The ownership of the machines

CGP Grey makes great explanatory videos. They are very thoughtful and noticeably PowerPoint generated but this time he branched out into a massive 15 minute documentary styled affair. The video is “no humans need apply” and it deals with topics near to my co-blogger Erik Brynjolfsson’s heart.

The story in the video is that if you don’t think the robots can replace you (a) look back at the horses and (b) look forward at what’s happening in robot technology now. But because it does its job so clearly, I thought it would be useful to consider a little more carefully the economics of all this and whether, indeed, there will be mass unemployment in the future.

While the video may make you feel sad for the horses, you have to remember that there are just fewer of them. This is because horses were not labour but, in fact, capital. So when they were replaced by oil and stream powered capital, it was a substitution of capital goods or, more to the point, fuel. So for the bourgeoisie who were invested in horses, that substitution was bad news for them. For the bourgeoisie invested in wheels, it was another matter.

But it is instructive to consider how that substitution arose. Basically, for horses to compete, their ‘rental cost’ to productivity ratio had to be sufficiently low that they could be employed in competition with other capital that had their own ‘rental cost’ to productivity ratio (usually worse than horses) plus a quality advantage. So as the lot of other capital improved (both in productivity and quality), horses ‘rental cost’ had to drop. There came a point, however, where the rental cost couldn’t drop far enough to make horses competitive and that was it for them.

So let’s now translate this for the robots versus humans equation. There are lots of differences but let’s start with the humans as horses point. For a human to be displaced by a robot in a job the robot (a) has to have a quality advantage and (b) the human productivity must be so low that even if the wage drops to minimum (by law or subsistence or opportunity cost), they will be uncompetitive. What that means is that the routine jobs listed in the CGP Grey video are vulnerable (as they have been to capital substitution in the past) but the other jobs (including journalism and actually being a lawyer) are less so. To think that they are means you have to have a robot technology that is actually higher quality in doing those jobs. The video points to certain tasks being vulnerable but, at the moment, it does not look like the higher cognitive bits (such as they are) are in trouble. But I’m a technology optimist, so who knows? I’m just saying that the quality advantage needs to appear.

But what of the humans that have no quality advantage with respect to robots for what they are currently skilled at? The Brynjolfsson-McAfee line is that they will need to acquire other skills and, more to the point, it is not clear the market can work (or at least work fast enough for our liking) to make that happen. So there is a danger of the humans going down the lot of horses there.

There are, however, two important differences. First, unlike the horses, the humans are also useful as consumers. They are the people who will value the products the robots (and other humans) produce. Think about that for a moment. For each person who is disengaged from society because of a robot, if you cut them off from consumption as well (by say not giving them any money), that is a unit of demand gone. So this pool of unemployed are left outside the system and do not interact in any way with the robot-employed economy.

If that sounds unsustainable, it is. There is a contradiction in the story. You have a person who values the product produced by robots by more than the ‘total cost’ in terms of resources to supply them with that product. You have to feel pretty ill about the prospects of capitalism to suppose that such an opportunity (certainly at scale) will go unexploited.

How will this happen? The most obvious way is that a collective agency will step in to ensure those people can pay for the product so that normal market based prices will be formed and transactions will take place. That agency is obvious in democratic society: the government. And before you think that this is some leftist notion (not that there’s anything wrong with that), I’m not theorising that here: I have faith that if it is in the interests of both business and consumers that money go from the employed to unemployed, it will. It will happen. So there may be unemployment but that does not mean that the humans adversely affected will become horse meat.

But there is another mechanism which goes back to the title of this post. The presumption is always that the bourgeoisie rather than the proletariat owns the machines. But why should that be the case? The robots we are talking about these days are not industrial scale. Why would it be the case that a pure capital owner will purchase the robot rather than a displaced worker any more than it was the case that those who drove horse drawn wagons where displaced by pure car owners?

The way to analyse this is simple: consider who is willing to pay more for a robot, a worker or a capitalist? Remember that the robot has higher quality than the worker (our earlier condition). If the capitalist owns the robot that quality advantage accrues in part to them. If the worker owns the robot, the quality advantage accrues to them. But in terms of their willingness to pay, there is an important difference between the two. If the capitalist does not own the robot, they can employ the worker (with their robot) as they always have done and so will they will appropriate part of the quality advantage. By contrast, if the worker does not own the robot, the worker gets nothing. So to the worker, their willingness to pay for the robot is based on the quality differential they expect to appropriate while for the capitalist, their willingness to pay for the robot is based on the difference between what they appropriate with the robot versus what they appropriate by employing a worker with a robot. It is pretty easy to see that the capitalist willingness to pay is, in fact, lower than the worker’s.

This is not a fanciful notion. Consider the washing machine. When that was invented it displaced workers — the person in the home who did the washing. But who ended up owning it. Usually that same worker rather than some business who then sold washing services into the home.

