AI and the Rise of the Robots: A taxing question

Dr. Maja Korica, Associate Professor of Organisation at Warwick Business School, speaks up on how AI and the fourth industrial revolution will impact society.

Automation has been here for a while – is it approaching critical mass?

A number of industries have been automated for years, and that automation continues at pace. What is perhaps most concerning is the speed at which the biggest players are introducing these changes. If you take a company like Amazon, for instance, in 2017 it was said to have introduced more than 50,000 new robots, a 100 per cent increase from the previous year. Estimates suggest some 20 per cent of its workforce may already be made up of robots.

This shift is highly visible, and of course highly effective. After all, robots can work much closer to 24/7, 365 days a year than humans, they do not have unions, they do not complain, there are less costs associated in terms of providing an acceptable working environment, and they come with great efficiencies (after a period of adjustment). As such, they present a powerful incentive for other firms to do the same.

The rise of the robots is underway

Whether it’s AI or robots, the impact of their development on work is similar. There may be humans involved still, but fewer and not always in better jobs. And this is not just in Western economies. In China, for instance, the scale of investment in robots and displacement of workers is huge.

The traditional doctrine is that other jobs will be created to make up for those lost by the introduction of a new technology. This time, the suggestion by experts like Martin Ford is that these jobs will mostly move to the service industry, specifically where empathy and judgement is involved. However, traditionally better paid jobs, like lawyers, surgeons and financial advisors, are increasingly a target for automation too. This constitutes a new paradigm – different from technology advances that have eradicated jobs in the past. It used to be the case that with new technological advances came new opportunities, and often better, and better paid work. This is no longer necessarily the case, and this has significant consequences – not just in terms of economics, because of reduced purchasing power spread across fewer people, but also in terms of social and political consequences. What happens when millions of people discover they no longer have long-term meaningful careers, or a stable, dignified job at all?

A cutting temptation

If we only look at the bottom line – from the perspective of a shareholder in a corporation deploying automation – lower headcount, lower costs, and greater productivity equal more profits. That’s a positive for shareholders. As such, cutting workers is one obvious solution. The robots pay for themselves in a short time, so the investors might expect to do very well.

However, the problem is that calculation is no longer appropriate. You can fly under the radar and hope for the best, but we can already see some of these things having well-publicised broader social and political consequences. National publics are increasingly living those consequences, so losing patience with this type of thinking. Couched in those terms, it becomes clear that here short-term investor interest doesn’t match the interest of the public, nor of national governments, certainly not in the longer term.

A taxing question

There are several solutions available. One is the so-called ‘robot tax’. Here, the idea is to use tax as a redistribution mechanism of corporate gains from automation. Obviously, some policymakers and business leaders object on the basis that a levy against automation is a levy against progress. The argument goes that technological advances are inevitable and essential, so we need to avoid any kind of tax that would make business less likely to invest in technological progress like AI and robots. There is also the fear that nations would be at a competitive disadvantage if they levied such a tax.

The dilemma is that if we accede to the “don’t tax progress” argument, then we may well contribute to further wealth inequality. Indeed, the capturing of wealth created by automation has been clearly shown to go almost entirely to business owners in recent years, certainly in countries like the UK and US. And it is not really being redistributed. Neither to employees through increased employee ownership options, for example, nor more broadly, for instance via Universal Basic Income.

For many average workers in such countries, their wages have stagnated or fallen over time – whole communities struggle to find dignified work for decent wages. Social structures begin to buckle, especially if at the same time governments have less tax income, or political desire to provide safety nets for displaced workers. In short, while the benefits of automation are clear for business owners, the externalities and the negative social and economic consequences presently fall on local communities and society more broadly.

Reconciling competing interests

According to Dr. Korica, one meaningful counterpoint to those kinds of incentive structures is targeted work by governments at a pan-national level, based on a shared set of principles concerning the social contract. The EU, for example, can take collective action if there is enough political will. In the absence of this, expecting companies to be responsible is basically saying ‘whatever you are happy to do, you can do’. Self-regulation may work in some cases, but given the powerful incentives to introduce robots in the present market environment, it is highly unlikely that they would choose not to adopt these technologies. They might of course raise the salaries of the people that remain, but this would still have limited impact more broadly. In short, governments play a key part in mitigating those effects, and working out solutions.

Without intervention, the scenario described is one of an increasingly fractured world, as shareholders become considerably wealthier, while the majority of people struggle to earn a reasonable salary or find dignified work. This fracturing speaks to the wider world we find ourselves in. As such, Dr. Korica believes policymakers and business leaders should be thinking about how to collaborate across organisational boundaries to deal with these so-called ‘wicked (or complex) problems’. “The idea that, as a company, you can forget about other people, that as an entity you have fixed boundaries, and can therefore choose to engage in the world however you want on your own terms – that notion is crumbing before our eyes. Sitting on the sidelines is no longer an option,” states Korica.

Importantly, it hasn’t always been this way. For instance, the so-called titans of business historically played a great role in public life of the US, based on the sentiment that we are all living together in this society, and so need to take some responsibility for what happens at our back door. Today, though, for many large multinationals, there is less sense of belonging: they are everywhere and nowhere. Their boundaries are so porous, they don’t even know who their employees are or aren’t, who or what they are responsible for, where they start or end. And there is also a much greater, detrimental focus on the bottom line in the short term.

Organisations and a different approach

A different approach from companies demands a different kind of leadership and management. “We need a stewardship model, where leaders and organisations are contributors to broader well-being,” says Dr. Korica. “For a CEO, this shift means practical re-orientations too. CEOs should be thinking whether their staff at all levels can meet this challenge – do they have the skills that allow them to work with others across boundaries to deal with ‘wicked problems’?” Do they have the capacity to create imaginative realities for different futures? Do they have the means to break through the ceiling of information that surrounds every executive without reducing complexity? Are they continually asking critical questions?

In the end, the bigger crucial question is one of who owns the gains and the losses. “We need to train people to face a different kind of reality and/or enable people to exist with dignity in a future with less labour,” she states. “How are we going to do that and who pays? And even if we figure out the payment element, what does this mean for individual identity and meaning? We talk about dignity of labour. Today’s paid work is already short on dignity for many. What happens if we lose the labour part too? What will we do? Who will we be? These are some of the fundamental questions we need to answer for different contexts, and pretty soon too.”

From an original interview by Warren Manger, Warwick Business School

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