The robot paradox

“More than six million workers are worried their jobs could be replaced by machines over the next decade” says the Guardian. This raises a longstanding paradox – that, especially in the UK, the robot economy is much more discussed than observed.

What I mean is that the last few years have seen pretty much the exact opposite of this. Employment has grown nicely whilst capital spending has been sluggish. The ONS says that “annual growth in gross fixed capital formation has been slowing consistently since 2014.” And the OECD reports that the UK has one of the lowest usages of industrial robots in the western world.

My chart, taken from the Bank of England and ONS, puts this into historic context. It shows that the gap between the growth of the non-dwellings capital stock and employment growth has been lower in recent years than at any time since 1945. The time to worry about machines taking people’s jobs was the 60s and 70s, not today.

Of course, we shouldn’t set much store by the precise numbers here: measuring the capital stock is a fool’s errand. But these data are consistent with other facts. Households are saving less than they used to, which is not what you’d expect if they feared losing their jobs. Companies are still building up cash quickly and borrowing little, and of course real interest rates are low. All this is consistent with low capital growth.

If we looked only at the macro data, we’d fear that people are taking robots’ jobs – not vice versa.

So why is investment so weak (a fact which long pre-dated Brexit uncertainty? There are thousands of firms that aren’t investing in new tech, and therefore thousands of potential explanations. Among them are:

 - There is, as Bloom and Van Reenen say, “a long tail of extremely badly managed firms (pdf)” which lack the confidence or competence to invest in new technology.

 - The 2008 recession had a scarring effect upon animal spirits; it raised the fear of future recessions and so deterred investment.

 - Fiscal austerity depressed aggregate demand and hence the motive to invest. And in squeezing real wages, it reduced companies’ incentive to invest in labour-saving technology: this was one reason why investment boomed in the 60s.

 - Talk of a robot age might be self-defeating, as it increases fears of future competition; why spend £10m on robots if a rival will undercut you by spending £5m on better ones in a few months’ time? Maybe firms have wised up to Nordhaus’ finding – that innovation doesn’t pay very well except for a tiny handful of firms. (Hendrik Bessembinder has estimated that 4% of firms account for all of the rise in the US stock market since 1926).

Whatever the reason for low investment, we have a genuine paradox here – that whilst there’s much talk of a robot economy there is little evidence of it in the data or on the ground. There might, therefore, be a mismatch between the vast productive potential that technology might offer us on the one hand, and the poor performance of today’s capitalism on the other.

Marx famously wrote:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production...From forms of development of the productive forces these relations turn into their fetters.

One of the neglected questions of our time is: could it be that we have now reached this stage?

Comments

[Quite Likely]

It's shocking how most policy makers, much less most average people, don't seem to grasp the concept of aggregate demand. Employment rates are just a not that great proxy for labor demand. Seems pretty clear that what we've seen in the last few years of employment growth in the UK has not been any increase in demand for labor, just a gradual settling in as workers accept that their labor isn't worth as much as they hoped and take the low-wage jobs that are still available. "Growth" in the low wage sector doesn't reflect growth in that industry either, just the fact that labor prices have gone down and so it's worthwhile to hire people to do low-value creation tasks that you wouldn't bother with were wages hire.

And yes, soooo much about our modern economic situation matches up with what Marx foresaw as the end-state of capitalism. Scary and exciting times!

[Dave Timoney]

One reason why this latest report is interesting is that it is based on individual workers expectations of the likelihood of their own jobs being automated. This means that it contains a degree of tacit knowledge unavailable to studies by academics or business consultancies that tend to proceed from an assessment of the technological potential.

In other words, the consequence of low capital investment - outdated equipment, archaic skills and lash-ups instead of replacements - may be increasingly visible on the shop-floor and in the office. I doubt the 6 million workers cited are worried because they watched Westworld, but because they can see how to partially or fully-automate their jobs with relatively simple hardware or software upgrades.

[Jim Harrison]

One explanation of why the Industrial Revolution began in England is that labor was more expensive there than elsewhere so replacing it with capital was an attractive or imperative option. Where wages can be kept low, the owners of businesses don't have to innovate.

[Jim]

No we've reached the stage where if you have a warehouse full of gubbins that needs to be loaded off and back onto lorries as part of your national retail distribution network, you can staff that warehouse with Goans who happily work for minimum wage (this happens in the massive warehouse less than a mile from my house, and I know one of the shift managers, who knows exactly the makeup of the workforce), and not have to spend a fortune on automating the warehouse with robot workers instead.

[Blissex]

«you can staff that warehouse with Goans who happily work for minimum wage»

* Our blogger would point out that this probably raises their wages, and their productivity, by several times over working in their origin country.

* This will happen even more so after Brexit, because many voted for it to deliver significant increases in wages (some northerners thought that meant themselves rather than african and asian indentured migrants).

* As far as property/business owners are concerned, there is not much difference between domesticated animals, domesticated workers, or programmed robots; a property or business or farm is run for the benefit of the owners, not of its components.

My objection to the "robots" scare is that workers worldwide are much cheaper than any conceivable robot.

As any tory can persuasively argue any economic problem can be solved with lower wages and bigger property prices and rents.

