Work in the age of intelligent machines

How do you organise a society in which few people do anything economically productive?

Martin Wolf



As long ago as 1984, in his Paths to Paradise, André Gorz, a self-proclaimed “revolutionary-reformist” stated, baldly, that the “micro-economic revolution heralds the abolition of work”. He even argued that “waged work . . . may cease to be a central preoccupation by the end of the century”. His timing was wrong. But serious analysts think he was directionally right. So what might a world of intelligent machines mean for humanity? Will human beings become as economically irrelevant as horses? If so, what will happen to our individual self-worth and the organisation of our societies?

In a remarkable recent lecture, Adair Turner, former chairman of the UK’s financial regulator and chairman of the Institute for New Economic Thinking, addresses just these questions. He started from the assumption that intelligent machines will ultimately be able to perform most forms of current work better than people and at lower cost. This, he argues, is a question of when, not if. It will happen because of the progressive advance of processing power, the costless replicability of software and the rise of machine learning. Robot gods will make us all redundant.



Drawing on A Future that Works, a report published by the McKinsey Global Institute last year, Lord Turner adds that this future will not come evenly: some will be more affected far sooner than others. Moreover, even if intelligent machines cannot do every aspect of any given job, they can displace a great many workers.

With current technology, predictable physical tasks and collecting and processing of data will be especially vulnerable. By sector, “accommodation and food services”, manufacturing and transportation will be particularly vulnerable. According to a paper by Jason Furman, former chairman of the US Council of Economic Advisers, and Robert Seamans of the Stern School of Business, those who earn less and those with less education are more vulnerable.



Lord Turner argues that what is happening also explains the “productivity paradox” — rapid innovation, but low productivity growth — that I discussed two weeks ago. A big part of the explanation may be a shift from relatively high-paid jobs in sectors with relatively fast productivity growth, such as manufacturing, towards relatively low-paid jobs in sectors with low productivity growth, such as personal care, home health aides and retail sales. Of the 10 US sectors with the biggest forecast growth in employment between 2014 and 2024, which are expected to generate 29 per cent of all new jobs, eight have median wages below the national median. This, of course, would worsen inequality, and would have strongly negative implications for overall productivity. (See charts.)



That is not all. Lord Turner also suggests other reasons for rising inequality and low average productivity growth. The first is the growth of “zero (or near zero)-sum” activities, some of which are not measured in economic output and few of which contribute to social wellbeing: think lobbyists, flash-traders or tax lawyers. Even education has a strongly zero-sum character: it is a positional good. Moreover, such zero-sum activities are well paid and so extract a great deal of rent. Successful creators of digital near monopolies also enjoy a great deal of rent. So, not least, do owners of property in prosperous conurbations. The new economy then is the rentier’s paradise.

The second is the under-recording of the value of free services. This is possible. But free services — social media, for example — may, he notes, contribute little to welfare. Right now, the contributions may be much personal misery and the destruction of our democracies.




This then is the picture for the medium-term future: sluggish overall productivity growth and worsening inequality. This is inconsistent with stable democracy. More likely is an aggravation of today’s politics of greed and grievance. The outcome could be plutocracy, populist autocracy, or a blend. If automation ultimately rendered humanity economically irrelevant, the challenges would be even more radical.

In the medium term, so long as there is a reasonable prospect of jobs for people who want to work, the crucial policy will be subsidising jobs. It is also vital to fund high-quality public services for all, notably, health, education and transportation. Moreover, as Dean Baker argues, the concentration of incomes from scarcity rents cries out for higher taxation of wealth and top incomes, notably including land and intellectual property. Indeed, intellectual property is almost certainly too highly protected now. There is a case for some protection, but not too much of it. I believe Adam Smith would agree.



In the longer term, our descendants may face even more existential decisions (provided the machines allow them to make them). How might they organise society in a world in which few people can do anything that is obviously economically productive? The world might become techno-feudal, with an owning elite hiring great numbers of cheap human servants not for their value, but for the pleasure of domination. People might instead share the abundance more equally, with all enjoying the civilised leisure that was once the province of the very few. Ours is the first civilisation to view work as the highest calling. Maybe that strange prejudice will need to be discarded.



