Economics, Law & Tech, Social Commentary
People always assume automation can only be a good thing for the consumer. After all, if we can make things for less, that surely means they can be sold for less as well. Indeed, that seems to be a safe assumption to make. Lower production costs mean goods can be sold to a wider market for a lower price. Companies won’t even see their profits decrease because they're paying less in wages. So far, everything seems relatively straightforward. Except, life is never that simple. Everything always has to be more complicated. See, people need wages to live on. If I don’t have a job, I can’t pay my bills or buy food, buy anything really. Students are kinda an exception to this, but as they have to pay back their debt (at least in theory), we can let that one slide. Governments make the most of this status quo. By taxing both employees, through National Insurance, and producers, through VAT and corporation tax, it is possible to spread the cost of roads and other fancy infrastructure projects through the whole of society. That fact will be important later.
It has long been accepted that automation has the potential to decrease employment. My first job was selling and making pizza for a well-known franchise. Now, having worked on the shop floor, I can honestly say the work is gruelling. However, making pizza isn’t particularly complicated. A well-designed machine could make a pizza from scratch without human intervention. We haven’t reached that point yet, but the development is certainly conceivable. Start-ups already exist that are working on robots to flip burgers. Our favourite Italian takeaway can’t be too far from the chopping block. Other jobs are in a similar predicament. AI’s can organise vast swaths of data far better than a human mind could. Replacing human labour is kind of the point in making robots, so you’d assume that there are lots of companies out there downsizing to increase their profit margin. See, paying wages is a costly affair, especially in places where you have to add on other expenses like health insurance. Getting rid of that massive expense is an easy way to increase your net profit. From a business sense, the investment is an enormous win.
Remember how I said how taxes work will be important. Hopefully, that statement now makes a bit more sense. If employment goes down, governments make less money. You can’t tax an income people aren't actually making. Even if boxing pizza isn’t the most profitable line of employment, it is a source of income— every little helps. Clearly, if automation puts people out of work, fewer people will be shelling out for National Insurance. “But Toby,” I hear you say. “That money’s all going to companies. Surely that means that business taxes are creating enough new revenue to cover the loss.” Of course, in theory, you’re entirely right. Let me repeat that again. In theory. When was the last time you heard of a company paying their taxes? No, you know what, I’ll qualify that statement slightly. As a blog that talks quite a bit about the law, claiming that companies don’t pay taxes properly is a bold claim. The likes of Mcdonalds and Amazon pay exactly as much tax as is required from them by the law— it just so happens the law doesn’t require them to pay that much in tax. Loopholes, loopholes and more loopholes that is the aim of the game. Given no other option, tax codes will have to be reformed to make them airtight to avoid this phenomenon. If employment figures go that low, as they probably eventually will do, someone’s hand will be forced. That will take time, though.
Understandably, I may have lost you by now. I’ve written lots of words describing a sequence of events whilst also trying to explain various bits and pieces. A recap is probably in order. Time to make a list I think. Here are the predictions I’ve made so far in chronological order. I’ve even included a fancy little diagram for your enjoyment.
- Automation will reduce employment and tax revenue, whilst most companies see a rise in net profit.
- Governments will reform their tax codes and increase corporation tax to recover the lost revenue.
Notice that I’ve not provided any maths to support my theory. That’s because I wouldn’t know where to start. Modelling out an economic prediction is a little outside my wheelhouse. If someone out there could actually run the numbers, it would be appreciated. Anything I’ve said can thus only be read as an assertion built on commonsense. Personally, I don’t see the problem with that considering it's how most politicians seem to do things nowadays, but you may disagree.
Looking back at my diagram, at first, it doesn’t appear like there’s an issue. Even after the tax reform, businesses will be making a more significant net profit than they did before automation. In my books, that’s a win. The problem is companies don’t like looking at the big picture like that. For them, the only time a CEO is doing a good job is when they're increasing a firm’s net profit. Any time net profit is on a downwards slope, stockholders go into a meltdown. The only way is up as the song lyric goes. Price hikes are the best way to solve the ‘problem’. If the State wants to charge companies for every sale they make, then companies will just pass the cost onto the consumer. So long as people still buy their product, big business will charge as much as they can get away with. Yes, I realise how cynical I’m coming across. One word. Toblerones. A wedge of Toblerone is almost half the thickness it once was due to the increase in chocolate prices. Sugar taxes are one cause of that price inflation. Before an angry comment tries to explain to me how reducing a product’s size isn’t a price hike, bear in mind that consumers are now paying more per gram of Toblerone chocolate than they ever were. If that doesn’t count as price increasing, I don’t know what does.