Consider also the journalists. In the CGP Grey video, they were vulnerable to automation. But I have news for you: they were vulnerable to this for decades. What is more, the robots came (in the form of Google providing roboting search for information) and who owned those robots: the journalists. They are the ones who use Google and, in effect, own it. Not their employers. Why do we think that journalists won’t use other automation tools in the same way becoming owners and controllers of them rather than being substituted away by them?

My point here is that we need to think about the ownership of the machines as endogenous and not assigned by presumption. It makes a big difference to how we think about the long-term effects of these changes and the allocation of welfare they imply.

I’m not claiming here that the adjustment will be pleasant. What I claim here is that the adjustment will occur and the long-run prospects for a interconnected rather than disconnected society and economy remain as good as ever.

 

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  2. In short, horses cannot use the machines invented by people, but (other) people can. Not only that, but proles can even invent machines (e.g. software) for their own use as well. Lots of old distinctions are breaking down.

  3. I see your point, but surely the willingness to pay is affected by ability to pay, no? Washing machines were not bought by dishwashers, who are poor, but by businesses and homes that otherwise would have employed a dishwasher. Absent some other remunerative employment, this is a net loss for the worker. Similarly, Google is not owned by journalists, but by google! The fact that it is free to use by the employee makes a difference, but that would hardly be the case for a machine like those mentioned by Gray. We’re talking about machines owned by capitalists here – even a reduced willingness to pay has to be set off against a greater ability to pay, not to mention the psychological benefit of greater power and control over those workers that remain. And if we are relying on far-sighted businesses redistributing their own income to maintain profit levels, we still have to reckon with the fact that an individual capitalist is better off letting other capitalists take the hit! So were back to the problem of collective action, implying a coordinating state. I don’t think there’s a right-wing solution here.

  4. What Pádraig says. As long as rich people and companies have more disposable income than poor people they will be able to buy more robots. Also, the richer actors’ marginal value of $$ is lower so they face less of a tradeoff against other options.

    As ownership of the robots by richer actors increases, income for poorer actors will decrease, reducing their ability to buy robots. Positive feedback leads to richer takes all unless we introduce some other factors into the model.

    From the richer actors’ point of view owing a robot strictly dominates hiring a worker with a robot, since it will always be cheaper to get the same product / service from the robot directly. So if an actor has the cash that is always what they will do. (Of course maybe hiring a worker with a robot is like renting / leasing the robot — but again that can be addressed more directly at lower cost through finance.)

    This is obviously unsustainable, but as Pádraig almost says, it is inescapable if all the actors are coordinated solely by standard economic incentives. In effect it is a tragedy of the commons, where the commons is collective ability to consume. It is in the interest of each actor to incrementally withdraw consumption ability from the commons, and barring extra-market coordination the commons will be destroyed.

  5. I don’t buy the “only the rich” argument P and JH. When the technology is good enough, there are virtuous cycles as well, a la Henry Ford. And renting/leasing was mentioned only for the rich? No the poor can do that also, as well as rent-to-own, buy on installments, or take loans. If the technology “pays for itself” in the long run.

  6. Also, “buying” a person-with-robot-and-robot-expertise is far more valuable than buying the robot alone directly. Person plus robot always turns out more useful than either alone. Call it cyborgism. It’s instructive to look at serious past attempts to best-guess what technology looks like in future. They almost always have predicted far more pure automation (machines do it all) than ever occurs. Self-organizing houses? No, programmable thermostats instead. Cafeteria “automats” and home push-button meal preparation? No, microwaves at home and high-automation person-operated assembly lines at McDonalds. Self-navigating cars? Not yet, but GPS is a huge boon to human drivers. Etc.

  7. I think Jed has it. While it is in the interests of *all* capitalists to hire workers with their robots, it is in the interests of *each* capitalist to just own the robots, (and just rent the workers.) This leads to the destruction of the market, that commons which all capitalists share, since robots are more limited in their demand. That’s why they’re preferable to the capitalist to workers.

    This is just an extension of the present condition, where the capitalist owns the machines of production, and the workers, who by the logic of original post, *should* own the machines, (which are just primitive robots,) as this would maximize the demand, and thus the profit of *all* capitalists. This has not happened, because of the tragedy of the commons. *Each* capitalist seeks advantage by owning the machines. Indeed, ownership of the machines of production has become increasingly concentrated, until now the worker is beseiged on all sides by oligopoly and monopoly.

    The capitalist has nothing to spend his money on but machines, (once he has enough yachts, or whatever.) whereas the worker is concerned with his subsistence. The result is an increasingly wealthy, and ever more concentrated, rentier class, while ever more workers become increasingly marginalized.

    Continuing the logic, it seems that it is in the interests of *each* capitalist to *own* the workers. That is, it is in the interests of *each* capitalist to own slaves. Workers as capital. However, this is not in the interests of *all* capitalists, as it will lead to the minimization of the market for their production. *Each* slaveowner cannot treat his slaves significantly better than others, as this would put him at a competitive disadvantage. Only if *all* slaveowners did… This is why the South was so economically retarded compared to the North at the time of the CIvil War. With transportation costs relatively high, milions of slaves and wage rates suppressed because of them, the South simply had little market for domestic production.

