Robots do not destroy employment, politicians do

Robots do not destroy employment, politicians doI’m not worried about artificial intelligence, I’m terrified of human stupidity.

The debate about technology and its role in society that we need to have is being used to deceive citizens and scare them about the future so they accept to submit to politicians who cannot nor will protect us from the challenges of robotization. 

However, there are many studies that tell us that in 50 years the vast majority of work will be done by robots. What can we do?

We have lived the fallacies of dystopian estimates for decades.

I always explain to my students that, if we believed the fifty-year-forward studies of the past, it has been seventeen years since we have run out of water, oil, and jobs. Fifty-year estimates always suffer from the same mistakes. First, presentism. Take the current situation and exaggerate it. Second, sweeten the past. No, no past time was better. Third, always estimate an impossible and negative future by ignoring the evidence of human ingenuity and innovation.

The reality is that today, the world population has grown to 7.5 billion, and we have more work despite the technology revolution. Global unemployment is at historic lows, 5%, global poverty has fallen to unprecedented levels, from 80% in 1820 to 10% today. Infant mortality has been reduced to less than half, from 64.8 deaths per thousand births in 1990 to 30.5 in 2016.

We have plenty of natural resources, proven oil reserves have grown and we have more diversified sources of supply. All this has happened with -and thanks to- the greatest technological revolution ever seen.

More than half of the jobs that exist today were not even known twenty years ago. The empirical demonstration is that data from more than 140 years shows that technology creates much more employment than it destroys and that it is a lie that low-skilled jobs disappear forever. Others are created. A study by Ian Stewart, Debapratim De, and Alex Cole shows clearly that technology displaces the most boring, dangerous and hard jobs, that is, those that we do not want anyway, and creates many more jobs in service sectors, human knowledge, and interaction.

In fact, Deloitte studies, Ernst / Young, and others also foresee that we will need many more jobs in the future in support tasks and services adjacent to the new technology activities. What the prophets of doom always forget is that as long as the customer is human, the experience and interaction with other humans is not reduced. It increases

Never bet against human ingenuity. The greatest enemy of the prophets of the apocalypse is an engineer.

The most robotized societies do not suffer more unemployment, they have much less. According to data from the OECD of 2016, South Korea, Singapore, Japan, and Germany have the highest rates of robotization of work functions (530, 400, 305 and 301 robots per 1,000 employees respectively) and unemployment is less than 3.9%. Meanwhile, countries that subsidize low-productivity sectors and place the State as a “protective” agent have higher unemployment rates. France, which has less than half the robots of South Korea or Singapore (127 per thousand employees), has almost a three times higher unemployment rate than highly robotized countries. Spain has less still, 60% fewer robots than the leaders, and five times higher unemployment rate. McKinsey estimates that almost half of the competitiveness gain of the next 50 years will be explained by digitization and automation. This means higher salaries in all sectors, even lower-skilled labor.

I am sure that, as in the past, those estimates will fall short, both in the improvement of productivity and quality of life and in the advance of creative robotization. It will create many more and better jobs. Even for the sectors with low qualification, because they move to services and support.

The most representative companies in this phenomenon are denominated under the union of their initials: FAANG (Facebook, Amazon, Apple, Netflix, and Google). The spectacular development of these companies has not reduced employment. Unemployment in the United States has been reduced to the lowest level since 1968 while the companies that were supposed to lose due to technological progress have been strengthened by having to compete.

In the world, unemployment has continued to decline despite the fact that these companies were growing to be 27% of the joint capitalization of the US S&P 500, with business models that have created services and jobs that did not exist only a few decades ago. These companies have created many more indirect jobs than they have “destroyed”.

The excuse of “what happens with less qualified jobs?” hides the fallacy of interventionism.

Protectionism, subsidies, and welfare assistance neither protect nor create those positions in obsolescent sectors. The way to adapt low-skilled workers to technology is with training, but real training, at work. Technology has created up to 40% more unskilled jobs in addition to those it destroys, as we have seen in California, Texas or Illinois and in Asian countries.

A first positive impact on the use of digitalization is caused directly by these companies, which together employ more than 800,000 people worldwide, with a productivity level that is clearly superior to the companies in traditional sectors, and with better salaries.

Companies like Facebook and Google have more than 27,000 and 88,000 workers on their payroll, respectively, and pay more than 50% on top of the average salary of industrial sectors. Their business model is based mainly on advertising in digital media, a market that did not exist until a few years ago. Another 115,000 net creation of jobs came from new technologies in the US. Amazon, meanwhile, with a 44% share in the e-commerce market, is one of the main groups responsible for the creation of the more than 400,000 jobs generated by e-commerce companies in the United States, according to Michael Mandel. In addition, in the case of this company, the impact has to be extended to sectors close to electronic commerce, such as logistics, parcels, electronic payments, etc.

In Asia, a continent where robotization is a usual element in companies and production methods, they already know the positive effects of this phenomenon. According to the Asian Development Bank, the greater economic dynamism generated by robotization in 12 Asian developing economies between 2005 and 2015 has compensated for the destruction of employment derived from the implementation of automation processes and has created more additional employment. This transformation has led to the creation of 134 million jobs a year, a figure clearly higher than the 104 million jobs a year “transformed” by the substitution effect of labor due to automated processes. Between 43% and 57% of the new jobs created in India, Malaysia, and the Philippines during the last 10 years come from the technology sector. But the most important thing is that the increase in employment in services, tourism, hotels and adjacent sectors has doubled.