That is for the distant future, however, though one we must think about now. But the trends under way demand action. If the natural tendency of our economies is towards ever-rising rent extraction and inequality, with all its dire social and political results, we need to respond in a thoughtful and determined way. That is the great challenge.

China's Weak Dictator

The need to rein in diplomats speaks volumes about Xi's power.

By George Friedman 



Most observers take Xi Jinping’s ascension from president to dictator as a sign of China’s national strength. But I see things differently – to the chagrin of even some members of my staff.

Dictatorships are not imposed on healthy systems – especially in China. Historically, as China rises, it loses stability. When it loses stability, it installs a dictator. The dictator may take the form of an emperor or party chairman, but he is a dictator nonetheless. It is in this context that I have begun to form a tentative theory: that Xi Jinping’s strength is a facade.

One of the hallmarks of the Xi administration is his anti-corruption campaign. In truth, it is a good old-fashioned political purge, meant to remove those adversely affected by Xi’s efforts to settle the financial system and those who remain committed to the policies of Deng Xiaoping. In other words, moderate liberals and internationalists. These factions see Chinese integration into the international economic system as a necessary component of modernization and prosperity.

And no component of the Chinese political system is more attached to this internationalist posture than China’s diplomats – the very same diplomats Xi personally warned on Tuesday about straying from Communist Party directives.

Beneath the facade, China’s reality is far grimmer. Much of the population still lives in poverty. A significant component of the Chinese economic elite stand to suffer from Xi’s reforms. And China’s professors, diplomats and local government officials, especially on the coast, are nervous about the direction in which Xi is steering the country. Combined, these three groups could threaten Communist Party rule. To stop the threat from materializing, Xi must prevent a coalition from forming against him. This means a constant shifting of economic policy and political purges that aim to rectify China’s structural economic problems without creating revolutionary discontent. We therefore expect the government in Beijing and the opposition, such as it is, to undertake constant and apparently incoherent actions, popular demonstrations, inconsistent economic moves and threats against Beijing’s grip on the country. 

Indeed, we’ve had two examples of this in the past week alone. Random demonstrations like the recent protests by veterans of the People’s Liberation Army must be contained locally before they can spread throughout the country. Hence, they are put down by police, violently if necessary. As for diplomats and local government officials, they must be subjected to institutional intimidation so that they don’t stray from the party line. Vigilantes in Chinese foreign policy cannot be tolerated.

Complicating the situation are trade tensions between China and the United States. Trade tariffs are a tremendous threat to China. In just 10 years, China's export-to-gross domestic product ratio has gone from about 32 percent of the economy to 20 percent. This is less a reflection of China’s very urgent strategy of de-emphasizing exports and more a function of lower demand abroad. The decline, brought on by the 2008 financial crisis, destabilized a vast part of the Chinese economy. Protectionist measures by the top destination for Chinese exports – the U.S. – threaten to further destabilize the system.

The proper diplomatic approach to this new challenge would be a policy of accommodation, one that assuaged the U.S. and allowed trade to continue unencumbered. But Xi cannot be seen as weak. He must retaliate, even if his ability to inflict damage on the United States is limited.

This is all part of the facade – to get Chinese citizens who will be hurt by Xi’s moves to feel a sense of embattlement and loyalty to Xi’s regime.

The instinct of the diplomats Xi lectured Tuesday is to bridge the gap with the United States.
From a purely economic standpoint, they are right. But politically they cannot grasp the dilemma the emperor faces. It’s for that reason that Xi made the loyalty of this faction of China’s bureaucracy a public issue. He needs to make sure that they will follow his lead. The very fact that he is insecure about whether they will speaks volumes.

To be clear: This is just a theory. Xi may well be calling all the shots, and this may have been a simple stunt designed as filler for a slow news day. But unlike in the West, where the media follows the daily melodrama like a dog, the media in China are directly controlled by Beijing, and Xi’s recent moves suggest he knows the danger he and his country are in – and that he is moving with all necessary haste to prevent opposition from rising. Remember, Xi is just one man. Make enough enemies and stifle enough opportunities and eventually even the most powerful dictator’s position becomes untenable.

Is China’s Innovation Strategy An Unfair Trade Policy?