    Thus, *each* capitalist pursues goals destructive of *all* capitalists. It their eagerness, they have even destroyed laws which prevented them from doing this, although not yet the laws against slavery.

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  9. @greg: Agreed. Thanks for the further explanation. I was thrown by Jed’s “to get the same product / service from the robot directly” into thinking he was speaking exclusively of worker elimination. Your “just rent the workers” adds the necessary ingredient to make the point. The machines still need competent operators. Rentiers, absent regulation, can corner the markets on both machines and competent operators.

  10. Pingback: A corrective to that robotics video

  11. You’re on the right track, and that’s great, but I’m not sure why you’ve assumed the existence of “capitalists” as distinct from workers in a world where capital is owned by workers. Essentially, you’ve half-invented Anarcho-Syndicalism; the half you’re missing is how such a system would actually work, once the usual rules of capitalism are thrown out the window. Suggested reading: https://libcom.org/library/anarcho-syndicalism-rudolf-rocker

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  24. “To think that they are means you have to have a robot technology that is actually higher quality in doing those jobs. The video points to certain tasks being vulnerable but, at the moment, it does not look like the higher cognitive bits (such as they are) are in trouble. But I’m a technology optimist, so who knows? I’m just saying that the quality advantage needs to appear.”

    I don’t understand well what you’re saying here, because a quality advantage is not necessary for machines to take 90%+ of the jobs in an area. People clearly will tradeoff quality for price; clearly there’s some price low enough that the vast majority will take it for a little lower quality.

    I’m sure a human craftsman could hand make higher quality furniture, than the mass production most people, including myself, buy, but the vast majority of people are going to buy the lower quality machine made if they’re still very good, and 1/10th of the price.

    If someone could use legal services, say to declare bankruptcy, and the human lawyer charges $1,500, while the computer law program costs $50 (or is free online with advertising), and it does just a slightly lower quality job, then I can tell you most of the bankruptcy lawyers are going to lose those jobs and have to go to other areas. And I know this well, as my company is one of the largest providers of the credit counseling and personal finance education required for people in bankruptcy, so I know these lawyers, and this area, well.

  25. “There is a contradiction in the story. You have a person who values the product produced by robots by more than the ‘total cost’ in terms of resources to supply them with that product. You have to feel pretty ill about the prospects of capitalism to suppose that such an opportunity (certainly at scale) will go unexploited.”

    Of course I feel pretty ill about the prospects of 100% unfettered capitalism. Every economist except the most ideologically extreme feels that way. We’d have a nightmarish world of externalities and monopolies and more gone wild. The planet would quickly become a cesspool of pollution far worse than China today.

    Specifically here, if a set of raw materials is valued at $1,000, and the robots can turn them into a product valued at $1,500, there’s no opportunity if the people have wealth of zero. If you’re total wealth is ten cents, you can’t value anything materially more than ten cents, so your whole premise breaks down. I had a guest post at Carola Binder’s on the Second Machine Age, where I noted that already today 85 people have more wealth than the poorest 3.5 billion. Take away the value of their labor endowment and most people will have little or no wealth left to buy anything, so there won’t be much of an opportunity. The robots may be able to do great things with raw materials, but if most people own almost no raw materials, or anything else, they’re not going to get much; there won’t be much opportunity.

  26. “I’m not claiming here that the adjustment will be pleasant. What I claim here is that the adjustment will occur and the long-run prospects for a interconnected rather than disconnected society and economy remain as good as ever.”

    You know what’s coming…

    In

    the

    long

    run, we’re all dead.

    But it’s not just a cute saying. The right can cause monumental pain, suffering, and loss over the next generation preventing smart government response, or even moving us in the opposite direction. As unemployment and poverty incomes soar, rapacious billionaires can pour massive money into propaganda that it’s the govenrments fault, and the fault of the lazy, and “those people”. And you know the undemocratic ways an even small minority can block in our system. And then there’s the Supreme Court. If the Republicans win in 2016, they could lock in the court for decades (perhaps the biggest reason to vote democrat).

    Sure, eventually, things would get so desperate for so long that no amount of billionaire powered disinformation would stop the people from trying smart government responses, but before we get to that point things could get nightmarishly bad for decades. There could be horrendous unemployment (and leaving the labor force) and people falling to poverty wages.

    I know, in the long run, but we really have to look at stopping a historically ugly and dangerous situation over the coming decades.

  27. Finally someone pointing out basic economics of supply and demand. I startend to wordt the sanity of people in thuis discussion. Thanks Joshua!

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  29. Consider also the journalists. In the CGP Grey video, they were vulnerable to automation. But I have news for you: they were vulnerable to this for decades. What is more, the robots came (in the form of Google providing roboting search for information) and who owned those robots: the journalists. They are the ones who use Google and, in effect, own it. Not their employers