Tax The Robots To Save Humans From Redundancy

In the recent past, there has been a spate of predictions about robots taking over human jobs. One such prediction was made on 3 October 2016, by the World Bank President Jim Yong Kim, in a speech, when he said-

"Research based on World Bank data has predicted that the proportion of jobs threatened by automation in India is 69 per cent, 77 per cent in China and as high as 85 per cent in Ethiopia."

As per the predictions, it is not only jobs in the developing countries that are at risk. As Rutger Bergman writes in Utopia for Realists-

"Scholars at Oxford University estimate that no less than 47 per cent of all American jobs and 54 per cent of those in Europe are at the high risk of being usurped by machines. And not in a hundred years or so, but in next twenty years."

He then quotes a New York University professor as saying: "The only real difference between enthusiasts and sceptics is a time frame."

I have a view which is different from robots destroying human jobs and I wrote about it in late January 2017. The fear of robots or automation destroying human jobs is not a new one and has been around for a while. So, what is it that makes this fear so believable this time around?

As Yuval Noah Harari writes in Homo Deus-A Brief History of Tomorrow-

"This is not an entirely new question. Ever since the Industrial Revolution erupted, people feared that mechanisation which is what robots are after all about] might cause mass unemployment. This never happened, because as old professions became obsolete, new professions evolved, and there was always something humans could do better than machines. Yet, this is not a law of nature, and nothing guarantees it will continue to be like that in the future." The question is: What has changed this time around?

Human beings essentially have two kinds of abilities:

a) physical ability

b) cognitive abilities i.e., the ability to think, understand, reason, analyse, remember, etc.

As Harari writes: "As long as machines competed with us merely in physical abilities, you could always find cognitive tasks that humans do better. So machines took over purely manual jobs, while humans focussed on jobs requiring at least some cognitive skills. Yet, what will happen once algorithms outperform us in remembering, analysing and recognising patterns?"

And given this, the conclusion being drawn is that robots will take over human jobs. This conclusion has one basic problem- it assumes that human beings will sit around doing nothing and let robots take over their jobs. Now that is a very simplistic thing to believe. So, if and when, it seems likely that robots are taking over human jobs, it is stupid to assume that the governments will sit around doing nothing. There will be tremendous pressure on them to react and make it difficult for companies to replace human beings with robots.

Over and above, governments will lose out on tax. When an individual works and earns, he pays income tax to the government. Income tax is a direct tax. Over and above this, in India, when he spends this money, he pays various other taxes, which are largely indirect taxes, like excise duty, service tax, etc. A similar structure works all over the world.

Now let's say, this individual paying taxes gets replaced by a robot. The government does not get any income tax that it previously did. Moreover, the unemployed individual will no longer spend as much as he did in the past. He will go slow on spending so that his savings last longer, at least till he finds another job. If a substantial number of individuals lose their jobs to robots, the government will also lose out on both direct as well as indirect taxes.

So, what is the way out?

In a recent interview to Quartz.com, Microsoft founder Bill Gates, said-

"Certainly there will be taxes that relate to automation. Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you'd think that we'd tax the robot at a similar level."

Taxing the robot means, taxing the company which owns that robot. And how will this help? It will help the government to finance other jobs. As Gates puts it-

"And what the world wants is to take this opportunity to make all the goods and services we have today, and free up labour, let us do a better job of reaching out to the elderly, having smaller class sizes, helping kids with special needs. You know, all of those are things where human empathy and understanding are still very, very unique. And we still deal with an immense shortage of people to help out there. So if you can take the labour that used to do the thing automation replaces, and financially and training-wise and fulfillment-wise have that person go off and do these other things, then you're net ahead."

What Gates has explained, is perhaps a solution to the problem that too much automation or too many robots are going to create. There is a basic law in economics which goes against the entire idea of robots destroying human jobs. It's called the Say's Law.

John Kenneth Galbraith's writes about it in one of my favourite books, A History of Economics-The Past as the Present. This law was put forward by Jean-Baptise Say, a French businessman, who lived between 1767 and 1832. As Galbraith writes-

"Say's law held that out of the production of goods came an effective aggregate of demand sufficient to purchase the total supply of goods. Put in somewhat more modern terms, from the price of every product sold comes a return in wages, interest, profit or rent sufficient to buy that product. Somebody, somewhere, gets it all. And once it is gotten, there is spending up to the value of what is produced."

Say's law essentially states that the production of goods ensures that the workers and suppliers of these goods are paid enough for them to be able to buy all the other goods that are being produced. A pithier version of this law is, "Supply creates its own demand."

What does this mean in the context of robots destroying human jobs? If robots destroy too many human jobs, many people won't have a regular income. Without regular income, how will they buy all the products that robots are going to produce? And if they don't buy the products created by the robots, how are these companies driven by robots going to survive?

Gates offers a solution wherein he suggests greater taxes on companies that use robots. That money can then be used to retrain people and deploy them in areas where humans are still required. This will result in regular income to the people and thereby regular taxes, both direct and indirect, to the government. That is, the government can use the revenue from taxing robots to generate more revenue for itself. This suggestion is in echoes my views on government intervention and action in the scenario of robots taking over human activity.

But Gates’ suggestion depends on several assumptions.

Firstly, it assumes that people who lose their jobs to robots will be trained for other professions. While this sounds simple enough, it clearly isn't.

Secondly, it expects the governments to do the right thing. That as we all know, is easier said than done.

Thirdly, it assumes that companies will willingly pay tax on their robots and not look for loopholes to avoid making these payments.

Having said that, Gates' suggestion still shows a way out of the economic mess that robots are likely to create.

To conclude, if my job doesn't get replaced by a robot as well, I hopefully will be around to keep writing about this trend in the months and years to come.

Watch this space!

References:

1. Speech by World Bank President Jim Yong Kim: The World Bank Group's Mission: To End Extreme Poverty, October 3, 2016

2.R.Bergman, Utopia for Realists-The Case for a Universal Basic Income, Open Borders and a 15-Hour Workweek, The Correspondent, 2016

3. Y.N.Harari, Homo Deus-A Brief History of Tomorrow, Harper, 2016

This article was originally published in Vivek Kaul’s Diary — a newsletter that cuts through the noise and presents actionable views on socio-economic developments in India and the world. He is the author of a trilogy on the history of money and the financial crisis. The series is titled Of Banks, Black Money and Home Loans.

His writings have also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.