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Saturday, 15 December 2018

Capturing the benefits of the AI revolution

Our people and our economy face a triple whammy over the next ten years or so. Firstly are the effects of globalisation we are already experiencing - the 'elephant' mentioned in the comments to the post below, and the uncorrected distortions from the 2008 crash that have left large cohorts of our people worse off but highly taxed. Secondly will be the whirlwind of the coming downturn, for which the banks are better prepared than a decade ago but the British people are not, now carrying record levels of personal indebtedness. As QE is winding down, China slowing, bond market manipulation reaching its peak and the Eurozone intensely vulnerable to shocks it all seems to be coming together for next year. However, if we are to have another 1931, remember it wasn't all bad news; the boom in domestic demand for electrical goods and motor vehicles helped shift British manufacturing from steam and rivets to the industrial infrastructure needed for a war economy a few years later.

The third blow of the whammy will come from the effects of AI. I recommend a report from pwc that takes a middle course between the low and high estimates of AI impact on UK jobs - which range from  10% to 47%. Pwc guess that 30% of UK jobs will go in the next 15 years, and the report does a fair job of rationalising the losses. However, it's what the report doesn't say that's important.  

Unequal impact
AI will hit those with lower levels of education and skills disproportionately - 47% of the low skilled losing their jobs in the analysis above compared to 10% of graduates. The C1,C2,D&E cohorts have already been hard hit by globalisation effects, and are coping with a purchasing power significantly reduced in the last decade. AI changes will kick these cohorts when they are already down. In addition to making the worst-hit even worse-off, AI will increase inequality between the flexible, mobile, literate metropolitan elites dominating the media, politics and public administration and the disadvantaged - with the elite groups potentially being able to take substantial economic advantage of AI.

Tax and wealth impacts
AI isn't coming because of some sort of historical inevitability, but because it offers economic advantages in increasing productivity. Pwc and others assume blandly that the benefits of increased productivity can be captured by taxation and increased GDP, the wealthy global graduate metropolitan elites buying ever more advanced iPhones, or eating ever more diversely-sourced curries. However, no consideration is given as to WHERE these benefits are captured - and if globalisation is left unchecked, it is quite feasible that AI will be the Elephant Mark II.

The great challenge for UK governments of the next two decades will be to ringfence changes to the UK by balancing a 30% job reduction with a concomitant increase in UK GDP and UK tax-take - for this compelling need alone we must be free from EU restrictions and governance, and free to set our own tax and tariffs. Without action we will drift into a game-plan run by the global corporates for their own advantage - with the job losses and their costs borne by the UK, but the benefits, GDP and tax takes enjoyed elsewhere. The only domestic beneficiaries from ungoverned change will be the same establishment elites that have already done well from globalisation, at the expense of their fellow Britons. 

New models of social benefit 
I've yet to write a third in this mini-snapshot series to cover Localism, democracy and governance and don't want to trespass on next week's thoughts. But It's already clear that AI impacts to the economy will need fundamental reform to the way in which we tax and spend. I'll leave it to the Pwc report to introduce the options ..
(Social safety nets could be enhanced) by extending existing social security benefits, but more radical solutions include the idea of a universal basic income (UBI). This is an old idea, but it has gained traction in Silicon Valley and elsewhere in recent years as a potential way to maintain the incomes of those who lose out from automation and (to be hard headed about it) whose consumption is important to keep the economy going. The problem with UBI schemes, however, is that they involve paying a lot of public money to many people who do not need it, as well as those that do. As such the danger is that such schemes are either unaffordable or destroy incentives to work and generate wealth, or they need to be set too low to provide an effective safety net.
Nonetheless, we are now seeing practical trials of UBI schemes in a number of countries around the world including Finland, the Netherlands, some US and Canadian states, India and Brazil. The details of these schemes vary considerably, and it is beyond the scope of this report to review them in depth, but it seems likely that more pilot schemes of this kind will emerge around the world and that they will come on to the policy agenda in countries such as the UK as well. While UBI in its pure form may not be politically or economically attractive, some variants on it might be if they involve a greater degree of conditionality (e.g. requiring some form of paid or voluntary work, education and training, family caring responsibilities or similar activities to qualify for payments). Some aspects of the idea, such as providing a universal lifelong learning fund for each person that they could draw down when they needed it, might also be worth considering further even if a full UBI scheme is rejected.


