Automation – Job Loss or Better Life?


Automation leads to job loss which leads to loss of income for the displaced people.

Automation also leads to cheaper goods and services improving our standard of living.

So, because of automation, some people loose out, others gain. Historically, people who have benefited, far outnumbered those who have lost out. Jobs loss in one sector has always been compensated by better paying jobs in some other sector. Agricultural job loss led to jobs in manufacturing sector. Similarly, manufacturing job loss led to jobs in the service sector. The net effect have been an improvement in standard of living for all.

Many believe that the historical trend continue. Job loss to automation will inevitably be followed by creation of new jobs in emerging sectors. New jobs will we created in areas which we are not even aware of today.

Is there any reason to doubt that this trend will not continue? That sufficient number of jobs will not be created? That we are going to witness a discontinuity?

4 Reasons why this trend may not continue

Linear thinking does not always work. Discontinuity happens. Stock bubbles do burst. Growth is never infinite. Even Chinese economy slows down.

In last few decades we have undergone a technological and social transformation which, I believe, has fundamentally altered our lives. Here are four trends which is a result of this transformation:

(1) Economy of scarcity to economy of abundance

We had always lived in an economy of scarcity where demand outstripped the supply. Most luxury items were beyond the reach of common person. When prices of products were brought down through automation more units were sold. There always were opportunity for introducing new products which will sell.

In last few decades we have made the transition from economy of scarcity to the economy of abundance. We have more choice of products and services than we can make sense of. There are too many variety of every thing. Anything that you want can be ordered in one click!

Now there is no guarantee of increased sale when the prices are brought down. There may be no takers of a product even if the price is zero.

With this abundance, the scope of introducing new products and services without cannibalizing  something existing becomes limited.

So, where is the scope of net large scale job creation?

(2) Virtual alternative to scarce product

There are and always will be products or services which will have a limited supply. The number of people who can watch the Wimbledon finals from the stadium will always be limited. But there are no limits of how many people can watch it on TV.

A trip to “Machu Picchu” may be too expensive but it is within the realm of current technology to offer a 3-D virtual tour of that place. And there will be no limit to how many people can undertake that virtual tour.

When when scares product gets replaced by virtual alternative, the real thing is only for those who really…really want it and can afford it. For others the virtual alternative is available in abundance.

More things available in abundance reduces the scope of additional products or services.

So, where is the scope of net large scale job creation?

(3) Receding limits to automation

In past, there were limits to what can be automated. It was clearly understood that we humans were good at things which involved thinking, creativity, intuition etc.  The machines were good at tasks which were repetitive. The boundary were clearly defined.

Recent technological advances have started blurring that boundary. Human stronghold is receding and receding fast. Even Magnus Carlsen cannot hope to compete with a decent chess playing program. There are legal hurdle and ethical question to a self-driven car than technology issues.

With the available technology platforms and services, new products can be introduced to an unlimited global audience with only a skeleton staff.

So, where is the scope of net large scale job creation?

(4) Law of Scalability

Those who win … win big. Every other player looses!

The benefit of automation is reaped by the creators of successful products and those who have financed it! Those who are displaced by the automation are worse off.

Few winners … many loser.

So, where is the scope of net large scale job creation?

What will the likely new world look like?

Am I predicting a doomsday scenario where there will be an elite class that enjoys all the privileged and luxury ruling over a jobless deprived class?

Not at all!

As I have explained in my earlier post [The Hunger Games and Impact of Automation] that is not a likely scenario.

What is obvious to me is that the solution is not going to be a linear extension of the past. In all likelihood the solution will “emerge” slowly from our collective wisdom. It may require, as they call it, Out-of-the-box thinking.

Once we acknowledge that there is a problem and linear thinking will not solve it, we would have taken the first major step.

Obviously, the socialist / communist solution of income redistribution has not worked. So let us not consider it.

free+premiumIn my opinion …

… we are moving towards a “Freemium Economy” powered by voluntary organizations and open source like movement funded by Venture Capitalists.

I also suggest that be will need to move beyond thinking about “Return-on-Investment”, “Productivity-Improvement”, “Market-forces-setting-the-price”, “Protection-of-Intellectual-Property.

What do I mean by all this?

Well … wait for my next post!

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