Sunday, January 29, 2017

The automation story will go the free-trade way?

Even just twenty years back, scepticism of free trade would have been scorned upon. Among intellectuals, free trade was an article of faith. It was thought that free trade generated unambiguous aggregate benefits. There may be a few losers, but they would quickly get re-skilled and adjust to the labor market, or, at worst, could be compensated by redistribution from the winners.

As is acknowledged now, this ideological belief was contrary to the reality. Many developing countries, especially the smaller ones, were aggregate losers from free trade. The logic of Ricardian comparative advantage did not play itself out. Labor markets did not adjust as anticipated. And, compensation and redistribution were political non-starters.

Those urging caution, like Dani Rodrik, were considered left-wing. Today, even as the same Dani Rodrik has stayed firm on his convictions, the world has travelled so much that his arguments have become the mainstream.

Much the same story appears to be playing itself out in the context of automation. This rationalisation with the example of rise in human tellers in banks despite the arrival of ATMs is worthy of political rhetoric than academic research. Sample this techno-optimism from David Autor,
Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply. Indeed, a key observation of the paper is that journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor... The frontier of automation is rapidly advancing, and the challenges to substituting machines for workers in tasks requiring flexibility, judgment, and common sense remain immense. In many cases, machines both substitute for and complement human labor. Focusing only on what is lost misses a central economic mechanism by which automation affects the demand for labor: raising the value of the tasks that workers uniquely supply.
This sophistry conceals the fundamental point that automation, like trade, will most certainly leave the less skilled extremely vulnerable. The negative effects of driverless cars (on drivers), speech recognition devices (on clerical staff), shop floor management devices (on retail, hospitality etc) and so on do not require any rigorous RCTs or sophisticated statistical analysis.  

Like with the unrealised labor market adjustment and redistribution to cushion the losers from free trade, the promised mitigating factors against automation like adjustments in labor supply, re-skilling, and emergence of complementary job creators are likely to remain largely unfulfilled. There is nothing to suggest that this time will be any different.

No comments: