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Are governments ready for the coming economic and social changes?

By Ken Wolff

In 1930 John Maynard Keynes predicted widespread technological unemployment ‘due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour’.

In the decades since there has been rapidly increasing technological change but employment has generally been increasing, matching population growth, although not without winners and losers. The creation of new jobs often lags behind the pace of loss of jobs (as Keynes predicted) and those who have lost jobs are not always the ones who take the new jobs — they are often taken by the new generation.

Since the GFC, governments around the world have felt constrained in responding to the changes in the workforce because they lack money — they are in debt — and are being told by mainstream economists that they must return to budget surpluses. People losing their jobs are not being provided the full range of assistance they need to re-enter the workforce nor, in some cases, even the support to sustain themselves and their families whilst unemployed.

That is a direct result of the dominant neoliberal economic approach adopted by so many Western governments. The neoliberal emphasis on debt also has political implications and the following, although written about the US, could readily apply in Australia:

Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers. Workers have become so deeply indebted on their home mortgages, credit card and other bank debt that they fear to strike or even to complain about working conditions.

While the neoliberal approach remains in place, governments will not be well-placed to respond to current and coming changes in the economy and workforce — selling public assets to reduce ‘debt’ will not help people. Modern Monetary Theory (MMT), on the other hand, offers an approach in which sovereign currency-issuing governments are not so constrained. It is possible for a government to both retain public assets and have the money to provide more programs and assistance to people in these times of economic change. Unless governments embrace a new economic approach like MMT, then the technological unemployment predicted by Keynes is likely to be a real outcome.

The spread of robotics and computerisation throughout the workforce is already happening without us being fully prepared. While there is talk of the need for improved education in things like STEM, computer coding and even innovative approaches, and of the need for a flexible, agile and innovative workforce, these are essentially economic issues and we seem to be ignoring some wider social implications.

A basic question in the rise of robotics is that of ethics. One writer raised an interesting ethical question in the scenario of driverless vehicles: if a driverless vehicle ‘perceives’ that it is about to be involved in an accident and the only pathway to avoid the collision may involve hitting a woman with a pram, which decision will it make? A human would likely make a moral judgment to face the accident and minimise the impact by braking, swerving slightly or whatever action is appropriate but will an automated vehicle see saving itself as the primary response? Whether driverless vehicles can ‘learn’ to place humans first in such situations is debatable. While theoretically driverless trucks seem to be one of the next major targets of computerisation, I think there are still issues to be resolved but I doubt they will be prior to their introduction as the economic imperative will over-rule the ethical.

Computerisation generally will displace many people from their current work, as discussed in more detail in ‘An economy without people’. New forms of work will emerge but how long will that take? Much of the new work will require higher level skills: will we have the capacity to retrain people for the new jobs or do they simply move to the ‘scrap heap’ to be replaced by the next, better educated, generation? As unemployment increases, how will governments respond? If our government is already complaining about welfare costs, it will find it difficult to provide for the new unemployed as computerisation pushes further into the workforce. With an ageing population, there should be a need to keep more people in the workforce but that may no longer be possible.

Some unemployed may voluntarily enter ‘the gig economy’ to help tide them over. But the gig economy may also be on the rise as companies decide it is more ‘efficient’ (cheaper) to hire workers only as they are needed for specific tasks or projects rather than maintain a larger full-time workforce, meaning many more people will be forced into the gig economy. While for people it is ‘the gig economy’, for economists and businesses it is the ‘on-demand’ economy: that difference in terminology also shows how people can be removed from consideration in the coming changes. Whatever it is called, it will have many implications.

Nick Wales at the UNSW Business School has raised one basic concern:

“It polarises people”, says Wales. “Is this creating communities of entrepreneurs who have been marginalised from the traditional economy, such as housewives, students, retirees and immigrants, offering them the flexibility of part-time working? Or is it an underhand way for businesses to get around labour laws and pay these contractors low wages?”

If more and more people are working in the gig economy and on short-term contracts, what rights will workers have? They will not have paid sick days or holidays, or protection from unfair dismissal. Even many occupational health and safety rules may not apply. They will also need to provide for their own superannuation but the extent to which they can may well depend on how much they are able to earn. And will unions find new ways to cover them or is this the final death of unions? (If the role of unions diminishes even further what impact will that have on the future structure of the ALP?) Will these gig workers be treated as, or choose to become, small businesses? We have already seen the problems created by the use of ‘contract workers’ and in the new economy that looks set to expand exponentially.

