The Rise of the Robot Reserve Army: Working Hard or Hardly Working?

The rise of a new global ‘robot reserve army’ will have profound effects on developing countries but will it mean people will be working hard or hardly working?

Robots, robots, everywhere

Stunning technological advances in robotics and artificial intelligence are being reported virtually on a daily basis: from the versatile mobile robots in agriculture and manufacturing jeans to autonomous vehicles, and 3D-printed buildings.

In fact, the International Federation of Robotics  estimates that next year the stock of industrial robots will grow by more than 250,000 units per year concentrated in production of cars, electronics, and new machinery.

In some domains, emerging economies are actually ahead of richer countries. Take for example, Beijing’s driverless subway line or mobile phone-based finance in Kenya. Robots could even partially replace researchers and academics. So, this is really, really quite serious now…

This year’s World Development Report focuses on the changing nature of work (although its messages feel oddly dated). And it’s not the only one. A broad range of international agencies have recently flagged such issues relating to the future of employment in the context of automation including the ADB, the ILO, the IMFUNCTADUNDPUNIDO and the World Bank again, and again. Ditto the private sector folks at McKinsey Global Institute, the World Economic Forum and Pricewaterhouse. In fact, the International Labour Organization (ILO) has gone as far as launching a Global Commission on the Future of Work.

So, why does it matter?

What does automation mean for developing countries? Are the East Asian pathways to development based on job creating manufacturing-led growth gone forever? Will 1.8bn or two-thirds of the workers in developing countries need to find new jobs (as the World Bank says they will)? Is a global universal basic income needed as Indonesian Minister of Finance proposed at the IMF and World Bank meetings? Does every developing country need to set up a ministry of automation as Thailand has done?

In a new paper we take a closer look at what we call the rise of the robot reserve army (and here’s the podcast at LSE) and what it means for the future of economic development and employment in particular in developing countries. It’s all part of a new project on structural transformation and inclusive growth that studies what we’ve called the ‘developer’s dilemma’.

‘What’s the developer’s dilemma?’ we hear you cry (we can dream). It’s this: structural transformation, aka genuine economic development (not just commodity fueled growth), often leads to rising inequality unless public policy intervenes. At the same time inclusive growth is more likely with steady or even falling inequality. That’s the developer’s dilemma.

In the years ahead big issues such as automation, but also deindustrialization are important mega-trends. And it’s important not to forget the historical experience of economic development which points towards the case for ‘trickle along’ economics.

In this context, automation is clearly of significance to the future of economic development, the future of work and point towards the need to develop new strategiesfor economic development in developing countries.

That said, interest in the impact of technological change is of course by no means new. There’s the detailed empirical study of Leontief and Duchin from the 1980s and, going further back, the work of W. Arthur LewisMarxRicardo and Schumpeter.

So, what did we find?

Continuing the Simpsons and the robots theme, we have three headlines (why is it always three?):

  1. D’oh! Automation is not just a rich country issue.

The bulk of thinking on the economic implications has so far focused on advanced industrialized economies where the cost of labour is high and manufacturing shows a high degree of mechanization and productivity. Yet, the developing world is both affected by automation trends in high-income countries and is itself catching up in terms of automation.

Automation is likely to affect developing countries in different ways to high-income countries. The kinds of jobs common in developing countries—such as routine agricultural work—are substantially more susceptible to automation than the service jobs—which require creative work or face-to-face interaction—that dominate high-income economies.

  1. Duh! Automation is not only about technology.

The current debate focuses too much on technological capabilities, and not enough on the economic, political, legal, and social factors that will profoundly shape the way automation affects employment. Questions like profitability, labour regulations, unionization, and corporate-social expectations will be at least as important as technical constraints in determining which jobs get automated, especially in developing countries.

  1. ¡Ay, caramba! Pay more attention to stagnating wages than unemployment.

In contrast to a widespread narrative of ‘technological unemployment’ (© John Maynard Keynes), a more likely impact in the short-to-medium term at least is slow real-wage growth in low- and medium-skilled jobs as workers face competition from automation. This will itself hinder poverty reduction and likely put upward pressure on national inequality, weakening the poverty-reducing power of growth, potentially placing social contracts under strain.

As agricultural and manufacturing jobs are automated, workers will continue to flood into the service sector, driving down wages, leading to a bloating of service-sector employment and wage stagnation but not to mass unemployment, at least in the short-to-medium term.

How developing countries should respond in terms of public policy is a crucial question.