James Higham said...

Fine post, Radders. Where does one start on the downside of AI?

Stephen J said...

As ever Raedwald, the N in the W are the rentiers, bankers, socialists, statisticians... aka... the experts.

Doesn't matter what you do, how you feed your family and yourself... At the end of the month, the banker, the socialist and the rentier are there with their hand out and a gun at your head.

Cowperthwaite had it right when he stated that the ONLY social service needed was a roof over the head of every citizen, if they couldn't afford one of their own, then the government must supply one. He worked out back then in the 1960's that the purpose of government, just like that little whirly thing on an engine (the governor) was there to stop engines spinning out of control.

Once you have a roof, the method used to nourish yourself and your family is up to you.

Unfortunately the rest of the world is overrun with socialists who think that you need their expert help to keep your morals in check, to stop you having nasty populist thoughts, or to set your planet on fire.

Well we need their valuable help about as much as Fawlty Towers needed Basil during the Germans episode...

“Polly can't cope” claims Basil and Sybil reminds Basil how well he was coping — “setting off burglar alarms, locking waiters in burning kitchens, getting jammed under a desk”...

I fear that if we don't manage to kill off the EU and the UN, we are going to be helped back to the stone age by them, as opposed to the good old British way of muddling through.

Experts can go and "DO ONE".

DiscoveredJoys said...

Much as I like the idea of a universal basic income just consider the political consequences.

As a thought experiment consider that the UK has left the corporate friendly EU, and under a socialist government (ahem) introduces a UBI but makes no provision for limiting (or banning) immigration and no provision for limiting UBI to the first 2 children (or some such measure).

'Free Money' would attract many people to these shores and remove restraint in family size. Which political party would have enough courage to reduce UBI to reflect the increasing demand?

Too far-fetched? You could argue that our present benefits system already invites such participation, but on a much lower scale. 'Free Money' is 'Free Money' after all.

James Higham said...

This might d to the discussion - it came up in passing over our way:

Stephen J said...

It's a good job Tim Pennings lives near the great lakes, as opposed to the seaside James.

Otherwise his mathematical explanation would have been elevated to a whole new level, he would have needed to take the tide into account!

I wonder what Elvis would have done?

Stephen J said...

My apologies to Tim Pennings James, just read the full text and he does take extra variables into account...

(Apparently) so does Elvis!

Budgie said...

Automation and robotics eliminated many of the semi-skilled jobs in mass production factories. I think that AI will eliminate many of the semi-skilled jobs in offices. So "the flexible, mobile, literate metropolitan" graduates in "media, politics and public administration" will be the hardest hit. The real elites wield the power and the money in the background of course.

Dave_G said...

AI doesn't just make the worker redundant, it make the worker 'irrelevant'.

Keeping people as 'chattels' simply to maintain the manufacturing process and by using the profits from such manufacturing to keep people as chattels would be taking the profits from the pockets of the corporatists for no good reason (that they could see).

Rumours (or tin foil hat scaremongering) of population reduction seems to be the only way an AI future will work - providing goods for those who can afford to create the machines that make them.

Can you imagine the 1% being magnanimous enough to provide AI manufacturing facilities for those the AI manufacturing has made redundant?

Domo said...

Until very recently, 90% of the populace were full time agricultural workers.
The invention of the seed drill, the tractor, the combine harvester, have reduced this to 2% of the workforce, likely less than 0.5% of the actual population.

Were the masses exterminated to decrease the surplus labour pool?
No, they were not, in fact, the populace grew at its fastest and most sustained rate ever.

Dave_G said...

@Domo - true. But that was pre modern technological requirements. The car, electricity, white goods etc all kept people productive, earning money needed to actually purchase the goods they were part of creating. In other words, there was something else they could be employed to do.

It's going to take another radical technological leap to bring about the social changes that might keep otherwise redundant people in employment. Limitless free energy may be the answer such that individuals could be self-productive at minimal cost but unless there's something to keep 'mischievous hands busy' what else would they do other than be a drain on society?

I recall Penny asking Leonard (Big Bang Theory) "so, what's new in physics" and he replied ".......... nothing".

