It’s not cutting-edge AI we should fear, but mediocre automation

If there were a betting market in future winners of the Nobel prize in economics, MIT’s Daniel Acemoglu would be at pretty short odds. His highly innovative work has already won him a string of prizes. So his research is always worth following – especially when he challenges the conventional wisdom, as in his paper in the latest issue of the Journal of Economic Perspectives. Economists are usually optimistic about the impact of new technology. The innovation itself destroys jobs – the Luddite riots in the early nineteenth century, for example, were in direct response to the displacement of skilled handloom weavers by the new machinery in textile factories. But this, along with all subsequent waves of innovation, enabled goods and services to be produced more cheaply. As a result, the spending power of everybody else in the economy increased, and new jobs were created. Mass production in factories during the industrial revolution was of course a phenomenon without precedent in the history of the world. Other completely revolutionary technologies followed, such as the railways and electricity.  The rapid advance of robots and artificial intelligence seems to be the latest example of a transformative new technology. Acemoglu argues that it is not these “brilliant” (as he puts it) technologies which threaten jobs and wages. These enable things to be produced much more cheaply than before, substantially boosting real incomes elsewhere in the economy. Then new kinds of goods and services can be created as a result of the increase in spending power. Rather, the risk to overall employment and living standards comes from the introduction of “so-so technologies”, which generate only small productivity improvements. Examples of so-so technologies include automated customer service, which has displaced human service representatives. It is, however, generally deemed to be low-quality, and thus unlikely to have led to large productivity gains. The cost of your bank charges or your supermarket shop have not exactly been reduced much by the introduction of automated answering systems or self-service check-outs. But jobs have been lost as a result. Acemoglu suggests a key reason why modern economies have, as he puts it in the jargon, “moved along this [particular] innovation possibilities frontier”. In the US and also here in the UK, the tax system has evolved in ways which subsidise the use of equipment and penalise the use of labour through payroll taxes such as our employers’ national insurance contributions. Interestingly, he also points the finger at the big tech companies. Their business model is based on automation and small workforces. The impact of innovative technology which destroys particular jobs needs to be counterbalanced by innovation elsewhere, which creates new tasks, new jobs which no one had previously thought of. We have had some, such as software and app development and database design, but nowhere near enough. Governments need to rethink the tax system as it applies to investment and employment. And they need to rebuild support for long-term innovation, which gives more scope to invent completely new jobs.
Paul Ormerod
As published in City AM Wednesday 8th May 2019
Image: Self Checkout by Ben Schumin via Wikimedia is licensed under CC-BY 2.0

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ELLIE EVANS

Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.