Will Taxing Robots Solve Unemployment and De-Polarize Ownership?
March 27, 2017, Tuomo Kuosa
Bill Gates proposed recently that robots should be taxed like human workers, based on the value of their work. His initiative stirred up a flow of pro and counter arguments in the global media. Obviously, something needs to be done proactively, but is robot tax the best solution?
The co-founder of Microsoft Bill Gates has opened the discussion on robot tax. According to Gates, it is the first time in history when technology may be eliminating jobs faster than it creates new ones. If so, then our economic and social systems will be remade potentially in a disruptive and destabilizing way.
A recent example of a software robot replacing human labour comes from the JPMorgan Chase & Co. called COIN, for Contract Intelligence. It is a software based on machine learning that analyses financial deals that once kept legal teams busy for thousands of hours. According to Bloomberg, ”It does the mind-numbing job of interpreting commercial-loan agreements that used to consume 360,000 hours of work each year by lawyers and loan officers.” The lawyer bot or software robot works 24/7/365, is less error-prone, reviews documents in seconds, and never asks for vacation or higher salary.
Without a doubt machines and software are increasingly taking over tasks once performed by people. Automation has already brought revolutionary changes to many industries and this evolution will continue even more rapidly as technology evolves.
As history teaches us, at first, automation reduced the need for employees in agriculture. This workforce moved to higher productivity jobs, namely to industry. This boosted economic growth. Next, automation started to reduce the need for human labour in industry, which moved people to jobs of even higher productivity, i.e. services, further increasing economic growth. The current phase is leading towards automation that reduces lots of jobs in services, but also creates new teams of humans with artificial intelligence software or robot co-workers, which again are likely to increase efficiency and economic growth, and create new jobs. Yet in the long run, when artificial intelligence gets truly deep learning, the need for human work in all services all around the globe will drop dramatically. But that is quite far in the future.
Mass unemployment does not necessarily mean an economic downturn, because high quality goods and services are produced more than ever before. Due to old money many people possess, the general consumption may stay high for years. However, if all production and productivity are eventually based on automated facilities owned by a very small minority, the society can no longer function on the basis on income tax revenue.
As for example World Economic Forum and French economist Thomas Piketty have recently stated, the wealth of the middle classes has been moving to the pockets of the very few for a long time, and this worrying polarization has only been accelerating in past years. In Oxfam´s newest report, they say that now the world´s richest eight men, not anymore the 62 men, own the same assets $426bn, as the world’s poorest 50%. The richest group is headed by Bill Gates, Amancio Ortega and Warren Buffet. Oxfam report asserts that since 2015 the richest 1% has owned more wealth than the rest of the planet, and over the next 20 years, 500 people will hand over $2.1tn to their heirs – a sum larger than the annual GDP of India, a country with 1.3 billion people. So should we start taxing robots?
According to one critic of the robot tax, Noah Smith from Bloomberg, ”the main argument against taxing the robots is that it might hinder innovation. Growth in rich countries has slowed markedly in the past decade, suggesting that it’s getting harder and harder to find new ways of doing things. Stagnating productivity, combined with falling business investment, suggests that adoption of new technology is currently too slow rather than too fast -- the biggest problem right now isn’t too many robots, it’s too few. Taxing new technology, however it’s done, could make that slowdown worse.”
Hence even if it seems contradictory, more robots are needed to increase the productivity and employment. This is especially crucial in high wage western countries, which have kept losing lots of industrial jobs to developing countries until very recent times. Yet, thanks to robotisation and more productive and precise human + robot teams, industrial jobs have now started steadily to come back to the West and closer to the Western consumers. In other words, the next wave of robotisation will hit the developing countries that used to have cost advantage due to cheap labour force, and not the west (unless we set high robot taxes).
Another critic on robot tax points out its insufficiency to solve the obviously bigger problem than the employment issue. That is the extra boost robotisation is about to give to all global assets concentrating to very few hands. This time it will not be about the concentration of global investments and surplus assets to the hands of the very few anymore. It will be about the end of middleclass and democratic regimes as we know them. This may be avoided if we are able to fix the taxation, ownership, redistribution of profits, added value and investments in such a way that populations would still maintain their dignity and purchasing power.
Why did Bill Gates propose the tax on robots as a solution to the growing unemployment, and widening gap between robot owners and not-owners? Could that be related to the fact that he is the richest now? He may be less interested in going to robotised manufacturing business himself. And he could very well be more interested in keeping his old money safe from high ownership taxation or wealth and income redistribution, e.g. via Miles Kimball´s idea of sovereign-wealth fund, which would be the real solution to the problem.