The robots are coming. Will they bring wealth or a divided society?

Gavin Kelly

January 3, 2014

Driverless cars, robo-ships and delivery drones are likely to become commonplace in the decades to come. One labour market expert argues that a 'second machine age' will test our ability to spread the rewards fairly


Whether it's our humdrum reliance on supermarket self-service tills, Siri on our iPhones, the emergence of the drone as a weapon of choice or the impending arrival of the driverless car, intelligent machines are woven into our lives as never before.

It's increasingly common, a cliche even, for us to read about the inexorable rise of the robot as the fundamental shift in advanced economies that will transform the nature of work and opportunity within society. The robot is supposedly the spectre threatening the economic security not just of the working poor but also the middle class across mature societies. "Be afraid" is the message: the march of the machine is eating into our jobs, pay rises and children's prospects. And, according to many experts, we haven't seen anything yet.

This is because the power of intelligent machines is growing as their cost collapses. They are doing things reliably now that would have sounded implausible only a few years ago. By the end of the decade, Nissan pledges the driverless car, Amazon promises that electric drones will deliver us packages, Rolls-Royce says that unmanned robo-ships will sail our seas. The expected use of machines for everyday purposes is already giving rise to angst about the nascent problem of "robot smog" as other people's machines invade ever more aspects of our personal space.

As economically significant, perhaps, as the rise of super-gadgetry is the growing power of software to accurately process and respond to data patterns. This raises the prospect of machines reaching deep into previously protected areas of professional work like translation, medical diagnostics, the law, accountancy, even surgery.

As yet, this techno-hype isn't matched by much hard evidence. According to the International Federation for Robotics, the use of robotics in leading advanced economies has doubled in the last decade significant, but less than you might expect.

The experience, however, varies dramatically: uptake exploded in China, while the UK lags far behind its competitors. The key question is whether the upward trend is about to take off, giving rise to sweeping changes in production that dislocate large tranches of the workforce.

That's certainly the view of several highly influential US economists, such as leading blogger Tyler Cowen from George Mason University, and Erik Brynjolfsson and Andrew McAfee from MIT. In works with bracing titles such as Average is Over and Race Against the Machine, they have seized the public debate with their genre of arresting, unequivocal and futuristic argument that blends techno-optimism about the potential of machines with chilling generational pessimism about the divisive consequences for much of society.

Brynjolfsson and McAfee, whose new book The Second Machine Age is set to be one of the zeitgeist works of 2014, argue that the digital revolution is about to crash into our jobs market. It's taken a while Time magazine awarded the personal computer machine of the year in 1982 but, they contend, the technology has now matured to a point where it will have the same scale of impact on production as the steam engine once did.

Similarly, Cowen speculates that the future belongs to a gilded 10%-15% of workers whose skills will augment intelligent machines the rest can look forward to long-term stagnation or worse. The harsh labour market experience of the young over recent years is a mere taster of what's in store. Growing numbers of low-skilled workers risk being unemployable: there won't be a wage at which it will be worth employing them. Swaths of the working poor will make ends meet only by migrating to areas offering very cheap housing, crumbling infrastructure and low taxes.

Welcome to the American future: burgeoning favelas leavened only by free Wi-Fi. Some of this has a dystopic, Blade Runner feel it's striking how much of this economic futurology comes from the US. The more sober UK debate is concerned with deciphering the empirics of the recent past rather than conjecturing about the future.

At the LSE, the respected economist Alan Manning, who has led work on the polarising impact of technology on our jobs market, laments only half-jokingly that he'd like to have the time to develop a new subdiscipline on  science-fiction economics . It would bring rigour to our understanding of possible societies in which machines do radically more and humans less. For now, we look overseas for visions of where the robots may lead us.

As with all prophecies of doom, or indeed those of an impending economic boom, we should treat such visions with caution. Predictions about the uniquely transformational yet job-killing impact of technological change are as old as capitalism itself. There's never been an era without plausible experts warning the population that they are on the cusp of a new, usually scary, world resulting from technological breakthrough. Occasionally they're not wrong; mostly they are. Which isn't to downplay technology as the motor of economic change. Time and again from spinning wheel to steam engine it has had disruptive implications for the workforce. But labour displaced from field or factory eventually found new, more productive roles, demand expanded, living standards rose.

The lag, however, can be a long one. Not long before his death in 1873, John Stuart Mill remarked that the industrial revolution had not yet had much impact. This seemed an extraordinary observation, but it captured at least a partial truth. As the economic historian Brad DeLong has shown, from 1800 to 1870 real working-class wages grew at just 0.4% a year before tripling to 1.2% from 1870 to 1950 (reaching almost 2% in the golden postwar decades). Similarly, we are yet to experience the true gain, whatever it turns out to be, as well as the pain, of the robot era.

To get a better sense of the impact of technology on our labour market we don't need to rely entirely on frothy speculation about the future. There is a decade or more of research to draw on. The rise of information and communications technology (ICT) is hardly new. The dominant view, both in the UK and elsewhere, is that it has already been eroding a swath of jobs that involve repetitive tasks capable of being automated and digitised. This has disproportionately affected roles in the middle of the income distribution such as manufacturing, warehousing and administrative roles.

