Rise of the Luddites

By Avi Deitcher

2016 May 4

For the last year or so, my various news feeds have been filled with dire warnings about the "Rise of the Robots." Apparently, the advances in robotics - hardware and software - are now beyond relatively simple home vacuums, and are poised to become the new drivers and waiters, gardeners and barbers. Simon Wardley has argued that they even could replace higher-intellect roles, such as CEOs.

Many are worried that this is an economic disaster in the making, as millions of blue-collar and possibly white-collar jobs could be at risk. Some even have argued that this is the perfect time and reason to implement policies, such as guaranteed basic income.

Leaving aside the merits and demerits of particular policies, for the most part, I believe that the concern is nothing more than alarmist hogwash.

I will not argue that every technology advancement by humankind is an unquestioned good. One can reasonably argue about the benefits and risks of nuclear power and weapons. Until such time as mankind has survived several millennia without a nuclear winter, the jury will remain out.

I will, however, argue, that every advancement in efficiency is to the net benefit of human society. In economic terms, this is called capital replacing labour.

In the immediate, some and even many may be displaced. In the long run, however, and even in the short run, it is always to nearly everyone's benefit, to adopt such advancements whenever and wherever they occur.

Before we go on, it is important to define "efficiency". For our purposes, we will define it as the fully loaded cost of performing a necessary or desired activity. If I need to go from London Heathrow to Marble Arch, I have several options: bus; tube; Heathrow Express; taxi; Uber. Theoretically, I also could walk, but it is a bit far.

Each of these has a different cost in terms of the fees to be paid and the time they take. The value of that time is different to different people, and thus the fully-loaded cost differs between individuals. However, two of those - Uber and black cab - take almost exactly the same amount of time, with almost the identical convenience (pickup at the terminal and drop-off at the door of my hotel). Thus, the only material difference is the fees. If the taxi cost around £60, while Uber cost £30, then Uber is more efficient by 50%.

We will look briefly at three examples of technology-driven efficiency.

Cotton Gin: Eli Whitney's famous machine, invented in 1793, could put large numbers of people out of work. According to the Wikipedia article, prior to the cotton gin, one worker separated a single pound of cotton fiber from seed in ten hours. With the cotton gin, two to three operators separated fifty pounds in a single day. Gin-power separation was at least 17 times more efficient than "ginless manufacturing", increasing production from1 lb/person/day to >17 lbs/person/day. Put in other terms, every gin could put at least 17 people out of work. Yet it didn't. Production of cotton increased, leading to far more work for skilled operators (unfortunately mostly slaves) and cotton pickers (likewise). Nonetheless, the creation of the gin didn't put people out of work, it put people out of cotton-separating work, but the enormous savings opened up new opportunities, both in operating these gins and picking the cotton. The lower cost of production reduced the cost of cotton fibre and, by extension, clothing. With clothing costing less, people bought more, which created new opportunities, both in textiles and in other areas.
Combine Harvester: The combine harvester is the accumulation of a century of innovation, from the reaper to the tractor and everything in between. Unfortunately, I do not have access to direct productivity changes due to harvesters. We could look at US and UK labour statistics for the number of people working in a farm in 1915 and those again in 2015, although that would not show the various breakdowns of job types. However, we can use a simple proxy: the cost of a bushel of wheat. At the end of December 2015, the cost of a bushel of winter wheat was around $4.00/bushel. In December 1915, the same bushel was around $1.15 (although there was a price slump at around that time). During the same period, the Consumer Price Index rose by a factor of 23.43. If wheat had kept pace with inflation, today's $4.00/bushel would have cost $26.94. Your loaf of bread would cost almost 7 times as much as it does.
Spreadsheets: Prior to the creation of VisiCalc, then Lotus-1-2-3 and then Excel, armies of workers at companies spent untold hours calculating financial numbers of blackboards that spanned rooms. Numbers for running a business were as important in 1955 as in 2015; it just took a lot of labour to do it. "SG&A" lines of many companies income statements probably were quite high, with a focus on financial analysis staff. With the creation of the PC and spreadsheets - Robert Cringely's "Accidental Empires" does a great job telling the story - those armies of workers were replaced by a few employees armed with a PC or Mac and Excel. However, the reduction in costs to the companies, along with the increase in accuracy and timeliness of data, has enabled companies to be more efficient, selling more and better product at lower prices.

If you are General Mills, all three of those come to play: your oats in Cheerios cost 1/7 what they would have; the cardboard in the boxes, harvested from trees and other flora, costs a fraction what they would have; and 3 people replaces dozens or hundreds calculating how many boxes of Cheerios to sell at what price to make your target profit.

In all three examples, the significantly reduced cost of goods to manufacturers, and through competition to consumers, has freed us up to spend more, both on the product at hand, which creates more jobs in the same field due to growth, and in new areas, which creates entirely new kinds of jobs or even industries.

Look at it this way: without the cotton gin, computers and combine harvesters, food and clothing would cost so much, that we would not have money or time to spend on entertainment. Hollywood movies, television shows, Disneyworld, mass tourism, almost none of it would exist.

What does this mean for the robots?

The other day, I went to breakfast with my wife. We paid about $30 for a full breakfast for two, including tip. Food costs at your normal restaurant should be about 50% of revenues, so $15 of that was straight food costs. The remainder probably was about $6 in fixed costs (electricity, rent, licensing, insurance), $6 in labour, and $3 in profit (in the best case).

Replace some of the wait/cook staff with a robot, and those labour costs can go down to $2-3. That means my breakfast costs 10% less. Add it up over lots of breakfasts, many people, and that is a lot of money.

This money does not simply go under the mattress. The savings are either:

Invested in new or existing ventures
Spent on more breakfasts or other activities

Either way, the growth due to the cheaper cost of a robotic breakfast is turned into economic growth.

Will the world of work look different when robots are everywhere? Yes. Will many jobs be lost? Yes. Will that be a bad thing? No. Many more jobs - in the same industry and in others - will be created to absorb the new investment and spending power unleashed by robot-driven cost savings, while our wealth increases due to lower costs for everything we do.

After 200+ years of free-market-driven dramatic improvements in our standard of living, largely due to technological innovation, isn't it high time we left Luddism behind?

The robots are coming. Let's welcome them.