How do banks respond to people who do not have full-time work/regular income if they are working gigs? At the moment, loans to such people would either be out of the question or, at best, be classified at high risk of default. If, however, this form of work becomes normal for a large proportion of the workforce, banks simply cannot ignore such a significant customer base. There will need to be innovative products that cater to the needs of such customers.

Banks may become more important in another way. There is a possibility that people will become more reliant on debt (loans and credit cards) to carry them through between gigs. It may be in the interest of banks to move into areas of lending currently dominated by the so-called ‘payday lenders’ as there is likely to be a growing market for such short-term products. Banks will have much thinking to do about their role in the new economy.

The gig economy has implications for how government views employment and unemployment as the 37-hour week may no longer be the norm. The OECD is already working on new indicators for employment and unemployment. It is likely, however, that any new definition of ‘employment’ will reduce access to unemployment benefits as it is likely to involve shorter periods of work. Even paying unemployment and other welfare benefits in their current form may no longer be appropriate as they are tied to levels of income. The ‘paperwork’ (data entry) involved in making constant adjustments as people move in and out of short-term jobs (some very short-term) will become onerous as the number of gig workers increases. New forms of payment may be required.

Then there are issues of government regulation and taxation. Already the ATO has ruled that Uber drivers must register for and pay GST as they are providing a ‘taxi travel service’. Current taxi drivers believe Uber is not competing on a level playing field because it does not need to meet the same licence and safety regulations. Victorian cab drivers are protesting a Victorian government announcement that it intends to deregulate the industry. While that may create the level playing field the drivers are seeking, they are not happy that the Victorian government is offering to buy back current taxi licences at a price below what many paid.

On the other hand, if more ‘workers’ are operating as contractors and small businesses, what impact will that have on government revenue, particularly if the push continues to lower company tax rates? Governments may need to reconsider that approach as ‘company tax’ could conceivably become the biggest source of revenue as more people in the gig economy register as small businesses to reduce their taxation.

Deregulation and ‘contract work’ or operating as a small business do not provide the full answer — although it will be attractive to the neoliberal economists and, as such, support for those approaches may be the advice that governments receive. It would mean a large workforce not protected by any provisions for safety, holidays, superannuation nor even hours of work. As Wales suggested, it would allow companies to under-cut existing wage structures and make full-time employment even less attractive for other competing businesses, creating a feed-back mechanism encouraging further use of gig workers.

The Aspen Institute in the US, however, does not believe that governments should regulate but allow companies, workers and consumers to experiment with new models:

… that can begin to give shape to a social contract for a changing economy and new century. We need a better system that ensures workers have the stability and security they need, without stifling innovation or undermining the flexibility the on-demand economy offers.

While suggesting that ‘stability and security’ are required for workers it is basically leaving that to ‘the market’ to determine. Given the history of market solutions, I would have no faith in it reaching a suitable arrangement — because, as explained in the first article in this series, ‘the market’ after all is people manipulating trading for their own advantage and it is to their advantage to have an insecure workforce that is less likely to make demands regarding wages and conditions. Government, even if intending to allow such an approach, must hover at the edges and be prepared to regulate minimum conditions.

While a new economic approach like MMT will help governments understand that they do have the money to deal with problems, it is not the answer to all the issues I have raised (it is, after all, a macroeconomic theory). I am concerned whether its Job Guarantee can be used in the new economy or whether it, too, is based on a model of full-time employment.

At Davros earlier this year, a report to World Economic Forum stated:

During previous industrial revolutions, it often took decades to build the training systems and labour market institutions needed to develop major new skill sets on a large scale. Given the upcoming pace and scale of disruption brought about by the Fourth Industrial Revolution, however, this is simply not an option. Without targeted action today to manage the near-term transition and build a workforce with future proof skills, governments will have to cope with ever growing unemployment and inequality, and businesses with a shrinking consumer base.

So the final issue is that it is not just workers who will suffer. Robotics, computerisation and an increasing number of gig workers will each contribute to ‘a shrinking consumer base’ and that has implications for business survival — in essence, their rush to reduce costs could be creating the conditions for their own demise. That in turn will impact government revenue in lower company and individual tax revenue — but only if they continue to cling to the neoliberal economic approach. If there is a silver lining to this ‘cloud’, it may be that the neoliberal economic approach will be shown to provide an inadequate response to the new situation.

