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

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 »

Free Trade Free for All: Market Romanticism Versus Reality

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The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.Read More »

The BRICS and a Changing World

This July and August, I led an international group of experts in preparing an Economic Report on the role of the BRICS countries (Brazil, China, India, Russia and South Africa) in the world economy and international development.  The Report was commissioned as an input to the Summit of BRICS countries that took place in early September 2017 in Xiamen, China.

It surveys the BRICS countries’ sizable contribution to global growth, trade and investment, evaluates the prospects for this to continue in the future, and explores the possible role that these countries can play in bolstering the global economy, in reshaping international economic arrangements and in contributing to the Sustainable Development Goals and to international development generally. An important conclusion in the report is that continued BRICS growth as well as policy initiatives can substantially benefit other developing countries (the report uses the IMF category of Emerging Market and Developing Countries, or EMDCs) – and developed countries too.  I will  be pleased if the report will be circulated widely, and welcome all reactions.Read More »

Premature Deindustrialization and the Defeminization of Labor

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In two previous posts on this blog, I’ve discussed the issue of premature deindustrialization and some of its possible consequences. In a recent paper, I, along with co-author Bret Anderson of Southern Oregon University, explored the potential consequences of premature deindustrialization further by examining the possible connections between premature deindustrialization and the defeminization of industrial employment. Premature deindustrialization is a situation in which the shares of manufacturing value added and employment begin to shrink at per-capita income levels much lower than those of the early industrializers, along with manufacturing employment peaking at lower levels. The scarce manufacturing jobs that do remain, however, are likely to be relatively high paying jobs that countries and workers compete for. In our work, we assessed whether premature deindustrialization is a feminizing or defeminizing force in industrial employment. By examining 62 countries from 1990 to 2013, we find that premature deindustrialization is likely to amplify the male bias of industrial upgrading.Read More »

200 Years of Ricardian Trade Theory: How Is This Still A Thing?

maxresdefault.jpegOn Saturday, April 19th 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out the idea of comparative advantage, which since has become the foundation of neoclassical, ‘mainstream’ international trade theory. 200 years – and lots of theoretical and empirical criticism later – it’s appropriate to ask, how is this still a thing?[1]

This week we saw lots of praise of Ricardo, by the likes of The Economist, CNN, Forbes and Vox. Mainstream economists today tend to see the rejection of free trade implicit in Trump and Brexit as populist nonsense by people who don’t understand the complicated theory of comparative advantage (“Ricardo’s Difficult Idea”, as Paul Krugman once called it in his explanation of why non-economists seem to not understand comparative advantage). However, there are fundamental problems with the assumptions embedded in Ricardo’s theory and there’s little evidence, if any, to back up the Ricardian claim that free trade leads to balanced trade. On this bicentenary, I therefore think it’s timely to revisit some of the fundamental assumptions behind Ricardo’s theory of comparative advantage, that should have led us to consider alternative trade theories a long time ago. Read More »

On the Journals: Western Populism and Economic Development

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The election of Donald Trump last year and Britain voting to leave the EU (‘Brexit’) left a lot of people angry and confused. While there was a lot of in-depth media coverage trying to make sense of the phenomenon immediately after the fact, the academic analysis is as usual late to the game because of the lag associated with academic publishing

Only these past couple of months have academic articles dealing with the issue started appearing. Real World Economics Review, for example, published an excellent special issue on Trumponomics in March. Although the analysis tends to be Western-centric, there have been a few notable pieces that take a more global perspective and/or deal with economic consequences for the developing world.Read More »