Bill Gates speaks at the University of Waterloo on October 12. 2005. (Photo: Mohammad Jangda)
On February 27, 2017, Dean Baker writes on Truthout:
Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense.
Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what Gates is proposing. In effect, Gates wants to put a tax on productivity growth. This is what robots are all about. They allow us to produce more goods and services with the same amount of human labor. Gates is worried that productivity growth is moving along too rapidly and that it will lead to large scale unemployment.
There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.
Starting with the recent history, productivity growth has averaged less than 0.6 percent annually over the last six years. This compares to a rate of 3.0 percent from 1995 to 2005 and also in the quarter century from 1947 to 1973. Gates’ tax would slow productivity growth even further.
It is difficult to see why we would want to do this. Most of the economic problems we face are implicitly a problem of productivity growth being too slow. The argument that budget deficits are a problem is an argument that we can’t produce enough goods and services to accommodate the demand generated by large budget deficits.
The often told tale of a demographic nightmare with too few workers to support a growing population of retirees is also a story of inadequate productivity growth. If we had rapid productivity growth then we would have all the workers we need.
In these and other areas, the conventional view of economists is that productivity growth is too slow. From this perspective, if Bill Gates gets his way then he will be making our main economic problems worse, not better.
Gates’ notion that rapid productivity growth will lead to large-scale unemployment is contradicted by both history and theory. The quarter century from 1947 to 1973 was a period of mostly low unemployment and rapid wage growth. The same was true in the period of rapid productivity growth in the late 1990s.
The theoretical story that would support a high employment economy even with rapid productivity growth is that the Federal Reserve Board should be pushing down interest rates to try to boost demand, as growing productivity increases the ability of the economy to produce more goods and services. In this respect, it is worth noting that the Fed has recently moved to raise interest rates to slow the rate of job growth.
We can also look to boost demand by running large budget deficits. We can spend money on long neglected needs, like providing quality child care, education, or modernizing our infrastructure. Remember, if we have more output potential because of productivity growth, the deficits are not problem.
We can also look to take advantage of increases in productivity growth by allowing workers more leisure time. Workers in the United States put in 20 percent more hours each year on average than workers in other wealthy countries like Germany and the Netherlands. In these countries, it is standard for workers to have five or six weeks a year of paid vacation, as well as paid family leave and paid vacation. We should look to follow this example in the United States as well.
If we pursue these policies to maintain high levels of employment then workers will be well-positioned to secure the benefits of higher productivity in higher wages. This was certainly the story in the quarter century after World War II when real wages rose at a rate of close to two percent annually.
Of course these policies will not ensure that no workers ever suffer from automation. While we can never guarantee that no worker is harmed by improvements in technology in a dynamic economy, we can look to soften the impact.
One obvious policy would be to require severance pay, for example two weeks of pay for each year worked. This would both give displaced workers somewhat of a cushion and changes the incentives for employers. If a company knows that it faces large payout if it lays off a number of long-term employees, then it has more incentive to think about modernizing its facilities and retraining workers. This would be a win-win where the company has an interest in ensuring that its workers are as productive as possible while the workers get to keep their jobs.
In short, there is no reason that productivity growth should ever be viewed as the enemy of workers. We just need the right set of policies to ensure that they share in the gains.
http://www.truth-out.org/opinion/item/39626-bill-gates-is-clueless-on-the-economy
I have problems with Dean Baker’s arguments. First he states that “[robots] allow us to produce more goods and services with the same amount of human labor.” They can do far more including doing work that humans are entirely not capable of or would rather not toil at, and doing such most efficiently and at greater consistent quality at less costs to the business corporations who substitute labor workers with the non-human means of production.
Baker argues that productivity growth has not been as robust as in previous periods. This may be true but significant substitution of labor workers with the non-human means of production is a never-ending process, and the speed at which this shift in the technologies of production occurs is dependent on the demand for economic growth fueled by “customers with money.” No or decreasing levels of “customers with money” means economic growth halts or becomes slower.
The role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services.
Baker cannot deny the fact that over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 239 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.
People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention and innovation. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.
Furthermore, according to Kelso, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Kelso postulated that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the American economy.
It is this ignorance of the necessity for broadened individual wealth-creating, income-producing capital simultaneously with the growth of the economy that is the real problem. If we financed what growth we have in ways that create new capital owners and the earnings of that capital growth were fully paid out as dividend income to the owners, this would create more “customers with money” to demand exponential growth to realize general affluence for EVERY child, woman, and man. Creating demand is how to speed productivity growth, which also will create significant employment opportunities as labor workers also will be needed to work in conjunction with the non-human means of production to build a future affluent economy. This, in turn, will substantially increase tax revenues to support education and infrastructure revitalization and expansion and other expenditures of societal development.
In a democratic growth economy, based on Kelso’s binary economics (human and non-human productive inputs), the ownership of productive capital assets would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, benefiting EVERY citizen, including the traditionally disenfranchised poor and working and middle class. Thus, productive capital income, from full earnings dividend payouts, would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote environmentally responsible economic growth and more profitable enterprise. That also means that society can profitably employ unused productive capacity and invest in more productive capacity to service the demands of a growth economy. As a result, our business corporations would be enabled to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capital owners and “customers with money” to support the products and services being produced.
Baker’s thinking is manifested in the myth that labor work is the ONLY way to participate in production and earn income, and that individual talent and effort are what distinguish the wealthy from the non-wealthy. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
Baker suggests that “the Federal Reserve should be pushing down interest rates to try to boost demand, as growing productivity increases the ability of the economy to produce more goods and services” but fails to point out lower interest rates enable the present wealthy capital ownership class to use cheap capital credit secured by their past savings and equity. Instead, what we should lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting Federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency of with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.
The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each future capital formation transaction, determined by the same expertise that determines it today––management and banks––that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
Baker, instead maintains that high levels of employment will enable workers to be well-positioned to secure the benefits of higher productivity in higher wages. But Baker ignores the imperative to earn higher income through capital ownership and disregards that productivity gains, without system reform, will continue to concentrate and further enrich the already wealthy capital ownership class.
One thing I do agree with Baker on is there is no reason that productivity growth should ever be viewed as the enemy of workers, but ONLY if workers and in the larger context, EVERY child, woman and man share in the productivity gains as OWNERS, and not be limited to wages alone.
Comment from Center for Economic and Social Justice (www.cesj.org):
Bill Gates’s idea about taxing robots has been getting a lot of play recently. The problem is that it would create more problems that it solves. The solid foundation of any economy is whether it can produce what people consume, and whether every producer is a consumer, and vice versa. To put it more simply, if you want a sound economy, you have to produce what you consume, and consume what you produce, one way or another. Thus, if only labor is productive, then everybody needs to own his or her own labor — which, unless you’re a slave, is always the case. If only land is productive, then everybody needs to own land. If only technology (“robots”) is productive, then everybody needs to own technology. Obviously, claiming that only one factor is productive is wrong; in a perfect world, everyone needs to own each factor of production, whether labor or capital, in the same proportion as it is used in production. This is not usually feasible, especially when people take advantage of their social nature and specialize, but it gives a good rule of thumb to follow. For example, if technology is ten times more productive than human labor, someone has to own technology that will produce ten times what his or her labor would produce just to have a decent income (absent distortions such as minimum wage laws and redistribution, of course). The bottom line is that only by owning — not taxing — robots will ordinary people gain enough income and restore Say’s Law of Markets so that all production is for consumption, and people have enough production to be able to consume.
