Frontiers of Growth
To the Jobless Economy
Martin Ford
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SUNNYVALE, CALIFORNIA – Nearly all economic forecasts agree that high unemployment in much of the developed world will most likely persist for years to come. But could even this dire projection underestimate future unemployment rates?
As improvements in computers, robotic technologies, and other forms of job automation continue to accelerate, more workers are certain to be displaced, and job creation will become even more challenging. Most economists dismiss concern that this might lead to long-term structural unemployment. Indeed, the idea often elicits outright derision. The conservative media in the United States recently mocked President Barack Obama for suggesting that automation might hurt employment growth. But Obama was right to raise the question.
A very large percentage of jobs are, on some level, essentially routine and repetitive. It seems likely that, as computer hardware and software continue to improve, many of these job types will become susceptible to automation, particularly to machine learning.
This is not far-fetched science-fiction technology, but rather a simple extrapolation of the expert systems and specialized algorithms that currently land jet airplanes, trade autonomously on Wall Street, or beat nearly any human being at chess. IBM’s Watson – the computer that prevailed on the television game show Jeopardy! – suggests that machine-learning algorithms could soon be able to take on a number of cognitive tasks.
As this technology improves, the systems that it enables will begin to match or exceed the capability of human workers in many routine job categories – a group that includes many workers with college degrees or other significant training. Many service-sector workers also will be threatened by the continuing trend toward technologies that turn their jobs over to consumers.
One of the most extreme historical examples of technology-induced job loss is, of course, found in agriculture in developed countries. In the late 1800’s, roughly three-quarters of all workers in the US were employed in agriculture. Today, the number is around 2-3%. Advancing mechanization eliminated millions of jobs.
Clearly, when developed countries’ agricultural sectors shed workers, long-term structural unemployment did not result. Workers were eventually absorbed by other sectors, particularly with the growth of industrial manufacturing, and average wages and overall prosperity increased dramatically – an excellent illustration of the so-called “Luddite fallacy.” This is the idea – generally accepted by economists – that technological progress will never lead to significant rates of long-term unemployment.
The reasoning is roughly as follows: as labor-saving technologies improve, some workers lose their jobs in the short run, but production becomes more efficient. That leads to lower prices for the goods and services produced, which in turn leaves consumers with more money to spend on other things, boosting demand – and employment – across nearly all industries.
The problem today is that we are not talking about rapid automation of a single economic sector like agriculture. When agriculture became mechanized, there were other labor-intensive sectors that could absorb millions of workers. There is little evidence to suggest a similar outcome this time around.
As more workers are automated out of more employment sectors, there must come a “tipping point,” beyond which the overall economy simply is not sufficiently labor-intensive to continue absorbing workers who lose their jobs due to automation (or globalization). Beyond this point, businesses will be able to ramp up production primarily by employing machines and software. Structural unemployment will become inevitable.
But, if automation is relentless, the basic mechanism for putting purchasing power into the hands of consumers will break down. Imagine a fully automated economy. Virtually no one would have a job (or an income); machines would do everything. Long before we reached that point, mass-market business models would become unsustainable. Where would consumption come from? And, if it is still a market (rather than a planned) economy, why would production continue if there were no viable consumers to purchase the output?
In developed countries, the most disruptive impact to the job market would come from substantial automation of the service sector, which now employs the majority of workers. In developing countries, the impact will be greatest in manufacturing, and factories there already are rapidly putting in place labor-saving technology. For example, Taiwan-based Foxconn, a major electronics producer and employer in China, recently announced plans to introduce huge numbers of sophisticated manufacturing robots.
Unemployment resulting from automation in the Chinese manufacturing sector could ultimately complicate China’s efforts to rebalance its economy toward increased domestic consumption – an objective that most economists agree is critical for the country’s long-term prosperity. If consumers see only an economy in which jobs are relentlessly automated away, and if it appears that additional education or training provides little protection, they will adjust their discretionary spending accordingly. And, given their concerns about long-term income continuity, traditional policies like stimulus spending or tax cuts would be ineffective.
So, are we approaching the “tipping point” where automation fuels structural unemployment?
Most economists object that the very assumption that such a point exists is speculative. But when one considers today’s advanced-country malaise – years of stagnating or declining wages for average workers, growing income inequality, increasing productivity, and consumption supported by debt rather than income – there certainly seems to be ample reason to speculate. Let us hope that a rigorous analysis of historical economic data does not arrive after the tipping point has been reached.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology, and the Economy of the Future.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
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Zsolt 09:44 07 Nov 11
The tipping point has already happened and it has nothing to do with automatization.
The constant growth, ruthlessly competitive profit chasing system has exhausted itself, there is nowehere else to expand in a closed, finite system, and the very base that should revive the failing economy, the hungry and healthy consumer base has been depleted, lost its confidence thus the system reached a vicious cycle it cannot get out from.
At the moment we see the tip of the iceberg and the meltdown will start very soon, whether we pull our heads out of the sand or not.
Moreover our whole economy is based on producing goods we do not need, we have been consuming, purchasing everything the marketing machienery brainwashed us with, but today the make up, and magic clothing is coming off people start to realize what a slavery we were under, so the meltdown of the present economic system is actually a liberation in disguise, even the mass unemployment is like escaping from slavery.
