To start, let's review my basic thesis. Mass production and competition, facilitated by ever improving technology, have been delivering better and cheaper products and improving many people's lives (at least in the developed world) for nearly two centuries. Capital, in the form of technology, and people--labor--work together in today's system to produce goods that people purchase using earnings from their labor. As technology grows exponentially better, an ever greater range of jobs are open to displacement. When technology displaces some yet to be determined percentage of labor, this system swings out of balance; there are simply not enough people with sufficient money to buy the products made, no matter how cheaply. We have not yet reached this tipping point because, throughout most of this period, the new jobs created by technology have largely offset the losses. However, employment trends in the past 10-15 years in the Western world suggest that this effect is no longer operating to the extent that it was, if at all.
In brief, the problem is that although technology produces greater wealth (as all economists agree), without its transfer to the masses through wages paid for labor, the number of consumers becomes insufficient to justify further production. The owners of the capital assets accumulate more wealth--and we see this happening in the increasing inequality in society--but they cannot match the consumption of the masses. Capitalism, or perhaps more precisely, the free market then collapses.
Let's first look at the production side of the above equation. What can be done to prevent job losses outpacing job creation as a result of technological advances? Can we prevent or put a damper on the great hollowing out of middle-income jobs that is creating a dumbbell-shaped distribution of a few highly-paid experts at one end and a shrinking swathe of lower-paid, less-skilled workers at the other? Can (or should) we move to address the growing imbalance of power and wealth between capital (especially technologically based) and labor? Let's be clear at the start, however, turning off automation is not an option I consider.
My suggestions, emerging mainly from the thinking discussed earlier, are mainly economic and social in nature. An obvious approach is to use the levers of taxation--as is done in many other areas--to drive a desired social outcome. We could, for example, reform taxation and social charges on labor to reduce the cost difference between using people and automating a process. In a similar vein, shifting taxation from labor to capital could also be tried. I can already hear the Tea Party screaming to protect the free market from the damn socialist. But, if my analysis is correct, the free market is about to undergo, at best, a radical change, if employment drops below some critical level. Pulling these levers soon and fairly dramatically is probably necessary; this is an approach that can only delay the inevitable. Another approach is for industry itself to take steps to protect employment. Mark Bonchek , writing in a recent Harvard Business Review blog, describes a few "job entrepreneurs" who maximize jobs instead of profits (but still make profits as well), including one in the Detroit area aimed at creating jobs for unemployed auto workers.
Moving from the producer's side to the consumer's view, profit aside, why did we set off down the road of the Industrial Revolution? To improve people's daily lives, to lessen the load of hard labor, to alleviate drudgery. The early path was not clear. Seven-day labor on the farm was replaced by seven-day labor in the factory. But, by the middle of the last century, working hours were being reduced in the workplace and in the home, food was cheaper and more plentiful; money and time were available for leisure. In theory, the result should have been an improvement in the human condition. In practice, the improvement was subverted by the mass producers. They needed to sell ever more of the goods they could produce so cheaply that profit came mainly through volume sales. Economist Victor Lebow's 1955 proclamation of "The Real Meaning of Consumer Demand" sums it up: "Our enormously productive economy demands that we make consumption our way of life... that we seek our spiritual satisfaction and our ego satisfaction in consumption... We need things consumed, burned up, worn out, replaced and discarded at an ever-increasing rate". Of course, some part of this is human nature, but it has been driven inexorably by advertising. We've ended up in the classic race to the bottom, even to the extent of products being produced with ever shorter lifespans to drive earlier replacement. Such consumption is becoming increasingly unsustainable as the world population grows, finite resources run out and the energy consumed in both production and use drives increasing climate change. As the president of Uruguay, Jose Mujica, asked of the Rio+20 Summit in 2012, "Does this planet have enough resources so seven or eight billion can have the same level of consumption and waste that today is seen in rich societies?"
My counter-intuitive suggestion here, and one I have not seen raised by economists (surprisingly?), is to ramp down consumerism, mainly through a reinvention of the purposes and practices of advertising. Reducing over-competition and over-consumption would probably drive interesting changes in the production side of the equation, including reduced demand for further automation, lower energy consumption, product quality being favored over quantity, higher savings rates by (non-)consumers, and more. Turning down the engine of consumption could also enable changes for the better in the financial markets, reducing the focus on quarterly results in favor of strategically sounder investment. Input from economists would be much appreciated.
But, let's wrap up. The title of this series asked: will automation through big data and the Internet of Things drive the death of capitalism? Although some readers may have assumed that this was my preferred outcome, I am more of the opinion that capitalism and the free market need to evolve rather quickly if they are to survive and, preferably, thrive. But, this would mean some radical changes. For example, a French think-tank, LH Forum, suggests the development of a positive economy that: "reorients capitalism towards long-term challenges. Altruism toward future generations is a much more powerful incentive than [the] selfishness which is supposed to steer the market economy". Other fundamental rethinking comes from British/Scottish historian, Niall Ferguson, who takes a wider view of "The Great Degeneration" of Western civilization. In a word, this is a topic that requires broad, deep and urgent thought.
For my more IT-oriented readers, I suspect this blog series has taken you far from basic ground. For this, I do not apologize. As described in Chapter 2 of "Business unIntelligence", I believe that the future of business and IT is to be joined at the hip. The biz-tech ecosystem declares that technology is at the heart of all business development. Business must understand IT. IT must be involved in the business. I suggest that understanding the impact of automation on business and society is a task for IT strategists and architects as much, if not more, as it is for economists and business planners.
Image from: www.moonbattery.com/archives/2010/07/prehistoric-cli.html. All elephant photos in the earlier posts are my own work!
Posted March 11, 2014 6:47 AM
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