Update Magazine I/2019 › Download the complete magazine

Warnings that advanced “robots”¹ and automation threaten employment fill the media. How seriously do we need to take these headlines?

Richard B. Freeman: The economic principle of comparative advantage suggests that the impact of robot technologies will be on the work tasks that people do and the income they earn from that work, rather than in joblessness per se. Comparative advantage holds that even if robots outdo humans in every job, firms will hire human workers. They will hire humans to do jobs or parts of jobs that humans do at lower cost than machines, while hiring machines to do the work at which humans are more expensive.

Having my own kids in mind: What do they need to understand about the future of work and the competition with robots?

Richard B. Freeman: The key question in the “fourth industrial revolution” is thus whether robots will shift comparative advantage from humans to machines in the high-paying cognitive activities that have been the hallmark of human advancement. Are you going to work for the robot, or is the robot going to work for you? Past automation technologies gave comparative advantage to machines in physically difficult or dangerous work, or provided workers with tools that enhanced human ability to do that work. Because the machines/tools were specialised and could not think, humans had comparative advantage in tasks that required cognition and flexibility in switching from activity to activity or from issue to issue. When technology displaced workers from agriculture to industry, and from industry to service sector jobs, workers gained better jobs with higher pay than before automation struck their workplaces. Robotics and software automation at the outset of the 21st century extended machine comparative advantage from physical labour to routine human work.

Got it. My kids need to go to university. But will a better education help in struggling for a better comparative advantage?

Richard B. Freeman: Think of Google’s AlphaZero algorithm, which learned by itself to master several games in nearly real time. If AlphaZero needed just 24 hours to learn from scratch to dominate strategic games, imagine what its Nth prototype will be able to do twenty years from now when today's children enter the job market. Who you gonna hire in 2040 – new college/high school graduate John or Martha or AlphaN, who will almost surely be connected to some Cloud computing site? In a world of digital work, comparative advantage in cognitive tasks seems destined to belong to the machines.

That reminds me of a dialogue between Henry Ford II and the leader of the automobile workers union, Walter Reuther. Henry Ford II: “Walter, how are you going to get those robots to pay your union dues?” Walter Reuther: “Henry, how are you going to get them to buy your cars?”

Richard B. Freeman: You put your finger on the point. The effect of AI robot technologies on income depends on who owns the technologies. In a world where machines do much of the work and receive much of the earnings, the economic winners are the owners of the machines, while the losers are workers who compete with the machines. If you own the robot that does your job/the jobs of others, you benefit from the new technology. But if I own the robot that does your job, tough luck suckah!

So, let’s talk about capital ownership!

Richard B. Freeman: There are two ways to distribute income so that the vast majority of humans benefit from the “intolerable abundance” that AI robot technologies can bring to us. The first is to spread ownership of capital more broadly than it is today by expanding employee ownership of the firms where people work, and ownership of business capital in the rest of the economy. Ownership guarantees that a share of the improved productivity from ever smarter machines goes to people as owners of the capital, rather than as workers competing with the machines. The second is to undertake a tax/ spending policy that taxes the owners of capital per Bill Gates' proposed robot tax or Thomas Piketty's global capital tax, and use the moneys to deliver goods and services to citizens, as in the Universal Basic Income that has attracted some attention. Following the “who owns the robots rules the world” apothegm, I focus on the ownership solution.

Ownership and capital income vs. concentration of capital and redistribution. How to strengthen capital ownership?

Richard B. Freeman: The starting place to increase workers' ownership of capital is at their workplace, and the natural way to do this is to increase incentives for firms to introduce new or to expand existing compensation systems that link worker pay or wealth to the performance of the firm or work group; and to give incentives to workers to participate in such programs. A great virtue of employee ownership is that it bridges the capital/labour divide by incentivising workerowners to raise firm performance, which can benefit non-employee owners as well as workers.

Aren’t there limits to that kind of ownership? My grandma always told me: “Never put all your eggs in one basket.”

Richard B. Freeman: Indeed. Workers will need a substantial stake in business capital outside their firm, as well as in their employer. If you accept the claim that the expansion of robot technology will shift comparative advantage in high value added cognitive activities to machines, and that ownership of capital is the best way to avoid the dystopia of an economy dominated by a small minority of owners of the AI robots, the road ahead is clear. Employers, employees, labour organisations, and governments should implement policies to increase employees' ownership in their firm, and to make more citizens owners of capital in the broader economy. Pension funds and their allocation into equities, for instance, could become a very important vehicle necessary to assure that the vast majority benefit from a technological future in which AI robots do more of the work and earn more of the income from work.

1) “Robots” are taken as a synonym for any kind of disruptive technologies.

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