It wasn't co-incidental (or was it?) that the move to mechanised farming came with the invention of the steam engine and cheap energy. Without that leap in technology we'd still be tilling the fields en-masse.

jim said...

The art of taxation is to pluck the goose without it hissing too much.

Introducing AI will involve much the same, but don't expect much UBI unless government is cornered into it.

If I were a big corporate investor I would be looking to monetise healthcare, elder care, transport and housing infrastructure. Get the money out the country and make the population provide a revenue stream. Already part way there, once they own all the infrastructure the politicians will do as they are told - including Labour.

The name of the game is to keep the geese renting the product - preferably non physical product. Not very nice, but that's the way its going.

Domo said...

There was a pronounced gap between the invention of the seed drill and the hatchback.

"keep 'mischievous hands busy' what else would they do other than be a drain on society?"
You have it backwards
Labour is the asset
Jobs are the cost

"It wasn't co-incidental (or was it?) that the move to mechanised farming came with the invention of the steam engine and cheap energy. Without that leap in technology we'd still be tilling the fields en-masse."
Seed drills were hand powered, they were motorised much later.

Tony Harrison said...

1. Forecasts of technology-induced doom will always remind me of 19thC suggestions (often accompanied by widespread social upheaval, violence) that steam power, railways and so on would be destructive of civilisation as we know it. I'm interested in photography, and always smile to think of early forecasts that it spelled the death of painting...
2. "AI will hit those with lower levels of education and skills disproportionately - 47% of the low skilled losing their jobs in the analysis above compared to 10% of graduates. The C1,C2,D&E cohorts have already been hard hit by globalisation effects..." Surely further damnation of the insane fecklessness of recent governments (previous half-century only) in facilitating the mass immigration of so many low-skilled and unskilled folk from both inside and beyond Europe? It's a big scary chicken coming home to roost.

Raedwald said...

Without immigration the UK economy would be in big trouble - we're currently at full employment and suffering upwards wage pressures because *shortages* of workers in many sectors - many low skilled and unskilled - are revealing real capacity problems.

Where do we get fruit pickers, sprout gatherers and flower-cutters from if not Eastern Europe? Where should we find carers that work for minimum wage so we can keep our care home bills down?

As The £/€ rate has shown, many will leave if the reward becomes too unattractive. Many are not here permanently, but just mobile workers chasing the best wages around Europe.

And until they can delevop a robot to pick soft fruit without damage, we're still going to need those Romanians and Bulgarians in the economy.

May's insane plan to impose a £30k bar on migrant workers will not only take the strawberries out of your morning muesli but will triple the cost of a Lamb Madras from your local takaway.

Tony Harrison said...

Immigration,RW: it is always necessary in some degree. What is not only unnecessary but destructive of our cultural homogeneity is the mass immigration of the low (or un-) skilled, especially from culturally alien societies. The shortfall in certain fields of very unskilled labour needs to be addressed in part by changes to the welfare system: it is far from being just a myth that everyone knows of those who swing the lead and/or otherwise decline to accept jobs because they feel more comfortable on the dole. I certainly know such folk, in the rural Westcountry...
And if we need homegrown labour to do the most dreary jobs, and it costs us a bit more, that's fine by me - because it really isn't all about money...
The UK made the mistake of importing cheap foreign labour, starting in the 1940s, and has paid the price in various ways familiar to all. France and Germany did the same - and it's interesting to note the number of 2nd or 3rd generation immigrant citizens who've gone rogue in those countries, including the latest Strasbourg terrorist murderer of four... It's a dreadful lack of foresight that will be with them and us for a long time.
I was at school with the children of immigrants in the 1960s, kids with names like Dorosz, Kaminski, Gyrin, Horilowitz - their parents had come here to help us fight the Third Reich, they were fellow Europeans both capable of and willing to integrate, they fitted in, they were often well qualified, made themselves learn good English, and both respected and aspired to our indigenous culture. Not to be compared with fruit pickers.

Domo said...

£30k is roughly the break even point where a person ceases to be a net drain and becomes a net contributor.

It's not a good idea to pay English, not to work, import foreign people to work cheaply, and provide taxpayer subsidy to their housing and medical costs.

We'd all be richer growing combineable crops here and importing soft fruit from there.