This is the fourth in a series of ten posts on the threat to jobs and growth from technology and online distribution, and what we might do about it.
- The first part summarises the argument
- The second introduces the challenge.
- The third looks at the threat to jobs from automation.
- The fourth looks at the threat to jobs from online competition.
- The fifth looks at what economic problems this might cause.
- The sixth looks at the social and moral problems it might cause.
- The seventh looks at some of the arguments against a policy response: are we really sure this is a problem? Doesn’t technology always create as many jobs as it destroys? Surely there is nothing we can do?
- The eighth explains why more education and training isn’t the solution to technological un and underemployment.
- The ninth explains why more self-employment and entrepreneurship isn’t an adequate solution either.
- The tenth looks at other solutions, and proposes a new one.
My first job was in a video and DVD rental shop. The guy who started it was dedicated, smart, and hungry for success.
Still, it soon failed.
Of course it did: it was a video rental shop. They all failed.
But they didn’t fail because they were replaced by robots or artificial intelligence. They failed because the distribution of films changed: we started getting them online.
This illustrates why I suspect the current way we think about technological unemployment underestimates the problem.
Jobs are not just under threat from technology substituting for humans. They’re also under threat from online competition.
Once competition in an industry moves online, it becomes much flatter, and sometimes global. Margins normally fall. These industries can only sustain revenues and employment if growth in emerging markets offsets decline in mature ones. Otherwise, they will sustain far fewer jobs. This is already the story of newspapers in the UK and the US, recorded music (thanks to Spotify* etc), traditional taxis (Uber), and other industries.
And if competition makes the product free – as it already has with much music and journalism – the industry is able to support even fewer jobs.
And it’s the trajectory in legal services. Online marketplaces like legalzoom.com makes formerly local markets national; lawyers sometimes find themselves competing with thousands of others all over the country, threatening fees and margins.
But here’s the rub: I expect in the next decade or two the same will happen in the great job creator of the twentieth century: manufacturing.
When 3D printers are cheap enough for the median worker to afford, she will be able to download and print some of the things she used to have to go out and buy or have delivered. At that point, we can expect downward price pressure, shrinking margins, and fewer jobs across manufacturing.
How long will it take before we have a ‘Spotify for 3D printable objects’?
Think for a moment what that will mean. When 3D printer ownership is sufficiently widespread, a ‘Spotify for 3D printable objects’ would mean that you could download and print objects – toys, tools, trinkets, whatever – for free.
That might be a tough idea to take seriously. But when we all bought music on CD, it was tough for the music industry to take the threat of free music seriously too.
If a ‘Spotify for 3D printable objects’ happens, manufacturing jobs are likely to crater.
It probably also means fewer distribution jobs too. Once you can download and print out items at home, fewer goods will need transporting. Jobs are likely to go in parcel delivery, retail and wholesale, and transportation systems, like trucks and container ships (if they haven’t already been automated anyway).
In other words, one lesson from music, taxis, and newspapers is that even if robots don’t eat your job, global online competition and distribution can still shrink your industry.
We will have a race between the broadly ‘job-creating’ forces and the broadly ‘job destroying forces.
On the job creating side we will have the rising middle class of developing countries providing the world economy with more demand, and the income effect: cheaper goods and services saving consumers money so they have more to spend on other things, creating new demand and jobs.
But on the job destroying side we will have automation and artificial intelligence requiring fewer humans to produce the same output, and online competition pushing down margins in new and existing industries, putting downward pressure on total demand and jobs.
It’s too early to say which will win between these forces.
But I wouldn’t bet on the job-creating forces. Not least because so many products online are infinitely replicable (music, books, journalism, products when 3D printing becomes ubiquitous). So however many Brazilians, Indians, Nigerians and others emerge into the middle class, as soon as they buy online, you surely do not create as many jobs as you would have done before the internet was around.
Some will feel instinctively that this world I have sketched sounds great – its main feature being cheap goods and services.
But these trends might cause real problems. In the next post, I’ll look at why.
*Some will point out that Spotify has actually helped the music industry recapture revenues they were losing to pirating. True, compared to ten years ago. But compared to twenty, thirty, or forty years ago, the most important thing Spotify and YouTube have done is radically reduce the value of recorded music, and helped to make the music industry much less profitable.