Automation was supposed to threaten our jobs, yet the unemployment rate hovers near all-time lows. We’re in our eighth year of uninterrupted jobs growth, the longest streak in our history. An adage repeated without evidence since the earliest days of capitalism – every “job-destroying” innovation creates more jobs that it destroys – seems to be vindicated again.
A wave of automation that swept across manufacturing, especially automobile manufacturing, seems to have stalled. Other industries poised for disruption by computer and robotic technologies like fast food, retail, accounting, law and even radiology, have seen little impact from automation as yet. A backlog of astonishing robotic technology has been introduced, but not yet adopted. Leaving aside for a moment the question of whether automation will destroy our employment culture (addressed at length here), an economic puzzle confounds us: why does automation seemed to have slowed?
One explanation seems the most persuasive. Capital owners have amassed extraordinary market power. In short, companies have little reason to invest their capital in disruptive innovations with uncertain outcomes. A company that can earn a steady small profit from changing nothing will continue to do so indefinitely, even if presented with a speculative opportunity to multiply that profit many times over with an investment in technology. At present, companies feel little need to take a chance on automation.
Many of the forces that would cut into the profits of a stagnant, dumb company have been tamed. Labor unions have collapsed, crippling the capacity of workers to demand a greater share of corporate earnings. Since the Bush II Administration, monopoly regulation has largely disappeared. Tax rates keep dropping. Regulations that curb pollution, securities fraud, and collusion have been consistently weakened. Adjusted for inflation, the federal minimum wage hasn’t budged in fifty years. Low-skilled, median-wage work has largely disappeared while skyrocketing costs for health care and housing have strained working families.
Amazon has both the capital and the technology to automate away most of the work in its fulfillment centers, but with wages for full-time employees stuck around $13/hour, why bother? To cope with seasonal spikes in demand, the company has developed an entire culture of low-paid itinerant workers, many of whom are over 60 and essentially homeless, living in their vehicles. They’ve even given this program a name – Camperforce. A migrant labor pool reanimated from the pages a Steinbeck novel is given a catchy, tech-era gloss, buying time for Amazon to work out the kinks in its automation plans. Meanwhile, investors pocket capital that would otherwise have flowed into faster and riskier innovation.
Compare job growth with wage growth, and the forces stalling automation become obvious. Yes, we’re in a cycle of extraordinary employment growth, but with none of the inflationary pressure we should be seeing. Wage growth, which has been expanding slightly in recent years, remains stalled for median earners. Almost all income growth over the past thirty years has flowed to the highest earners. When the wealthy have no incentive to invest in disruptive innovations, those innovations do not get deployed.
An economy that can sustain full employment (an unemployment rate below roughly 5%) for sustained periods of time without inflationary pressures is badly broken. An unemployment rate below 3.9% signals an employment market in deep trouble.
Over the past twenty years America has been converting to a rentier economy, enabled by hyper-low tax rates and a disappearing government. The wealthy are sitting on their capital, enjoying adequate returns from their depreciating assets. That won’t last forever. The rest of the world isn’t sitting still. Competitive pressures from other economies, or another financial crisis sparked (again) by asset inflation will eventually force a break. When that break comes, the machine of automation will crank back up.
The question for the future is who will benefit from the continued destruction of jobs. America still holds a lead in technology, built up from a century of investments in education, but that lead is shrinking. A powerful rentier class is flexing its muscles in ways not seen here since the Gilded Age and they have nothing to gain from disruptive innovation.
20th century innovations like a minimum wage and unionization won’t make a dent in this problem. Disrupt the political conditions that are making capital owners secure, and jobs will start to disappear. For example, technology to automate the fast food business is already in place. With a $7.25 minimum wage, owners have little need to spend capital on those machines, and on the expensive engineers and designers needed to deploy them. Impose a fair minimum wage and eliminate the regulatory conditions that make the rentier economy work, and those capital owners will have to start investing and competing again. They won’t survive true competition by wasting money on $15/hour order-takers.
Does that mean we should fight the expansion of automation and hold on to those cheap jobs? Should we prefer horse wagons over cars? Leeches over prescription drugs? Never bet against technology. If innovation is going to displace jobs, we should embrace it anyway, using social and political adaptations to cushion the impact of job loss rather than slowing technical growth.
We are trapped in a push-pull between low unemployment with low pay and higher wages with disappearing jobs. That dynamic will remain as long we retain our cultural and economic dependence on mass employment. Smarter and faster tools for production demand smarter and faster mechanisms for distributing the bounty of those tools. The tighter we cling to cling to an outdated model of employment the more spectacular the impact when that model collapses.