahead and going straight for an active share in the promising areas of new technologies. It is a feature of backward countries to not have the sunk costs of already developed ones, and thereby avoiding overhead and unprincipled obstructionism when investing in the latest paradigms. This is how China grew so much and this is why Romania leads the various charts when it comes to Internet speed. But this will not happen on its own, especially not in a small country which is, from a competitive standpoint, supremely at a disadvantage when it comes to rivals with scale on their side. If we are to recover lost time and secure the blessings of modernity for ourselves, then we have to actively pursue, by state policy in partnership with the private sector, our establishment as, at the very least, second and third tier players in the new areas. What we would need is a Coasean state (as opposed to the Coasean explanation for the firm), which is dedicated to entrepreneurship and recognizes the advantages of free markets but understands the value of lowering the barriers and frictions to global competitiveness for its own players (especially in industries with strategic national value) with the aid of government policies. Sven Steinmo, in his comparative analysis of the Swedish, American and Japanese political and economic systems, “The Evolution of the Modern State”, noted that Sweden avoided the sclerosis usually associated with national champions spoiled by various subsidies by subjecting them to ruthless competition abroad. Regardless of the actual ownership of companies, so long as they remain intertwined with the wealth and health of their parent country, they serve a useful purpose for a small country with a small internal market. 

This is why one could find a reasonable argument to actively pursue technology transfers and inclusion in production chains that are related to these new areas, while building up national champions, not just in the area of consumer goods, but also of producers’ goods, as noted by Eamonn Fingleton as being the very successful Japanese model of maintaining the cutting edge. This can take many forms, from simply encouraging private development, to creating joint ventures, or even whole grain national companies run in a competitive manner by professional international management. One could foresee a National Industrial Robotics Company, a National Drone Company (military applications are a must), or any other such examples of “planting of the flag”. These would first license new technologies, use it to cover internal needs, improve it for external competitiveness, then leverage it to create internal ecosystems of suppliers and other members of the production chain, as well as grow its own internal competitors over time. 

Of course, there are other considerations. What if the glut of productive capacity, coupled with lower purchasing power, leads to a new bout of protectionism that cannot be resolved by bilateral agreements, shutting us out of potential export markets? What if the social and cultural malaise associated with labor displacement starts infecting Romania as well, or weakens its most important partners? There was a time when no country was safe from the lure of the workers’ revolution or the sting of anarchy. We have yet to even broach the surface of what is possible under such disruptive conditions and, even were we to avoid the worst effects, internally, we would not be safe from contagion from the other ends of the cultural pipelines feeding modernity to us, whether we like it or not. 

A surprising thought 

In the end, what surprises about this new “revolution” is how inclusive it is likely to be. Not all will benefit, but all who are determined to do so will find the means to access it. Whether it is Luxembourg investing in mining asteroids or Saudi Arabia pouring money into innovation centers, there is no discussion of exclusivity with regards to the future. It used to mean instant death for anyone to be caught smuggling the secrets of Murano glass from Venice or silk worms for China. Nowadays, everything can be contracted if the terms are good enough and, if there is one thing nation states are good at, it is mobilizing resources. This presents an interesting conundrum. As Hilaire Belloc wrote in 1898: 

“Whatever happens, we have got

The Maxim gun, and they have not.” 

The divisiveness of Western politics and the glorification of this factionalism as indicative of healthy intellectual ferment was predicated on overwhelming Western superiority over any likely challengers, as well as strong reserves of innate solidarity. This is why the two World Wars were fought mainly between Western powers, and no conventional war between them has taken place since. But the subsequent growth of South Korea, Japan, China and even what progress there is in Africa was possible only through the purposeful ending of exclusivity over the fruits of Western civilization. When everybody may benefit from the latest technologies, should they be willing to meet the cost, then the equations of power changes completely. Pakistan has nuclear weapons and so does India. South Africa had its own indigenous program, since dismantled. Smart weapons are not the purview of Western powers. Neither will nanotechnology and biotechnology. In fact, the West may have scored an own goal by debating moral points with regards to these issues while not controlling the spread of knowledge to places that would not have such pangs of conscience. China is supposedly aiming for human genetic modification for intelligence in the future, among benign efforts related to agriculture and health. 

When everything may be, to a certain degree, available to everyone, what is left to distinguish one country from another, aside from size or relative resource endowments? It is the quality of governance and the extent to which its people is capable of solidarity, unprompted loyalty and the pursuit of their group interests, not just of individual interests. Those are the countries which may thrive and keep their rivals in check. And countries which do not possess this naturally will, as in the past, attempt to foster such common sentiment by intentional design. The level of overt efforts at encouraging group cohesion (from benign patriotism to blind jingoism) is going to have to measure up to the potential of global communication and travel in reducing or dissolving such ties. Already, while some have heralded the Internet as the ultimate tool for intellectual freedom, the Internet has enabled motivated actors to enact trespasses on personal information and communication that would have left the totalitarians of the past in abject envy. And, as with the alarming reports of people being dragged to court in Germany (or warned off in the Netherlands) for innocuous Facebook comments critical to modern orthodoxy, the new wave of technologies opens up new avenues for both positive and negative reinforcement of state ideology. The people of the future may be more prosperous, but they will have less privacy, less freedom of thought and fewer means to contemplate illicit thought, while also appearing, to a visitor of the past, less capable of dissent and less diverse in their opinions. The West is already on this path.