With the possibility of declining consumption and problems redefining employment and unemployment, the concept of a ‘universal basic income’ may gain more traction. Although a proposal to introduce such a payment was recently voted down in Switzerland, it is being considered in Finland and the Labour Party in the UK has begun discussing the concept. In simple terms it is an income payment made to every man, woman and child. It has the potential to replace virtually all welfare payments including pensions, unemployment benefits and family support payments for children: in the case of unemployment, it would remove the need to redefine ‘employment’ to meet the circumstances of the new economy. As it would be paid to everyone, it means those who are working would also receive the payment and it becomes necessary to apply tax to the payment so that those who are in work return a much greater proportion of it in the form of tax. Even the MMT approach would require taxation of such a payment to ensure that it did not create demand beyond the productive capacity of the economy. For businesses it would help maintain the consumer base and so be of benefit to them. With fewer workers, the productivity benefits of robotics and computerisation will not be spread throughout society but further concentrated in the hands of the company owners and shareholders, unless something like a universal basic income is adopted. As robotics and computerisation spread and replace major portions of the workforce, such an approach may become the only viable option.

It appears we have a rocky road ahead. Governments will not be able to respond effectively if they cling to neoliberal economic approaches. Avoiding regulation and spending, and leaving resolution to ‘the market’ will be a recipe for disaster and even businesses will suffer. Without new approaches we will continue to have an economy in which people are placed last and well-being is barely a consideration.

It is time this conversation began because if we leave it until the impact is being felt, it may be too late to avoid a major economic downturn, ironically created by the very process businesses thought would boost their profits.

What do you think?

Are businesses blindly pursuing robotics and computerisation without fully understanding the wider implications?

Can ‘the market’ be trusted to reach new solutions or must governments first find new approaches (including MMT) to protect the people?

 

This article was originally published on The Political Sword.

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17 comments

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  1. bossa

    I’m still trying to work out how the sovereign issuer of a FIAT CURRENCY could possibly be in debt. After all, they cannot borrow their own money, which implies we are borrowing money in another denomination. Which is of course insane.

    None of the current ‘actors’ know what they are doing.

  2. Harquebus

    I think this is just more economic gobbledygook.

    It is energy, not mentioned once in this article, that determines productivity, employment and growth.
    No amount of currency conjuring creation nor financial hocus pocus stimulus can create essential finite resources. The depletion of which, has caused the biggest about to bust debt, bond, housing, stock market and derivatives bubble in history.

    We call it money but, it is actually fiat currency. Technically, we don’t use money any more.

    Cheers.

  3. stephentardrew

    Good work around Michael will repost.

  4. stephentardrew

    Is our government getting ready for the future or rather are we still living in some L-NP dystopian Christian Arcadian past that never existed in the hope that fairies will fix everything. The invisible hand that was never there in the first place. Something seems a bit logically inconsistent here.

  5. stephengb2014

    Ken Wolf

    Have you sent this to the government the opposition your MP or Senator?

  6. Harquebus

    Politicians, economists and many others can not see the relationship between the physical world in which we exist and the economic world in which they live. Economic growth has overtaken shrinking physical boundaries, externalities in econobabble and that gap is being papered over with ever increasing amounts of currency creation being offered at historically low and never before seen negative interest rates.
    Economic tinkering is not the solution. The once only energy boost that we received from oil is waning and can not be repeated. The complete reversal of the ideology and the pursuit of growth is a must in order to survive the coming shortages of essential resources, climate disruption and the collapse of whole ecosystems. These things are happening now.

    Search criteria: sixth mass extintcion event.

    MMT is just a plan to administer another wonder drug to a parasitic economy that is struggling to survive on a host that it is killing.

  7. keerti

    No need to worry! With approx 10 years before climate change makes much of the world ungovernable, it is a non argument!

  8. Ken Wolff

    stephentardrew: I think our current government is living in la-la land and doesn’t seem prepared for what is coming. Their only approach is ‘economic’, and even that is limited. None of what they are proposing will actually help people (or society as a whole) to cope with the changes. As I suggest, it is neoliberal supply-side economics that is driving their current approach and that will not be sufficient.

    stephengb2014: I have not sent this to any politicians as yet. I am not an ‘expert’. Do you think it is good enough to warrant sending?