In sum, developing countries face real policy challenges unleashed by automation.

Given the pace of technological change, upskilling strategies are unlikely to be a panacea. Safety nets and wage subsidies may be desirable, but the question remains how to finance them (without making labour more costly and thus exacerbating a trend towards replacement). Investing in labour-heavy sectors such as infrastructure construction, tourism, social services, education or healthcare provision may be a way for developing countries to manage disruptive impacts of automation though these would imply major public investments and do not in themselves constitute a long run strategy for economic development. In the longer run the moral case of a GUBI (global universal basic income – remember, you heard the acronym here first) may become overwhelming.

So those are the headlines. For the real nerds, we’ll blog in more detail on drivers of automation, our theory on the effect of automation in developing countries; the forecasts of automatability and employment displacement; and different approaches to public policy responses.

And here’s Homer, showing how not to do it.

Lukas Schlogl is a Research Associate with the ESRC GPID Research Network at King’s College London. He works on structural change, digital transformation, and political behavior in developing countries.

Andy Sumner is a Reader in International Development in the Department of International Development, King’s College London. He is Director of the ESRC Global Poverty & Inequality Dynamics (GPID) Research Network.

This article originally appeared on the CGD and the FP2P blogs. It is the first of a special series of blogs on the future of economic development, work, and wages in developing countries that is published by the Global Poverty and Inequality Dynamics Research Network

Think Positive, Climb out of Poverty? It’s Just Not So Easy!

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Social mobility in Brazil: Positive thinking and ambitious aspirations can create lots of frictions“

A few weeks ago, Professor Seema Jayachandran from Northwestern University published an article in the New York Times in which she discussed the role of positive thinking and of believing in oneself for overcoming poverty. Jayachandran argues that there is “growing evidence that it can used as an anti-poverty strategy”, while also warning about placing too much emphasis on positive thinking alone. This post will dwell on the latter point, arguing that we should pay much more attention to limitations and broader contexts of positive thinking in development. I do not want to deny the role of self-worth and forward-looking aspirations for poverty reduction and quality of life more generally, but I will emphasize the importance of considering their role only as part of a broader policy mix.

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How History Matters in Post-Socialist Economies

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Though it has been suggested that The Beatles Rocked the Kremlin’ it was “Wind of Change” by Scorpions in the early 1991 that captured the minds of the new generation of Eastern Europe (EE) and the Former Soviet Union (FSU).

The promise of more open societies following Mikhail Gorbachev’s perestroika announcement set in motion powerful dynamics completely transforming the world. The Berlin Wall fell in 1989 and by the end of 1991 the Soviet Union disintegrated bringing down the entire socialist institutional edifice. Newly independent nation-states emerged across Europe, the Caucasus, and Central Asia. This new “wind” was that of hope, progressive stability and economic prosperity, or so it seemed at the time. And yet, “[f]or whom the wall fell?” as Branko Milanovic has recently inquired, is not as straightforward as might have been expected.

Despite the independence premium in national policy and in parallel with evidence suggesting recent strong economic growth the post-socialist economies are yet to achieve the ideals announced at the outset of market reforms. Ironically, the most unfortunate economic plan was the 1990s script of transition from planned economy to free market in the EE and FSU.

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Increasing and Diminishing Returns – Africa’s Opportunity to Develop

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‘This tendency to Diminishing Returns was the cause of Abraham’s parting from Lot, and of most of the migrations of which history tells’ wrote the founder of neo-classical economics, Alfred Marshall, in the first edition of his textbook Principles of Economics (1890). In a footnote he refers to the Bible’s Genesis xiii : 6: ‘And the land was not able to bear them that they might dwell together; for their substance was great so they could not dwell together’. (Marshall 1890: 201)

Marshall’s observation also applies to today’s migration patterns: from countries where most activities are subject to constant or diminishing returns to countries whose key economic activities are subject to increasing returns to scale. Diminishing returns occur when one factor of production is limited by nature, which means that it occurs in agriculture, mining, and fisheries. Normally the best land, the best ore, and the richest fishing grounds are exploited first, and – after a point – the more a country specialises in these activities, the poorer it gets. OECD (2018) shows how this occurs in Chilean copper mining: every ton of copper is produced with a higher cost than the previous ton.

