I just read a troubling article in The Future of Work newsletter. I find it particularly troubling in this era of “Government-as-provider” thinking that seems to be all the rage in the US capitol.

Will Automation Lead to Economic Ruin?

by Charlie Grantham and Jim Ware

Martin Ford is an entrepreneur, the founder of a Silicon Valley software firm, and a very thoughtful person. If you care at all about the future of the economy, the future of work, and the future of society, you will find this a very provocative read.

Ford asks an important but unusual question: will automation lead to economic ruin?

His basic argument? Technology is so good at increasing productivity that it could eventually eliminate just about every job in the entire economy. At first that sounds almost idyllic: we’ll have everything we need with almost no effort at all.

But wait a minute; if we don’t have to work, we don’t have jobs—and that means we don’t have any personal income. How do we feed and clothe ourselves?

Yet that’s a very likely future in Ford’s view. But he’s really just asking “What if?” He’s not claiming that a jobless high-tech future is inevitable, but he does raise some really important questions about what that kind of world might be like. Just as importantly he offers some very concrete suggestions about what we as a society could do to stave off disaster.

… this is where Ford gets really creative; he suggests imposing new taxes on companies to capture for society at large a small portion of the savings that come from automation. [emphasis mine, Ed.] When you think about it, most of the revenues society uses to pay for basic needs like defense, education, fire and police protection—and yes, even health care—come from personal income taxes. And as we experience one “jobless recovery” after another, the percentage of the population that is employed full-time—and paying all those taxes—continues to decline.

So Ford recommends a new kind of tax policy, one that transfers some of the productivity gains from automation into the federal treasury, for redistribution that creates purchasing power for those who are displaced by automation. Now before you get too worked up about that “socialist” idea, remember that without personal income there wouldn’t be customers for anyone’s products.

Let’s pause for a moment here and unpack what you have just read. If automation continues to improve and to displace workers from the workforce, would this cause some kind of large-scale poverty? I believe that the answer is, “It depends”. If some sort of android were suddenly introduced on the market that could cheaply replace a large percentage of the workforce in a very short time, then yes, I believe there would be an employment crisis.

However, I do not believe that this transformation of the workplace would happen quickly enough for labor markets to experience such a drastic upheaval. Certainly not requiring a new tax to support all of the newly unemployed – possibly forever. Unfortunately there is an apples-to-oranges comparison that – at first glance – appears to offer a morally-sound example of how this has happened in the past:

Another Ford—Henry—understood that reality so well that in the early years of the automobile industry he voluntarily increased the hourly wages of Ford Motor Company employees so they could afford to buy the cars they were producing—thereby increasing the market demand for those very cars. Think about that for a long time before you dismiss Martin Ford’s “radical” ideas for a very different kind of economic justice.

Ugh. “Economic justice“. The last words that you hear before someone steals something from you to give to someone else. This analysis seems to leave out an important issue: transformation of the workplace leads to a transformation of the economic system itself. An exponential increase in automation would indeed lead to the ruin of the current system, however, the system will, by necessity, have to change. The Industrial Revolution transformed not just the nature of the manufacturing system but the entire economy, and the governments that once controlled them.

The Industrial Revolution swept away the Feudal economic system, as automation transferred the ownership of the means of production from the nobility to the new merchant class (peasants with hand looms were replaced by steam powered looms, etc.). Obviously a steam powered loom was not in the political or economic best-interest of the land-owning nobility, but they did not have the foresight or the ability to control these technological developments. I would submit that the coming “era of automation” would have a similar effect.

Who Can Control the Means of Production?

Governments that would attempt to control these new means of production would soon find that there were less people willing to automate their businesses if it meant that they would have to give up their own profits to support the people that had been displaced. What is the point of replacing a worker with a robot if you can’t use those savings the way that you want to? Changes in law and policy often result in unintended changes in corporate behavior.

The ubiquity of the Internet in the developed world has already had a massive impact on personal behavior and once again threatens the status quo of the the current economic system with regards to the ownership of the means of production. Increased automation would soon reach a point of diminishing returns, with respect to the economic and political power of large corporations and manufacturing industries. In fact, the ultimate result of automation would likely come from the invention of a “nanofactory” that would have the potential of utterly transforming all economies. (The Center for Responsible Nanotechnology has more on the risks and benefits of nanotechnology)

In conclusion, I would like to say that I believe that increased automation is a good thing, something to be worked toward rather than be afraid of. In fact, I would like to see the systemic transformation of an economy that automation would bring. For more information on this subject, I recommend Cory Doctorow’s brilliant work of speculative fiction, Makers (Amazon aff link).

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