Finding people alternative employment is, of course, the easiest way to alleviate this problem. Ensuring employment levels don’t drop means you won’t have to tax companies in the first place. Just because fewer people are producing tangible goods like pizzas or computers doesn’t mean they couldn’t be employed doing other things. The entertainment industry is great for this. Ed Sheeran writing the latest hit single is not producing a product in the same way that a carpenter can make a chair. Automating the creative process is a lot harder because there’s not necessarily a strict rubric that a machine could abide by. Tolkien wrote in a way very different to Shakespeare or James Patterson, but these are all writers who have sold an enormous amount of books. The entertainment industry also has an advantage in that it can monopolise experiences. Sure, we could all sit at home listening to procedurally generated music, but that doesn’t offer the same experience as going to a concert and listening to our favourite bands play. Replicating the feel of a festival or concert hall is difficult because there are so many variables. How do you get the floor to vibrate perfectly? Is it possible to replicate the sheer randomness of a crowd united by the words of an iconic song? Programmers would have to solve these and many other questions if they ever wanted to replicate the same buzz. Indeed, entertainment and the arts have long been a safety valve for the job market. Whenever employment levels were getting too low, somebody would always come up with a new and exciting way to make money. Comedians are literally paid to make us laugh. There are millionaire gamers whose job it is to sit on a computer and produce exciting content.
COVID-19 has put a spanner in the works. Admittedly, every sector has been hit. The entertainment industry is no exception. Theatres, cinemas, concert halls have all been closed for months. Using Youtube and other streaming services may not be better than real life, but lockdown has not given us the luxury of a choice. Why is this a problem? When we go out, there are lots of people involved in ensuring we have a good time. Bartenders mix our drinks. Bouncers check our tickets. There are ushers and cleaners and sound engineers and roadies. Hundreds of people are involved in creating a single night out. Currently, none of these people are needed. Even if we open everything at half capacity, that still means there won’t be the same demand, especially as people will be understandably sceptical about mingling with a bunch of strangers.
Due to this blockage, our economy’s safety valve now lets out nothing more than a trickle. 4,000 musicians recently protested outside of Westminster because the UK government has not done enough to protect their livelihood during the pandemic. Currently, the official response is that we must adapt. Not everyone will come out of this doing the job they once did. Orchestras and artists are going to have to change vocations. My question is, to what? Only so many people have the time and inclination to learn the violin. When how-to-videos plague the internet in their millions, justifying the expense of hiring a tutor, a tutor who can only teach you online anyway, is somewhat tricky. What can you get out of a Zoom call that a prerecorded video wouldn’t adequately cover? Sure, they could find a job outside of the industry entirely, but a job doing what? We’ve already highlighted the fact that automation is getting rid of traditional employment. Pianists can’t go and work at their local takeaway if the entire process has been streamlined.
There are, of course, jobs out there immune to automation, at least for now. Companies still need people to formulate their strategies. Society will always have children that need teaching. Even if remote lessons have replaced face to face contact, we still need someone to set the work, mark the work and write exams. At least some people will be able to find employment there. Others will transition into doing other things, probably relating to the internet in some way. I’m not trying to say that there’s no way that somebody could find meaningful employment in a post-COVID, automation heavy society. What I am saying is that a lot of people won’t. The fact that the debate about Universal Credit is well underway tells you all that you need to know. The age of the wage is coming to a close. Very soon, society will have to find new ways of raising funds if it wants to survive. To the eyes of the politician, businesses look like a massive piggy bank. Whether those little piggies want to pass the burden to their consumers is up to them.
My conclusion may be slightly unorthodox, but it is not unjustified. Running society costs. That money has to come from somewhere. Traditionally, taxation divides the burden between companies and employees. In a world where there are no more employees, this is no longer possible. Currently, two pillars are propping up government finances. As one begins to fail, the other must move to pick up the slack. Yet profiteering is in a company’s very nature. Exceptionally few corporations will be happy to pay the cost of progress, especially as the delay will mean that, for a limited time, the change will increase their net profits to new limits. All in all, automation may not be the end to price inflation we all hoped it would be. Perhaps it is merely a new beginning.