[Jim]

"This will happen even more so after Brexit, because many voted for it to deliver significant increases in wages"

Not necessarily Goans though, as the reason they're here is that because Goa was a Portuguese colony, if you can qualify for a Portuguese passport on the back of some ancestor being from Portugal, you get to move to the UK under free movement, rather than just Portugal.

[Blissex]

«the reason they're here is that because Goa was a Portuguese colony»

That's just an accident; the real reason they are there is that they are cheap and that boost profits and the government party loves cheap wages and bigger profits.
For that reason 60% of immigrants to the UK are already from outside the EU, even if there is no formal "freedom of movement" there; EU immigrants are just too expensive and have too many rights.

Post brexit, the same party and the interests that sponsor them will just create a lot of indentured work visas, with the official argument that it will restore the competitiveness of english businesses of course, after the "betrayal" of the "bullying" EU.

My impression is that right and left "Leavers" while both against "freedom of movement" had completely different motivations: left wing "Leavers" were against immigration as such, the "movement" part, but the right wing "Leavers" are very much in favour of immigration, they just hate that EU citizens had the "freedom" to immigrate. For right wing leavers the problem with EU immigration is not that it is immigration, is that you cannot deport EU foreigners at whim. That's what they mean with "take back control": they find it outrageous that the EU migrants have the treaty *right* to work in England.

In an ideal tory world if a foreign worker is ever disobedient or impertinent to their master (or even just sick or exhausted), a simple phone call to the agency holding their indenture gets them deported the next day, blacklisted from reapplying, and replaced promptly with another one of the billions in the queue.

[Alistair Davidson]

Paul Mason addressed "material productive forces of society come into conflict with the existing relations of production" in PostCapitalism. I had a look at it myself in an essay in 2010 - but Mason's account is much more sophisticated.

He says - the proportion of a commodity which is pure information and subject to no natural marginal cost of reproduction is growing. Marx expected that if this became the whole of the commodity (the start trek replicator scenario) then exchange value would come to an end, but as Zizek notes, Marx did not forsee the extent to which the 'general intellect' could be privatised.

[greg]

Perhaps what is happening, and indeed perhaps happening in the world economy, is what happens in the exploitation of a renewal resource, such as a fishery.

Initially, the stock of fish is plentiful, but capital (fishing boats,) has not been developed. So the catch is limited by how many boats there are, and capital, and fishing, is hugely profitable. Capital, the fishing fleet, expands and the catch increases, until the stock of fish begins to be depleted. However, more capital is still invested in, and fish are caught at an even higher rate, until even the over investment in capital cannot compensate for the reduced stock available for catching.

The catch is then limited by the size of the stock, (Too few fish,) and there is an overhang of surplus capital (Too many fishing boats, few of whose owners can pay back the loans.)

[Blissex]

«(Too few fish,) ... (Too many fishing boats, few of whose owners can pay back the loans.)»

That's more or less the "peak oil story", and more narrowly the fracking/shale oil story.

[TG]

There is no paradox. What's going on is that an excessively high rate of third-world immigration is flooding the market for labor, thus driving wages down and profits up. With labor getting cheaper, there is no reason to invest in expensive and risky automation, which is why investment and productivity are lagging.

But that doesn't sound good, so instead the press lies about it. We are about to run out of workers and we desperately need to either have more babies or import ever more third-world refugees or we will run out of workers and the crops will rot in the fields etc. And when importing a massive excess of labor does what anyone expects it to do, lower wages, we hear that oh it's those evil robots making human workers obsolete. But these are both lies, aren't they?

[Blissex]

«an excessively high rate of third-world immigration is flooding the market for labor»

Things are a bit more complicated than that: since the USSR lost Cold War I the workforces of both the "second world" (eastern Europe, China, Vietnam, ...) and of the "third world" (India, Mexico, Thailand, Cambodia, Philippines, Indonesia, ...) have come into competition with those of the "first world", but in TWO different ways:

* Immigration from the "second world" or the "third world" to "first world" businesses.
* Offshoring of businesses to the "second world" or "third world".

Of these offshoring is by far the best for both "first world" workers and "second world" and "third world" workers because:

* "second world" and "third world" workers don't have the enormous expense and often deadly risk of moving to a far away country.

* they also get the advantage that businesses get established in their countries elevating the general capital-per-worker ratio.

* For "first world" workers offshoring is far preferable to immigration because it does not involve competition for jobs tied to location, and it keeps their cost of living lower because it does not congest infrastructure and housing.

Because of the last point though, immigration is far preferred by rentiers to offshoring: at the same time it makes servants (usually tied to location) much cheaper, and boosts the rents and prices of property.

The right-wing propagandists in the "first world" advocate immigration "regardless" :-) of the huge boost to the living standards of rentiers, using instead the shallow excuse that “migrants from Tonga to New Zealand, for example, earn three times as much as comparable people remaining in Tonga”.

Conversely civilized "second world" and "third world" countries with rational governments have always preferred offshoring: consider Taiwan, China itself, south Korea, Japan. It creates long lasting domestic prosperity, and over 2-3 generations much more than “earn three times as much”.