In the future the new economic system will be based on necessities, people working much less, enough to provide for a normal, comfortable, healthy life, and the whole human structure based on mutual responsibility, consideration and equal distribution. The ongoing competition will be about who can contribute to the well being of the system more than others.
It is the transition we need to worry about, if we start the necessary changes now, before everything collapses we can secure a mild, smooth transition from the present rotting system to the new sustainable one.
But if we stubbornly ignore the signs and the facts around us, and keep going against the wall, the transition can be unpredictable and dangerous.
dfg 12:45 09 Nov 11
The jobs will go to the service sector, entertainment industry, tourism and whatever it is that you choose to do in your free time that involves other people. And this means that free time would have to increase as well, for those sectors to grow.
krotok 04:43 09 Nov 11
The jobs lost in agriculture and manufacturing went to the service sector obviously. The society is always in need for better healthcare and education. Either the public or the private sector has to create these new jobs for the unemployed (more teachers, nurses and doctors). If its the public sector, it means austerity is counterprobuctive...
Guess which countries did best during the crisis: social-democracies in Scandinavia and Quebec (Canada)
cleric26 03:55 09 Nov 11
A very profound and yet deeply agonizing article!
Totally agree, that our most brilliant brains in economics should devote in full to this topic. If that is the case, any costly attempts we've made so far to amend our economy will result in vain.
saifedean 01:09 10 Nov 11
I posted a response to this article on my blog:
http://thesaifhouse.wordpress.com/2011/11/07/the-luddites-are-back/
I was disappointed to read today an article by Martin Ford arguing that technological advancement will destroy the jobs of workers, and that as a result the world is headed towards a jobless economy. This is pure nonsense.
Such nonsense isn’t new, of course. Since the beginning of the Industrial Revolution in the late 18th century, many people with a limited understanding of economics have made the same mistake. These Luddites have always fought technological advancement thinking it would destroy jobs and ruin society. The automated loon, they warned, was going to destroy the livelihood of the British textile worker. Mechanized farming was supposedly going to starve farmers. The steam engine was going to make redundant large chunks of the labor force. Indeed, much of Karl Marx’s confused economic theories are based on just this fallacy, positing that as capitalists grow richer, they can afford to replace more workers with machines, leaving behind large numbers of disgruntled proletariat that must then unite and revolt to… I don’t know, go back and work disgusting menial jobs, I guess.
Yet somehow the average Brit today is far better off than they were before those machines came about. British workers earn more, work less and work in much better conditions than two centuries ago. Unemployment in Britain is still very low (in spite of its increase after the recent depression.) Had the Luddites and Marxists been right, one would imagine that two centuries of technological progress would have left absolutely nobody with a job today.
The problem with this Luddite Fallacy is simple: technological advancement increases the productivity of labor and therefore makes labor more valuable. As a result, workers earn more. Technological advancement allows workers to produce more output for every hour they work. A farmer using a tractor can produce several times as much food as a farmer using a donkey. We live in a world of scarcity: we could always use more food, more clothes, more stuff. The only real constraint on our production of stuff is how much labor hours we have to devote to it. The more productive our labor, the more production we have. The more production we have, the more labor earns. Technological advancement does not take away the jobs of workers, it allows workers to do more productive jobs. We will never run out of jobs, because we could always use more humans making more scarce products to meet other humans’ never-ending wants.
To Luddites like Martin Ford, the invention of the wheel would have appeared an unmitigated disaster–just think of all the lost jobs in the carrying-painfully-heavy-stuff industry! But in reality, it was a great boon for humanity, as it freed humans from carrying heavy loads and instead allowed them to focus on more productive things like making food, clothes, houses, and so on.
Therefore, it is no coincidence that humanity’s economic conditions continue to improve with technological advancement. This is not going to change any time soon. The more productive our technology, the better off we are. If humanity were to listen to Luddites like Martin Ford and fight technological advancement, none of us would have any time to do any of the immensely productive things we do in today’s modern society. We would be too busy engaged in very primitive tasks like carrying heavy loads for us to do anything else.
We should not worry too much from people like Mr. Ford. The Luddites of the early 19th century did succeed in destroying many machines and some factories, but these victories against human advance were short-lived. Their movement died and their ideas became the butt of jokes, while technological advancement continued to make life better for everyone. While Luddites like Martin Ford may influence some people with their deceptively appealing ideas, they are utterly powerless to stop the ingenuity of billions of human beings from making life better for all of us. Or so I hope.
Craig 05:29 11 Nov 11
In the past, tech advancement allowed us to move to more productive jobs. In the future, tech advancement will mean fewer jobs, but that will fit in with the reduced populations of developed countries. Developed countries are getting to another tipping point. The tipping point where their population growth stops and starts to decline. Tech advancement will allow this to happen without causing a lack of workers. We will have a population that is more sustainable, and that population will be employeed with jobs that will give them a good standard of living.
Anumakonda 12:58 16 Nov 11
Excellent article on Unemployment and possible remedial measures by Martin Ford.
Dr.A.Jagadeesh Nellore(AP),India
sergio 06:06 07 Nov 11
Wake up boy. When cropping you are constrained by plant metabolism and weather conditions... Along industry sectors, that 'metabolism' might be modified through Process innovation (that is 'job creation'). Anyway take a walk through some greenhouses in Almeria (Spain) to update your 'dry' thoughts... : )