There is much hand wringing about jobs being replaced by robots. I actually see it as having the potential to provide enormous benefit. Everyone can see that for the owners of all of the robots, it is great. The owners get to have the benefit of all the work the robots do. I’m also most struck by the fact that there is now no physical reason why everyone couldn’t be in that position. This post is about how automation has the potential to turn “class conflict” on its head by ensuring that no-one need be outside the “owning class”.

I think we need to think about what is the constraint on how “rich” everyone can be.  In previous times, much of the constraint was how much labour everyone could employ. Not everyone could be a mill owner or plantation owner.  It was labour that was limiting.  Each mill owner needed thousands of mill workers. Each plantation owner needed thousands of cotton pickers. But the owning class ALL were rich -however clever or stupid or inept they were. In the near future won’t the robots be the equivalent of the mill workers and the cotton pickers? Won’t other robots be the equivalent of the people who in the 1800s designed the machines and directed the slaves? The only role for people will be that of the owning class –free to do whatever they fancy. In many cases that freedom would probably be put to use in developing even more advanced technology.

Of course we COULD choose to have just a few in the owning class and have everyone else rioting. BUT the owning class would get no benefit at all by keeping itself select. In fact that would make each member of the owning class less rich because the market would be smaller.  Technological innovations have very high development costs relative to the unit cost of the product. A product such as a new medicine or an innovative electronic gadget becomes dramatically cheaper to produce per unit item if the development costs are spread across many more units sold. Imagine if we lived in a world with greater disparities of wealth than we do now. Imagine if the market for the latest medicine or electronic gadget was 1/10000th the current size. Those few who could still afford such items would have to pay massively more to cover the development costs. That dynamic works in the opposite direction too. Imagine if the potential market for the latest product was all seven billion people on earth. Then development costs would be spread so thinly they would hardly be noticed. Capital goods such as the robotic workers themselves also have the same economy of scale. It starts to make financial sense if many factories staffed with robots are to be built but not if just a few.

Clearly having an economy directed towards technological development is critically dependent on having lots of potential customers. When development costs are high relative to on-going production costs, then a large market is a great benefit and when they aren’t, it isn’t. The direction of the economy thus steers towards innovation when everyone can afford the latest technology and away from it when they can’t. There is no sense in having a fancy robot factory if it is just going to be idle due to lack of customers.

To me it looks as though we are at a fork in the road. We can choose to distribute ownership widely (I’ve written a pdf about a suggested route towards sufficiently widespread ownership), develop lucrative innovative technologies and all be served by robots or we can choose to have just a few in the owning class, fail to develop technology, and so become mired in conflict and poverty as resources run out. It is crucial to try and understand why as a society we choose to take the “lose-lose” fork in the road rather than the “win-win” option. Perhaps the urge is to be richer than other people. What matters is relative wealth rather than absolute. It has been suggested that the impetus to gather great wealth is akin to wanting to ensure first place on a metaphorical lifeboat should “something go wrong”. With such a motivation, it doesn’t matter whether everyone is worse off; all that matters is relative positioning. The tragedy is that making that choice ensures that the metaphorical lifeboat will actually be needed. The worse the outlook, the more determined the current owning class will be to maintain positioning at any cost to everyone overall.

The irony is that even on the basis of where each person was positioned along the rank order of wealth, economic democracy need not upset the apple cart. Quite possibly the current richest 1% and the current richest 0.01% would still be the richest 1% and the richest 0.01%. The only difference would be that everyone else would be less far behind. To a large extent the problem isn’t that the wrong people are the rich people; it is simply that the rest of the population are not rich enough. As such this is a clear case of Pareto inefficiency. We have slipped into a rut that is bad for everyone and getting out of it would harm no one. It is often said even by those believing in small government that government should focus on correcting Pareto inefficiencies. The absolutely crucial point to grasp is that true prosperity is not measured in pounds or dollars but in what can be bought with them. Compromising Pareto efficiency in terms of dollars by redistribution will lead to massively improved Pareto efficiency in terms of what technology is available and affordable for the very richest people not to mention the rest of us. Money is only as much use as the goods and services that exist to be bought.

I think the current motivation for imposing austerity is fear of insecurity and of power slipping away. The best way to overcome that is for those pushing for reform to respect the anxieties and property rights of the wealthy and to put at the forefront of arguments that the aim is to benefit EVERYONE and not to empower some new crop of usurping apparatchiks.

More reading on the web:

Robots coming over here, taking our jobs…building our utopias-New Statesman

The End of Labor: How to Protect Workers From the Rise of Robots -Noah Smith

The Robot Will See You Now -Atlantic

Trade -offs between inequality, productivity, and employment- Interfluidity

The Robots Are Going To Take All Our Jobs: Isn’t It Wonderful?- Forbes

Better Than Human: Why Robots Will- And Must- Take Our Jobs- Wired

Time to resurrect the ‘missing variable’? -Izabella Kaminska

On the Road to Zero Growth- Jeremy Grantham

To understand where we’re headed, read this essay written 64 years ago -Andrew McAfee (link added 30May2013)

On Inequality: There’s no such thing as Pareto Improvement -Interfluidity (link added 24Nov2013)

Technological unemployment amidst stagnation –Ashwin Parameswaran (link added 30nov2013)

Debunking Economics Part 3.5: The Real Shape of the Average Cost Curve (link added 28dec2013)