Shang-Jin Wei



NEW YORK – In his statement announcing a second round of punitive tariffs on imports from China, US President Donald Trump singled out the Chinese government’s “Made in China 2025” plan as a threat to US economic growth and a clear example of “unfair” trade practices. Is there any merit to Trump’s claim? And, equally important, is the plan good for China and the world?

Made in China 2025 is a strategic directive issued by the Chinese government in 2015 to upgrade the country’s economic structure and growth model over the next decade. The plan comprises five key priorities.

The first priority is to promote and accelerate innovation, indicating that Chinese leaders understand that the previous growth model, with its reliance on cheap labor, has now run out of steam. The second priority is improving the quality of products and services. The third and fourth priorities are to boost “green” or environmentally sustainable production techniques and renewable energy, and to promote the structural transformation of industries and firms. And the final priority is investment in human capital and talent development.

The Chinese view these goals as both desirable and necessary. For starters, rapid growth and labor shortages (owing to an unfavorable demographic transition) have caused wages in China to rise substantially, far exceeding those of other developing countries such as Bangladesh, India, and Vietnam. For China to become a high-income country, it must switch to an economic model that emphasizes innovation, productivity growth, and environmentally-friendly production and consumption.

Second, Chinese firms increasingly face barriers to investing in the US technology sector and to purchasing high-tech components from US and European producers. This has led many in China to believe that unless it creates its own high-tech firms and supply chains, it will have no path to high-income status.

In both the US and China, policymakers have become increasingly mindful of what Graham Allison of Harvard University has called the “Thucydides trap,” which suggests that when a rising power like China meets a hegemon such as the US, military conflict is hard to avoid. Against that backdrop, many Chinese have come to interpret US accusations of “unfair trade practices” as an excuse for the US to do what it was going to do anyway: block or otherwise forestall China’s rise to global economic predominance.

To be sure, Made in China 2025 is essentially an industrial policy. But industrial policies are not necessarily “unfair” or incompatible with World Trade Organization rules. In fact, the very concept of state-guided development was practically invented by the US over 200 years ago, when Alexander Hamilton, the country’s first Treasury secretary, called for more government support of manufacturing, through tariffs and other policies. Since then, US governments have channeled massive subsidies through the treasury, defense, and energy departments, as well as the National Science Foundation and other institutions, to fund innovation. The German government’s Industry 4.0 Strategy is a direct inspiration for the Chinese plan.

The Chinese government’s 2015 directive stated that the first “basic principle” of Made in China 2025 is “for the market to lead and the government to guide.” It also stipulated that the market should play a decisive role in resource allocation, and that the government must “actively reform its role (from direct intervention) to strategic research and guidance, perfecting supportive policies, and creating a favorable business environment for firms.” There is no explicit mention of governmental discrimination based on firms’ nationality, nor is there any language about forcing foreign companies to transfer technology to Chinese firms. What matters is how the policy is implemented on the ground.

The plan calls for the development of a number of high-tech sectors that are deemed to be important for future growth, and established a range of numerical targets for 2015, 2020, and 2025. These benchmarks include research and development expenditures as a share of revenue, the number of patents registered, broadband coverage ratios, automation diffusion rates, reductions in energy intensity and CO2 emissions, and so forth.

The history of such economic directives in China suggests that the authorities often miss the mark on many of these targets. In fact, my own research shows that the Chinese government’s industrial subsidy policies are not particularly efficient. If the government were to intervene less and allow domestic private firms to compete on an equal footing with both state-owned enterprises (SOEs) and foreign-invested firms, innovation would actually accelerate. On the other hand, if the government insists on being very active, the pace of economic catch-up with the US will likely be slower.

In principle, well-designed industrial policies can correct certain market failures and help countries achieve higher efficiency and more equitable social outcomes, which is why the WTO does not prohibit them. But the WTO does prohibit differential treatments for domestic and foreign-owned firms. As long as Made in China 2025 supports certain sectors regardless of participating firms’ nationalities, it can be compatible with WTO rules. Whether that is efficient or not is a separate matter.

If China suspects that other countries are pursuing a containment strategy to impede its technological development, then its resolve to follow through with Made in China 2025 will strengthen. Moreover, the government will be more inclined to favor firms over which it has greater leverage, such as SOEs. The result will be less efficient outcomes and less innovation for both China and the world.


