This is the last 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.
The story so far: economists are beginning to think seriously about the possibility of technological unemployment – automation making an unprecedented number of jobs unnecessary.
Frey and Osborne calculate that 57% of the jobs in OECD countries are at risk. The Bank of England conclude that that would be equivalent to 15 million jobs in Britain and 80 million in the US.
Historically, technology has created as many jobs as it has destroyed. But I’m not sure it will this time, as I explained here.
The debate is beginning to move towards a discussion of solutions.
In moments of acute crisis, radical ideas suddenly don’t look so radical any more.
If in 2007, Gordon Brown had proposed allocating 80% of the government’s annual spending to private banks in loans and guarantees, everyone would have said he was bonkers. The year after, he did just that to stave off the financial crisis. The move received widespread support. The prospect of financial meltdown made the radical sensible.
If it happens, widespread technological un and underemployment would be a chronic problem, not an acute one; there would probably never be a crunch moment when it was clear how radical the solution might have to be.
Still, thoughtful centrists are beginning to conclude that if unemployment does begin to creep up to levels not seen in generations – say 15%, 20% – or the labour market hollows out in an extreme way, there is no private sector solution, and probably no solution that falls within the bounds of what is electable today.
Former US Treasury Secretary Larry Summers, for example, says that in any solution, the “tax and transfer system … has got to be a very, very large part of the picture.”
Robert Rubin, deregulating Treasury Secretary and Goldman Sachs veteran, wondered whether, “if the forces of technology and globalisation continue to create rising inequality… [there should be] increased redistribution to accomplish the broad objectives of our society?”
Various solutions have been proposed.
The Directors of the McKinsey Global Institute suggest the ‘marketisation of household work such as cooking, cleaning, and childcare.
Citibank’s Chief Economist Willelm Buiter and Martin Ford suggest a minimum income for all.
There seems to be a consensus that the only policies which might work are radical ones.
I agree. If unemployment reaches unprecedented levels and stays there for a decade or more, one solution would be to create an enlarged sovereign wealth fund and use the dividends to create jobs.
It makes particular sense for the fund to buy shares in technology companies like Alphabet where profits are exceptional and job creation is low compared to the big companies of the past.
The Shareholder State
If millions of jobs are lost and not replaced over the coming decade, it will in part be because companies, understandably, see opportunities to make more revenue more efficiently from automation.
In this world, as long as demand holds, some firms, especially technology firms, would be extremely profitable. Already, six of the top ten biggest companies by market cap on US stock exchanges are tech companies.
This wealth is already taxed – a bit. But if in the long term we find ourselves in a world of unprecedented long-term structural unemployment, states could also raise revenues by buying shareholdings in the companies which benefit the most from the automation and flat competition which displace workers. These shareholdings would form part of a sovereign wealth fund.
To an extent, this already happens.
In France, for example, the government manages over €100 billion worth of shares in over 70 French companies, including many of the most profitable and innovative companies in the country.
Alaska decided in the seventies to share out oil profits equally to each citizen. Each year since 1982, each Alaskan has received a deposit – sometimes of a couple of thousand dollars – into their bank account.
There are already 73 sovereign wealth funds worldwide, many non-oil and gas. They are a good idea for many other reasons anyway.
Renewable energy is also a particularly apt sector for state shareholding. The case that resources like the sun and the wind belong to every citizen is easy to make. As the Alaskan example shows, the decision on who is entitled to benefit from energy companies’ revenue is, ultimately, political.
Energy companies will counter that they take the risk so they deserve the revenue. But this is a norm, not a natural law. Statoil, the Norwegian oil and gas multinational, takes risk too, but it is still 67% owned by the Norwegian government, and contributes to the Norwegian sovereign wealth fund.
This sovereign wealth fund would be a means to an end of supporting demand and growth by creating jobs, by spending the dividends on job creation programmes.
A ‘New Deal for Jobs’
The best solution to a loss of jobs is creating new jobs.
That’s what the US did when it was facing unprecedented loss of jobs after the crisis: the 2009 Recovery Act created or saved 1.6 million jobs a year for four years.
It spent $279 billion* putting people to work mending bridges, roads, and railways; building new trains and rail routes; cleaning property; retrofitting diesel engines to reduce their carbon dioxide output; making tap water safer to drink; improving schools; researching energy efficiency which led to progress on biofuels, more efficient batteries, superconducting wires and vehicles powered by natural gas. It paid the salaries of people working on wind, solar, and geothermal energy; improving hospitals’ and surgeries’ access to health information; building tens of thousands of miles of broadband lines, and training millions of people how to use it.
But the USA was not exceptional. Plenty of countries around the world also stimulated their economies, even if most didn’t make direct job creation their primary objective. Economists now have plenty of evidence about what does and doesn’t work.
Granted, dividends from a sovereign wealth fund would be unlikely to generate enough cash to fund public jobs on the scale the Bank of England research anticipates. Granted, there would be managerial hurdles. But the point here is to raise the idea.
The jobs which a new New Deal should create would depend on the political priorities at the time.
If it were being enacted in Britain today, I would suggest installing more residential and commercial renewable energy sources, training more carers to prepare for an ageing population, reducing waste and improving sustainability, shoring up flood defences, and building more houses**.
But my preferences aren’t the point. The point is we do not lack for work to be done.
Technology and online competition could mean a net loss of millions of jobs and an unprecedented structural hit to purchasing power, demand, and growth.
The most authoritative research by Frey and Osborne calculates that 57% of the jobs in OECD countries could be at risk. The Bank of England concludes that that would be equivalent to losing roughly half the jobs in Britain today.
It’s too early to say whether or not the worst case scenario will happen. We will have a race between the broadly ‘job-creating’ forces – the rising middle class in developing countries and cheaper stuff saving consumers money – and the ‘job destroying forces’ – automation and artificial intelligence and online competition pushing down margins.
But it’s not too early to say that we are heading for fewer middle jobs and more skilled workers doing less skilled jobs. Technological underemployment is with us today.
And surely this has contributed to some of what we’ve seen for the last few years: below trend investment and demand in the US and the UK, rising skill unemployment in some countries, and growth rising much faster for the richest than the majority.
Jobs are the main way money flows into the pockets of the vast majority of people.
If in the next decade or so we do get unprecedented technological unemployment, the consequences would be: lower purchasing power and growth, deflation, lower productivity, lower interest rates, worse health outcomes, increasing inequality, the decoupling of effort and reward, a pool of wasted education and skills, ever greater accumulations of wealth in the hands of the owners of the technologies and greater debt at the bottom.
It is sensible to start to think about how to plan for this possibility. Already, low long-term growth has led to calls for developed countries to take advantage of record low, in some cases negative, interest rates to borrow and spend more to stimulate their economies, such as this one from the OECD.
If it becomes clear that large scale unemployment and underemployment is dragging down demand and growth, the best solution is to create new jobs. As in the response to the global financial crisis, if companies won’t, governments should.
One solution is a permanent new deal to support employment and growth, funded from a sovereign wealth fund, comprising shareholdings in the companies which benefit the most from the automation and online competition which displace workers.
*$279 billion was the part that went on discretionary spending which put people to work. Much of the rest of the total bill went on tax cuts or Medicaid and unemployment benefits.
**Absurdly, the UK has a shortage of affordable houses, 1.7 million people looking for work, and a shortage of construction skills – all at the same time.