This doesn't result in lower overall employment for most economists the main change is to job quality, not quantity. There has been a rapid growth in demand for high-skill roles involving regular interaction with ICT, as well a rise in lower-paid work that is very hard to automate from caring to hospitality. Consequently the balance of employment has shifted upwards and downwards with less in between; as Manning puts it, the labour market has been polarising into "lovely and lousy jobs". The impact of technology has been gradual but inexorable "it only goes one way", he tells me. In some sectors the decline in employment and relative pay has been dramatic: the typical heavy goods driver receives less in real terms today than a generation ago.

Some of this is contested. Recent evidence suggests the extent of polarisation may be overstated as it hasn't taken into account entirely new middle-income roles that replace old ones. Others point out that job-title inflation means that yesterday's mid-level jobs are sometimes counted as today's high-level ones. Some roles that are popularly assumed to have fallen prey to machines have adapted and survived as President Obama realised to his cost when he asserted that ATMs have led to the demise of bank tellers (their numbers have risen). And it's important to keep a sense of proportion: between 1990 and 2010 employment in hard-hit occupations in the UK like skilled trades fell by 25% and administrative jobs by 20%. Big losses, but they hardly represent the death of mid-level jobs.

A narrow focus on technology is also inadequate, as it fails to explain some of the big shifts of the last decade like the explosion in rewards at the very top 60% of the enormous increase in the slice of income flowing upwards to the richest 1% over the last decade went to those working in finance. To lay this at the door of the anonymous force called "technology" is to excuse way too much. Sure, developments in ICT were relevant, but they don't explain political choices over deregulation or account for rapacious rent-seeking by the financial elite. Wage inequality has many authors, from the demise of collective bargaining to the rise of globalisation. As the influential Washington-based EPI thinktank has argued: don't make robots the fall guy.

Nor does an exclusive techno-focus illuminate the post-crisis polarisation of our jobs market, which has seen recession-busting increases in high-paying jobs in sectors like business services alongside a big growth in low-paid work, with sharp falls in between in sectors like construction. Further signs of the impact of technology? Doubtful. This pattern has coincided with a demand-starved economy, an investment strike by business and plummeting wages. Indeed recently the robots could be forgiven for worrying about their prospects given the falling cost of labour. It all adds up to a complex story. The hollowing out of the jobs market is real and important. But its scale can be overstated and technology, though crucial, is by no means the only factor at work. None of this means we should be sanguine about the future.

Given the uncertainties and the capacity of market economies to adapt to shocks, many will assume that things will continue much as they have done. Perhaps. But if the techno-enthusiasts are at least partly right, the consequences will be far-reaching.

Fortunately, perhaps, at least some of the issues that this would mean grappling with are more extreme versions of those we should be worrying about already. The rise of the robot is likely, for instance, to result in an increasing share of GDP flowing to the owners of capital at the expense of labour something that has recently been occurring across many OECD countries (though less so in the UK than is often assumed). An acceleration of this should rekindle interest in finding ways to distribute the ownership of assets more evenly as well as finally prompting a serious discussion about shifting some of the burden of taxation from labour towards wealth.

Accelerating wage inequality, together with a rise in economic insecurity, would sharpen the need to bolster our working-age welfare system at a time when it's already creaking and has few political friends.

Whether the greater democratisation of economic risk if those in medicine, law and accountancy also feel the pressure would shift the political dynamic remains to be seen.

We also need to focus on those occupations that are widely expected to grow in number and are dramatically less likely to be displaced by machines such as care of the young and the old. They are heavily reliant on the state. Securing the fiscal basis and public consent to fund these crucial labour-absorbing industries over the next ageing generation, already an enormous issue, would become even more pivotal.

Our historical weaknesses on education policy would cost us more dearly. The wage penalty arising from flaky sub-degree-level qualifications a longstanding weakness would rise, as would the premium for those who can combine rigorous analytical thinking with creativity. Massive wage returns are likely to flow to those with applied postgraduate degrees ensuring fair access to them would become a more central feature of distributive politics.

Just as importantly, we need to prevent robot-fear being used as a force for fatalism. There are already voices arguing that the march of the machine means that a decent wage-floor is simply unaffordable. Yet the evidence that the minimum wage has worked well without costing jobs is vastly superior to that suggesting we are entering a new era of machine-peril. Let's not get too spooked.

JM Keynes, writing in 1930 as the Great Depression intensified, was prophetic about today's public anxieties. "We are suffering from a bad attack of economic pessimism ... people say that the rapid improvement in the standard of life is now going to slow down." He dismissed this sentiment, putting it down to the upheaval of rapid economic change, and argued that his generation's grandchildren today's baby-boomers would be better off, which of course they are.

We should be equally confident our own grandchildren will also grow up in a digital economy that is far richer than today's, driven on in large part by further technological breakthroughs. It's harder than ever, though, to have the same confidence that this greater prosperity will be evenly shared out in the "age of the robot".

Gavin Kelly is chief executive of Resolution Foundation