Shang-Jin Wei, a former chief economist of the Asian Development Bank, is Professor of Finance and Economics at Columbia University.

• Net public debt is significantly lower as there are quite a number of US Federal agencies holding a significant portion of the US outstanding debt, like the Fed for instance, or the trust funds of Medicare and Medicaid.
• As with any balance sheet, one should not only look at one side of the ledger but also at the asset side like all of the buildings, public lands, the commodity resources below the public lands (see below) etc.

The federal government owns a great deal of valuable assets both above and below ground. The above ground assets include buildings, lands, roads, railroad infrastructure, levees, dams, and hydroelectric generating facilities, to name just a few, many of which are underutilized. Below the ground, the federal government owns the rights to mineral and energy leases, from which they receive royalties, rents, and bonus payments... The federal government's total mineral estate holdings are therefore about 2.515 billion acres of lands. Thus, the federal government's mineral estate land holdings surpass the total surface land area of the nation of Canada... IER estimated the worth of the government's oil and gas technically recoverable resources to the economy to be $128 trillion, about 8 times our national debt.... IER estimated the government's coal resources in the lower 48 states to be worth $22.5 trillion for a total worth to the economy of fossil fuels on federal lands of $150.5 trillion, over 9 times our national debt.

• Much of the outstanding debt (58%) is simply debt to ourselves. Foreigners hold 44% of the debt, actually down from 56% in 2008.
• Unlike households, economies have more tools at their disposal to deal with the debt, like increasing taxes, growing the economy or issuing currency to liquidate the debt.
• The US debt is denominated in US dollars, the US can print these dollars at will so it can't really go bankrupt. Yes, under certain circumstances, this could accelerate inflation and/or reduce international confidence in the dollar, but these circumstances are much narrower than some would like you to believe. If you have doubts here, re-read the part about Japan above, where despite massive BoJ bond purchases, it can't even reach its 2% inflation target, and the yen is still a safe haven currency in international markets.

If GDP growth is greater than interest costs plus new deficits, then the debt/GDP ratio will stabilize, all else being equal. Right now, the US government can borrow for 10 years at a 0.7% real interest rate; in comparison, real GDP growth was 2.8% in 1Q2018 (chart from JPM).

Put the current intermediate estimates for both Social Security and Medicare together, and you get a funding deficit that rises from 0.1 percent of gross domestic product in 2017 to 1.7 percent in 2035 and fluctuates between 1.6 percent and 1.8 percent for the rest of the century.

Following Treasury's example, I estimate that the tax bill passed in December will cut revenue by an average of 1.1 percent of GDP over the coming four years (between 0.8 percent and 0.9 percent if you factor in the growth effects projected by the Joint Committee on Taxation). That's less than the 1.7 percent of GDP that Social Security and Medicare are projected to add to the deficit in a couple of decades, but (1) it's not of a different order of magnitude and (2) it's happening now rather than two decades in the future.

We are spending down the corpus, and will have spent all of the Social Security Trust by 2034, while Medicare monies will only last until 2026. This might sound like we have time, but we don't, especially since nothing is being done to head off these catastrophes. It's full speed ahead into the reckoning.

Yet federal revenue, which has averaged 17.3 percent of GDP since 1950 and also happens to have been 17.3 percent of GDP in fiscal 2017, is projected by the White House Office of Management and Budget to decline to an average of 16.5 percent of GDP over the next four years, and given the many loopholes and outright mistakes people have been finding in the hastily written tax legislation, I wouldn't be shocked if it went lower than that.

• 'Baumol's disease' which shows that public sector productivity grows slower than the private sector, making it relatively more expensive over time (this originates from the fact that most public sector spending are services for which it's difficult or impossible to increase productivity).
• Shifting preferences; when people get richer, they tend to place more importance on a safe environment, on healthy products, on a cleaner environment, better schools for their children, better healthcare, etc. all sectors which make disproportionate claims on the public sector (through regulation, justice, law enforcement or direct government involvement).
• Economic complexity increases, which also tends to disproportionally increase claims on the public sector.
• Populations age, increasing healthcare and pension cost.