One of the underpinning arguments behind those arguing for a Basic Income Guarantee (BIG) , alternatively known as the Universal Basic Income, is that automation is creating a new technological paradigm, where, as Paul Mason describes it:
information technology is preventing the normal adaptation process, whereby capitalism — as a complex system — reacts to crisis, to the exhaustion of old business models, to the low profitability of old businesses and old sectors.
As the argument is very coherently put by Mason, I will concentrate on his presentation of it. He argues that information technology does three things:
First, it dissolves the price mechanism. The economist Paul Romer pointed out in 1990 that information goods — if they can be copied and pasted infinitely, and used simultaneously without wear and tear — must fall in price under market conditions to a value close to zero.
[…] The second impact of information is to automate work faster than new work can be invented.
Around 47% of all jobs are susceptible to automation, say Frey and Osborne (2013). And information does more to transform work: it makes it modular, loosening the link between hours worked and wages; and it makes work possible to do outside the workplace — blurring the division between work and life.
[…] Fortunately there is a third impact of info-tech. It has begun to create organisational and business models where collaboration is more important than price or value. […] But as soon as technology allowed it, we started to create organisations where the postitive effects of networked collaboration were not captured by the market. Wikipedia is the obvious example; or Linux; or increasingly the platform co-operatives where people are using networks and apps to fight back against the rent-seeking business models of firms like Uber and Airbnb.
Let us look at these in turn. Mason argues that the near-zero marginal costs of unit production means that there is “a dramatic downward impact on the cost of production of real things, and the same vortex of cheapening happens everywhere.” He argues that “capitalism responds by inventing mechanisms that put a price on this zero-cost product. Monopolies, patents, WTO actions against countries that allow copyright theft, predatory practices common among big technology vendors.”
This is a fallacious argument, because it confuses the marginal unit production costs with the overall product lifetime costs. As technology matures marginal production costs always fall, and this has typically been associated with a shift of production from developed to developing countries. The shift of production to lower wage developing countries already represents a move, from the point of view of workers in higher wage developed countries, towards dramatic price competition with which they cannot compete.
From the point of view of developing countries, whose economic factor endowments includes cheap labour, but less access to investment capital or high technology, then starting production of technologically mature products allows them to move up the economic food chain at low cost.
From the point of view of developed economies, whose economic factor endowments include higher labour costs but greater access to investment capital and a more developed technological base, then research and development allows the possibility of innovating to create entire new markets. Much research and development may fail to reach the market, but the premium profits gained by intellectual property rights for new technology areas that are successful, means that overall this is a viable economic growth strategy.
Mason’s argument fails to take into account that technologically innovative products will command a price premium, not only because people are prepared to pay those prices for desirable products, but that patents, commercial confidentiality and premium brand value will allow early entrants to recover their R&D and launch costs. The marginal unit costs of production will therefore only be a relatively small component of price for innovative products. As technology matures, whether it is TV sets, mobile phones, computer disk drives or motorcycles, then the early innovators will drop out of the market, as production moves, typically, to lower wage cost countries.
There is nothing inherently different about information technology in that the marginal unit costs of production may approach zero, but the product development costs of innovation are still recovered when the technology can demand an initial price premium. Corporations will continue to invest in science based R&D and technological innovation in the developed countries to leverage on the legacy of knowledge based and physical infrastructure, and because the higher material standard of living attracts the most highly skilled staff necessary for those activities. Particular areas of future growth are likely to be pharmaceuticals and bio-technology, agricultural research and telecommunications in the broader sense of exploiting the advantages of the networked world. The entertainment industry, for example games, TV and film, but also sport and sport science are also growth areas.
To consider his second argument, about the blurring of work and leisure, Mason underestimates the underpinning of the knowledge economy by the material economy. In a Guardian article he uses this example:
You can see the beginnings of the separation on any business flight. Men and women hunched over laptops and tablets, elbows so close that if it were a factory it would be closed on health and safety grounds.