In Alfred Marshall’s theory, the ‘Law of Diminishing Returns’ is juxtaposed with ‘The Law of Increasing Returns’, also called economies of scale. Here we find the opposite phenomenon; the larger the volume of production, the cheaper the next unit of production becomes. Traditionally economies of scale were mainly found in manufacturing industry, and increasing returns combined with technological change has for centuries been the main driving force of economic growth. Increasing returns creates imperfect competition, market power and large barriers to entry for challengers – companies or nations – making it difficult for them to enter these industries. In contrast to the rents produced under conditions of increasing returns, raw materials – commodities – on the other hand, are subject to perfect markets, and productivity improvements spread as lowered prices. This is the essence of the theory which explains why former World Bank Chief Economist Justin Yifu Lin was correct hen he asserted that ‘Except for a few oil-exporting countries, no countries have ever gotten rich without industrialization first’ (Lin 2012 : 350).Read More »

Trade for Human Rights as a Minimum Core Obligation

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In his report on the Minimum Core Doctrine (MCD) John Tasioulas states:

“the essence of the concept will be taken to be the sub-set of obligations associated with socio-economic rights that must be immediately complied with in full (obligations of immediate effect)” (p. 3).

He contrasts these against those obligations that require significant resources and are therefore subject to ‘progressive realization’. Thus, the defining characteristic of MCD is that it differentiates obligations between those of immediate effect and those of progressive realization. And the focus is on the nature of the obligations (what the state must do when) rather than the nature of substantive rights (the condition of people’s lives).

However, the discussion about what constitutes minimum core obligations in substance focuses on the nature of rights enjoyment and a package of minimum goods and services that would be required rather than the nature of obligations. This starts with General Comment 3 that refers to ‘a minimum core obligation to ensure the satisfaction of, at the very least, minimum essential levels of each of the rights’, and to the provision of ‘essential primary health care’ (ICESCR quoted in Tasioulas p. 5). Further, human rights-based practice begins to specify specific types of diseases to be treated and goods and services that would be included in the minimum, as under the ‘selective primary health care model’ adopted by UNICEF (Tasioulas p. 5).Read More »

An Alternative Economics Summer Reading List

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by Carolina Alves, Besiana Balla, Devika Dutt and Ingrid H. Kvangraven

This is a response list to Martin Wolf’s FT column recommending Economics books of 2018 for summer reading. While there are many good books listed, we were struck by the consistent monism in his choices, as the books are all by scholars based in either the UK or the US, 12/13 of the authors are men and most of them come from the same theoretical tradition. Such lists perpetuate the strong white male – and mainstream – biases in our field (the recent list by The Economist suffers from the same biases).

To counter these biases, and with the purpose of broadening our field to become more inclusive of diverse approaches and perspectives, we have put together an alternative list. We deliberately chose books by scholars approaching Economics with alternative theoretical frameworks and by scholars from groups that tend to be excluded from the field, namely women, people of color, and scholars from the Global South. We recognize that no one is exempt from biases, which is why we are providing an explanation for the motivation behind our selection. Due to institutional and language barriers we were unable to include as many scholars from the Global South as we would have liked. For example, we would love to read the new book Valsa Brasileira by Laura Carvalho, but we are still waiting for the English translation. We hope you enjoy it and welcome more suggestions in the comments section.

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Keynes or New-Keynesian: Why Not Teach Both?

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For economists, the Great Recession, the worst crisis the world economy has seen since the Great Depression of the 1930s, has highlighted the need for plurality in macroeconomics education. Ironically, however, there is a move towards greater insularity from alternative or contrasting points of view. Where as, what is required for vibrant policy making is an open-minded academic engagement between contesting viewpoints. In fact, there does not even exist a textbook which contrasts these contesting ideas in a tractable manner. This blog post is as an attempt to provide certain pointers towards developing macroeconomics in a unified framework.

Macroeconomics as a subject proper came into existence with the writings of John Maynard Keynes[i]. There were debates during his time about how to characterise a capitalist economy, most of which are still a part of the discussion among economists. Keynes argued that capitalism is a fundamentally unstable system so the state needs to intervene to control this instability.Read More »

Revisiting Hirschman’s Tunnel Effect and Its Relevance for China

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As within-country inequality is on the rise worldwide, considering how people actually perceive inequality in their societies and how they respond to it is a question worth asking. In 1973 Albert Otto Hirschman proposed an explanation of changing tolerance for inequality associated with different ‘stages’ of the development process. In this post I’ll revisit Hirschman’s theory and link it to emerging studies of how inequality is perceived in China. The Chinese people generally seem to be satisfied with rising inequality, yet it is unclear how long this tolerance will last.Read More »