  9. Miriam English

    MMT does seem to be a temporary solution, but at least it is some kind of solution instead of stamping the foot on the accelerator when the economy and society is pointed at the cliff as neoliberal thinking would have us do.

    We will definitely have to bring in a universal basic income. That is the only way to ease in to the quite radical changes ahead. That too is only a temporary solution, but a necessary one.

    In the end an automated society without paid work will come about and money will gradually lose its usefulness. It seems unthinkable to most people, but when we get there people will scratch their heads and marvel at the insanity of our current system where value is conferred by money. They will wonder why on Earth we put up with it.

    Oh, and by the way, driverless cars are already better drivers than humans are.

    This very amusing and informative video by absolutely brilliant C.G.P. Grey about the end of work is well worth watching:
    Humans Need Not Apply
    http://www.youtube.com/watch?v=7Pq-S557XQU
    It will change your viewpoint on the topic.

    We are nearing a time where people won’t define us by what we do. We won’t call ourselves writers, or shopkeeper, or electrician, or dressmaker. Instead we will define ourselves by what we like and by how we find fulfillment. For those who are unprepared this could be a very painful and soul-searching time. For the rest of us it will be liberating.

  10. jimhaz

    I’ve just spent a little time looking for poems about overpopulation. This was the best I found in that time.

    The Earth Laughing by Karen I. Shragg

    I woke up on this beautiful
    Earth Day morning and heard
    the Earth laughing
    Her lilacs were shaking
    Her tulips were full of dew from her tears
    Dropped of a nervous laugh
    Not a joyful one
    A laugh that comes from a place
    of disbelief
    As her soaring eagles observed
    The holes drilled into her oceans
    The caverns dug into her mountains
    The efforts to squeeze the last drop
    Of resources out of her
    Gave her reason to laugh
    The kind of what-are-you-thinking laugh

    And she laughed with a shudder of
    mourning dove wings at this peculiar species
    This two legged creature so smart in some ways
    So naïve in others..
    “To have conquered flight
    To have reached my moon
    To tap into my resources and turn them into
    Schools and libraries, to hospitals and universities
    Speaks to your cleverness”
    she said through a whisper of a cloud
    “But to behave as if I can keep up with your inventions
    To act as if I have enough fuel to fund your
    Never ending wars
    To ignore the signs of your damage which
    Are melting my icecaps drowning my islands and
    Killing my polar bears as you
    populate my landscapes far beyond their capacity.
    My water cycles’ ability to quench your thirst
    Is at best naïve and at worst self-destructive
    I am exhausted!

    Please know I cannot offer what you demand of me
    I cannot offer infinite resources that took me
    Billions of years to create
    I cannot offer you
    What you ask of me, by the 9,000 more of you added per hour
    For my resources cannot supply
    An endless stream of you and your modern ways

    And the more of you that get that in your hearts
    As well as your heads
    The sooner I will heal and be able to sustain
    A saner number of you and my other creatures
    which aren’t as clever
    Or naive.

  11. Matters Not

    Miriam, it’s a video that everyone should watch.

  12. Miriam English

    Matters Not, yes… especially the politicians.

  13. diannaart

    Miriam

    Our pollies cannot even get their heads around the idea that the debacle in South Aust. is NOT because of renewable technology.

    Excellent vid BTW – when I think of Turnbull speaking the word ‘innovative’ – not sure whether to laugh or cry.

  14. Matters Not

    Yes Frydenberg is always up for a bit of ‘joshing’ when it comes to renewables. It’s Coal, Coal, Coal for Australia.

    A mantra that raises heaps at election time.

  15. townsvilleblog

    Yes they are ready alright. We number 3 milliion at present ‘people living in Australia below the poverty line’ watch this growth sector take off as the conservatives get into full stride!

  16. townsvilleblog

    At the last election they promises us ‘jobs n growth’ who knew that it meant lack of jobs (Morgan Research found ‘real’ unemployment to be 10.5% in July and 10.4% in August) and growth to be in ‘our’ sector of people living below the poverty line in Australia. They kept their promise!

  17. king1394

    Technological change has been occurring for a very long time and the profits from displacing workers have always been given totally to the investor. The displaced workers are just supposed to find themselves another way or place to earn their living. The owners have always been free to make their decisions based on what appears best for their business. Any downside to local communities and the affected individuals have always been treated as external to the needs of the enterprise

    Why do we accept this?

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