But it is a factory, and they are working – some of the time. They flip from spreadsheet to a movie to email to solitaire: nobody sets a timer – unless in one of the time-hoarding professions like law. At the high skill end of the workforce we increasingly work to targets, not time.
Let us put to one side the naïve conceit that business travelers on a foreign trip are “working in a factory”, and consider the scenario. They are sitting on an aircraft, which is a high tech product at the top of the foodchain, that aircraft is the product of a vast, organized collaborative production network, that has involved mining, petrochemical extraction, raw material processing, machine tool design and production, design and production of instruments, engines, software, seats, and catering equipment. It has involved the development of aviation standards, communications standards, it has involves testing and accreditation. It is flown and serviced by skilled staff, who have travelled to work – needing to be on time – in cars or on public transport, those aircrew will stay overnight in hotels, staffed by other workers. The airport employs thousands of service technicians, air traffic controllers, restaurant staff, cleaners, security staff and baggage handlers. The computers our travelers are working on have also been designed and manufactured. The telecommunications protocols that network their computers together are also based on a vast industry, also at the top of the technological foodchain, where protocols are designed and improved upon, spectrum auctioned at dizzyingly high prices, forcing more innovation for more efficient use of bandwidth. A huge industry exists in the design, manufacture, system integration and deployment of the communications networks, from switches to base stations. The computers and telecommunications protocols are exposed to malware and other security threats that also requires an industry developing and deploying countermeasures.
Mason has made the mistakes of generalising from his own work experience, and entertaining the conceit that he is more skilled than the engineers and technicians whose work provides the platforms upon which he types and travels.
Mason argues that
The automation revolution is possible, but without a radical change in the social conventions surrounding work it will not happen. The real dystopia is that, fearing the mass unemployment and psychological aimlessness it might bring, we stall the third industrial revolution. Instead we end up creating millions of low skilled jobs that do not need to exist.
Certainly, there is a challenge for a developed country whose factor endowments favour high-skilled innovative jobs, in ensuring that the economic benefits are spread across society and not isolated in high tech bubbles. However, the high wage sectors of the economy also provide a market for other productive work.
The amount of labour required to reproduce the living standards of our society is not a fixed constant, as it varies with cultural expectations. We cannot assume that lower production costs will always be desirable. The growth of markets for tattooists, butchers, cake decorators, bakers, brewers and candle makers is a function of a growing demand for higher quality hand-crafted products. Many diary farms have responded to the collapse of prices for milk by moving up the production chain towards craft cheese and yogurt production, these attract premium prices greater than those for mass produced products.
Automation need not lead to a reduction of the amount of human labour from the production process, it can lead to a reduction in raw material, component, transport and informational costs to allow for the expansion of areas of the economy where human creative labour is valued.
Similarly, the advances in medicine and the ageing population are an opportunity for an expansion on the care and social services sector, where government policies and priorites have deliberately suppressed wages below their market value. A shift in social and political priorities to value and remunerate the care sector as professional and skilled jobs, paid for by taxation, would lead to a massive expansion of employment opportunities. The fact that these jobs are currently low paid does not mean that they always need to be, and the staff are already professional, but greater reward and recognition would increase their status and make these sought after jobs.
Mason’s third point about information technology creating emerging networks of cooperation outside of the market is a bit starry eyed. As a professional engineer I once worked on a system for a country with a socialist government, who had specified that wherever possible Open Source software, such as the Linux operating system, should be used. This was more difficult and created more work, not less. He underestimates the degree to which technological innovation, and then integrating that innovation into successful products, requires structured organizational cooperation on an industrial enterprise scale. Perhaps new apps might be developed by a loose collaborative network, but for example to shift the telecommunications infrastructure to 5G needs professional engineering, and industrial capability.
The argument that robots will be taking our jobs, and that to avoid there being millions of low paid, low skilled non jobs we need a universal basic income, is a retreat from the idea that it is possible to value and remunerate high skilled jobs. The biggest current obstacles to the creation of jobs is a government whose economic policies discourage investment, and where care sector jobs are undervalued and underpaid. Both of these are political choices that can be changed.