In Europe, digitalization is measured through the DESI (Digital Economy and Society Index), measured by the European Commission. Denmark, Finland, Sweden, the Netherlands, Luxembourg and the United Kingdom are the leaders in the digital economy. All of them stand out for three factors: A very high level of liberalization reflected in the Economic Freedom Index, a high labor flexibility and a superior level of digitization and robotization. All these countries have historically low unemployment rates (below 6%) and saw minor impacts on the labor market derived from economic shocks.

In addition, four of the six countries mentioned above also lead the ranking of patents per million inhabitants in 2017, according to the European Patent Office. These are Holland, Denmark, Sweden, and Finland. Not due to State intervention, but because more than 60% of Research and Development is privately financed. Studies of the European Commission concluded that the degree of robotization is able to explain 19% of the increase of employment in the manufacturing sector of countries such as Austria during the years 2009 to 2012, against the decrease of countries such as Spain, Italy or Portugal, where robotization and digitization are lagging. Likewise, there is a direct relationship between the degree of robotization of manufacturing companies, especially of large companies -and their productivity.

Automation does not destroy jobs. It leads the economies -especially the developed ones- towards an acceleration of the migration of workers from the manufacturing sector to the service sector; while digitalization addresses breakthrough market opportunities based on the digital ecosystem and the data business, which have already been dubbed the oil of the 21st century. That is, it makes the economies stronger, improves the wage bill and reduces risky jobs.

None of these phenomena is a threat to the labor market. Only in France, McKinsey has estimated that the internet has been able to create 2.4 jobs for each job transformed. Technology has made the work factor play a more important role, not less.

What is taking place, and will be accentuated in the coming years, is a process of migration from sectors of low productivity and intensive in unskilled labor that undertake routine and dangerous tasks, towards sectors oriented to services, to personal interaction, with different levels of qualification, but not necessarily only high skills, where training will be an essential element.

No, a construction worker, a salesman or a plumber are not condemned to disappear. They will transform.

The human factor will continue to be essential in the age of artificial intelligence, but the only thing for which it will not be necessary is to carry out high-precision tasks. I remember when we were told in 1991 that in 2011 no one would travel, that the meetings would be carried out via video conference, that meetings would disappear and we would work detached from human contact. They could not have been more wrong. Presentism, exaggerating what we consider a threat today, always leads us to make mistakes.

Citizens love progress, but they fear change. We want to improve, but we are extremely conservative. 

It is not a surprise that those who call themselves “progressive” are the most regressive. They want to return to 1973, and they are against competition, innovation,  disruptive technologies, international trade… And they want to impose taxes on technology. These regressive politicians are the ones that subsidize the sectors of low productivity, penalize the high productivity ones via taxes, and then they claim that we need to change the production model.

Introducing fear into society is very politically profitable. Politicians tell us that we are condemned by an unstoppable threat and that “this time is different”, and that we have to give up more freedom and give them more money in exchange for a security that they cannot and will not provide. But when they fail, and they will, by then they will have already put another shackle on us. Universal basic income, subsidies with someone else’s money and interventionism are the excuses of the political elite to keep citizens obsolete and create hostage clients.

Artificial intelligence, robotization and digitalization will make the world better, and create more and better employment for all. Fortunately, they are also the key that will free us from the populist interventionists.

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

4 thoughts on “Robots do not destroy employment, politicians do

  1. I have to disagree with one aspect of this article. With the exception of Apple, the FAANGS are not as highly automated as you might think. But first an observation.

    We are really in a self service economy of sorts. In 1930, if I wanted a widget I called the salesman or clerk and they facilitated my order right down to the packaging. These days I get on Amazon and do it myself. More efficient, sure. But note the subtle change. In the first instance for the widget I was merely the customer. In the latter instance I am now the customer-worker. i have assumed the role of clerk.

    If one agrees that we are clerking, then Amazon has the second largest workforce on the planet. And Facebook? They have the largest. Don’t quibble, those Facebook pages and updates do not assemble themselves. One has to work at it. Amazon believes in this point of view so much they actually have an app for it — Mechanical Turk.

  2. Excellent article. We need more critical thinkers like Daniel more than ever. We have gone from an agrarian to manufacturing to a service economy. Few don’t understand that this country used to be all farmers and they “lost” all their jobs to technology. Same with manufacturing and now we are a service economy and build things like software. We moved by the “food chain” to higher value services (sales, marketing, etc). The entire country needs a basic lesson in Austrian economics.

  3. This is gotta be the dumbest and most gormless commentary on the subject of AI/automation, I’ve ever read.

    What this article shows, is that anybody with no understanding of the subject matter, can pass themselves off as a supreme sophist.

    Perhaps the author of this flimflam, will tell us next, that the sun is no longer rising in the east.

    The fundamental problem, is that people who talk down the threat of AI/automation, are only looking at the next 10/15/20 years at the most. The real problem of course, comes when the young children of today, who reach middle-age over the next 30/40 years, find that virtually all jobs have disappeared.

    And just imagine, what it will be like, for young people entering the workforce in another 40/50/60 years.

    1. Another proof of the idiocy of dystopian alarmists is your uneducated and insulting comment. It says everything about the imbecility of those, like you, who do not analyze facts. Your alarmist kind have been wrong over and over about natural resources, employment and technology and hide behind undocumented and insulting comments like the one you just posted. We will publish it only to show what people with no arguments -like you- believe.

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