What the Industrial Revolution really tells us about the future of automation and work
As automation and artificial intelligence technologies improve, many people worry about the future of work. If millions of human workers no longer have jobs, the worriers ask, what will people do, how will they provide for themselves and their families, and what changes might occur (or be needed) in order for society to adjust?
Many economists say there is no need to worry. They point to how past major transformations in work tasks and labor markets – specifically the Industrial Revolution during the 18th and 19th centuries – did not lead to major social upheaval or widespread suffering. These economists say that when technology destroys jobs, people find other jobs. As one economist argued:
“Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proven to be correct.”
They are definitely right about the long period of painful adjustment! The aftermath of the Industrial Revolution involved two major Communist revolutions, whose death toll approaches 100 million. The stabilizing influence of the modern social welfare state emerged only after World War II, nearly 200 years on from the 18th-century beginnings of the Industrial Revolution.
Today, as globalization and automation dramatically boost corporate productivity, many workers have seen their wages stagnate. The increasing power of automation and artificial intelligence technology means more pain may follow. Are these economists minimizing the historical record when projecting the future, essentially telling us not to worry because in a century or two things will get better?
Reaching a tipping point
To learn from the Industrial Revolution, we must put it in the proper historical context. The Industrial Revolution was a tipping point. For many thousands of years before it, economic growth was practically negligible, generally tracking with population growth: Farmers grew a bit more food and blacksmiths made a few more tools, but people from the early agrarian societies of Mesopotamia, Egypt, China and India would have recognized the world of 17th-century Europe.
But when steam power and industrial machinery came along in the 18th century, economic activity took off. The growth that happened in just a couple hundred years was on a vastly different scale than anything that had happened before. We may be at a similar tipping point now, referred to by some as the “Fourth Industrial Revolution,” where all that has happened in the past may appear minor compared to the productivity and profitability potential of the future.
Getting predictions wrong
It is easy to underestimate in advance the impact of globalization and automation – I have done it myself. In March 2000, the NASDAQ Composite Index peaked and then crashed, wiping out US$8 trillion in market valuations over the next two years. At the same time, the global spread of the internet enabled offshore outsourcing of software production, leading to fears of information technology jobs disappearing en masse.
The Association for Computing Machinery worried what these factors might mean for computer education and employment in the future. Its study group, which I co-chaired, reported in 2006 that there was no real reason to believe that computer industry jobs were migrating away from developed countries. The last decade has vindicated that conclusion.
Our report conceded, however, that “trade gains may be distributed differentially,” meaning some individuals and regions would gain and others would lose. And it was focused narrowly on the information technology industry. Had we looked at the broader impact of globalization and automation on the economy, we might have seen the much bigger changes that even then were taking hold.
Spreading to manufacturing
In both the first Industrial Revolution and today’s, the first effects were in manufacturing in the developed world. By substituting technology for workers, U.S. manufacturing productivity roughly doubled between 1995 and 2015. As a result, while U.S. manufacturing output today is essentially at an all-time high, employment peaked around 1980, and has been declining precipitously since 1995.
Unlike in the 19th century, though, the effects of globalization and automation are spreading across the developing world. Economist Branko Milanovic’s “Elephant Curve” shows how people around the globe, ranked by their income in 1998, saw their incomes increase by 2008. While the income of the very poor was stagnant, rising incomes in emerging economies lifted hundreds of millions of people out of poverty. People at the very top of the income scale also benefited from globalization and automation.
But the income of working- and middle-class people in the developed world has stagnated. In the U.S., for example, income of production workers today, adjusted for inflation, is essentially at the level it was around 1970.
Now automation is also coming to developing-world economies. A recent report from the International Labor Organization found that more than two-thirds of Southeast Asia’s 9.2 million textile and footwear jobs are threatened by automation.
Waking up to the problems
In addition to spreading across the world, automation and artificial intelligence are beginning to pervade entire economies. Accountants, lawyers, truckers and even construction workers – whose jobs were largely unchanged by the first Industrial Revolution – are about to find their work changing substantially, if not entirely taken over by computers.
Until very recently, the global educated professional class didn’t recognize what was happening to working- and middle-class people in developed countries. But now it is about to happen to them.
The results will be startling, disruptive and potentially long-lasting. Political developments of the past year make it clear that the issue of shared prosperity cannot be ignored. It is now evident that the Brexit vote in the U.K. and the election of President Donald Trump in the U.S. were driven to a major extent by economic grievances.
Our current economy and society will transform in significant ways, with no simple fixes or adaptations to lessen their effects. But when trying to make economic predictions based on the past, it is worth remembering – and exercising – the caution provided by the distinguished Israeli economist Ariel Rubinstein in his 2012 book, “Economic Fables”:
“I am obsessively occupied with denying any interpretation contending that economic models produce conclusions of real value.”
Rubinstein’s basic assertion, which is that economic theory tells us more about economic models than it tells us about economic reality, is a warning: We should listen not only to economists when it comes to predicting the future of work; we should listen also to historians, who often bring a deeper historical perspective to their predictions. Automation will significantly change many people’s lives in ways that may be painful and enduring.