Massive unemployment is looming: What will businesses do?

Economists are not sure about the effects of robotization on labor markets and economies at large. The ‘Fourth Industrial Revolution,’ or the transformation of the economy that new technologies and artificial intelligence are bringing about, will surely wipe out jobs.

Yet, most optimistic economists contend that things will eventually even out with the creation of new jobs. After all, yes, coachmen lost their jobs to machine drivers when railways were built. In the end, however, unemployment never reached catastrophic levels.

Two Bank of England staffers, Mauricio Armellini and Tim Pike, contend this time may be different.  In an article published in the bank’s internal blog, they point out that “technologist Hermann Hauser argues there were nine new General Purpose Technologies (GPTs) with mass applications in the first 19 centuries AD, including the printing press, the factory system, the steam engine, railways, the combustion engine and electricity.” These GPTS “by definition disrupt existing business models and often result in mass job losses in the industries directly affected”.

Yet in the early 21st century, we know all too well that the speed of technological development and its application has accelerated exponentially. This time will not be like the 19th century, with progress slowly building up.

Quick remedies governments enact—minimum salary requirements, social protections and other measures that amount to a safety net—can backfire perversely. These decisions become an incentive for businesses to adopt robots earlier. Now, or in the near future, many jobs can be performed “more effectively and cheaply by machines — with the advantage of being able to work continually at minimal marginal cost,” Armellini and Pike say.

It is indeed tempting to look back at history and shrug off these concerns. Moreover, one singular theory upon which capitalism is based—Adam Smith’s ‘invisible hand’—can be demonstrated with a theorem. Economist Kenneth Arrow, who died in February at 95, had developed a model whereby producers and consumers, businesses and customers could match their needs or desires perfectly.

Yet it was a theoretical model of perfect equilibrium, as Arrow insisted over and over. Like the law of gravity that dictates that any object—whether it be a stone or a sheet of paper—falls at the same speed, it is only true in theory. For, in real life, air resistance hinders free fall. And we need to look no further than our streets and our news feed to understand how unequal the world is growing.

Partial jobs that may bring in some money do not count for employment. Driving around passengers for Uber may bring you some dollars and pay some bills. Yet it leads to a massive concentration of wealth for a very tiny group of people while wreaking destruction on a vast segment of a necessary trade, and necessarily well regulated, like fully licensed taxicabs and public transportation. And, most damningly, it creates a predatory ecosystem that poisons most Uber drivers themselves.

“There is growing concern in the global tech community that developed economies are poorly prepared for the next industrial revolution,” Armellini and Pike say. “We conclude that economists should seriously consider the possibility that millions of people may be at risk of unemployment, should these technologies be widely adopted.”

We agree. For one thing, those who think that the earlier industrial revolutions were not that bad may have a point on labor markets. But their one-eyed view omits a number of events very tightly linked to industrialization and the inequalities it brought about, including the Russian Revolution, the rise of fascism and much of the twentieth century, the bloodiest of History. And if you are one of those who do not believe in government, count your blessings that you were not in mile-long queues during the Great Depression, until Roosevelt came around with the New Deal, and that governments and central banks reacted quickly during the massive financial meltdown of 2008. Indeed, central banks are still pumping money into the system to keep the global economy alive. None of that was done by the invisible hand, which indeed, had quite a bit to do in unleashing this huge disaster.

There is no silver bullet for the complexity modern economies are faced with. Nothing highlights the gravity of the situation like Bill Gates’—the cofounder of Microsoft—suggestion to tax robots. Most of us can start doing the right thing, spending a little more but wisely, supporting hand labor, buying from our local community whenever possible and planning better our trips or spending a little more, hailing a cab. Go ahead. Delete Uber. Do it for good.

Yet there is something business leaders, mainly, and government officials can do to mitigate some of the worst effects. Use common sense. They will have to restrain their profit appetites for the bigger good. Slow down the pace of robotization. This may sound simplistic but there is no other way out for the time being. For if you don’t, you will soon be left with very few people to sell things to.

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