Automation and Public Policy

by Steve Cohen | December 30, 2019

It is clear that the brain-based economy has supplanted the brawn-based economy as manual labor is replaced by automation and as the service economy replaces manufacturing. About 80 percent of the U.S. economy is in the service sector and the skills required to participate in that economy evolve rapidly. Lower skilled employment remains in the service sector, but it’s clear that wherever possible, machine labor will continue to replace human labor. The logic of capitalism drives organizational efficiency and that efficiency enables the production of greater wealth. We want all of that to continue but while the logic works for the organization, it can leave people behind without marketable skills and often without hope.

Those with economic and political power should not think for a second that leaving people behind is possible without political blowback. Hillary Clinton learned that in 2016 in Michigan and Wisconsin. The engine behind the nearly daily protests in Hong Kong is not only fear of political repression but an educated mass of young people with little economic opportunity in a crowded and overpriced island city-state. Transportation, communication and information technology have built a global economy that makes businesses more mobile than ever. Companies use that mobility and both the threat of departure and the promise of arrival to extract tribute from state and local governments. These forces of the modern economy need to be better understood and better managed to ensure political stability and economic well-being.

In the United States, corporate giants like Amazon demand public subsidies for the jobs they bring, but the benefit of hosting these businesses is not always obvious. Last week, in a terrific piece of journalism New York Times reporter David Streitfeld charted the 20-year history of one of Amazon’s early fulfillment warehouses in Campbellville Kentucky. According to Streitfeld:

“Campbellsville’s warehouse was among the first of what are now an estimated 477 Amazon Fulfillment centers, delivery stations and other outposts around the country. That makes Campbellsville, with 11,415 inhabitants, a case study for what may happen elsewhere as Amazon continues expanding. Brenda Allen, Campbellsville’s mayor, said: “Amazon has had a really good business here for 20 years. They haven’t been disappointed at all. And we’re glad they’re here.” But, she added, “I really would feel better if they would contribute to our needs.” In central Kentucky, Amazon has reaped benefits, including a type of tax break that critics label “Paying Taxes to the Boss.” In the arrangement, 5 percent of Amazon workers’ paychecks, which would ordinarily be destined for the county and the state, go to Amazon itself. The company netted millions of dollars from this incentive over a decade.”

A political reaction against these types of business siting incentives is starting to set in. In New York City, activists made so much political noise that Amazon became unwilling to accept a multi-billion-dollar subsidy. I expect we will see more of an effort to reset the power relationship between companies and communities. The theme of government and communities as supplicants to giant corporations, coupled with growing automation and public discontent is a prescription for economic misery and political upheaval. The 20th-century ideological battle between the “left” and the “right” is ill-suited to address the public policy needs of the rapidly evolving, global and technology-based economy we have created. We need new thinking about how to effectively influence these global, high tech corporate giants.

The benefits of the market and its logic are irrefutable. But the absence of a role for government to assist the victims of the market is a prescription for political instability and ultimately economic disaster as well. Government and public policy must be used to encourage better corporate citizenship than companies like Amazon seem to practice. Minimum wage requirements, support for public institutions and infrastructure, and support for life-long learning for workers must become the rule rather than the exception. This will require national public policy in the United States of the type we are unlikely to see from today’s federal government. While companies are highly mobile globally and we can’t control a company willing to relocate to another nation, we could try to set ground rules for state and local competition for business siting within the United States. We could also devote far more resources to retraining workers to develop and redevelop marketable skills.

A pervasive feeling of economic insecurity and fear of downward mobility is a growing phenomenon in large areas of the United States. The stock market may be rising, but the public’s faith in the future is falling. The transition to a more automated, specialized, creative and brain-based economy is unstoppable. This is not the first time I’ve quoted these lyrics, but remarkably it’s now three and a half decades since Bruce Springsteen wrote in “My Hometown:”

“They’re closing down the textile mill across the railroad tracks. Foreman says ‘These jobs are going boys and they ain’t coming back” to your hometown.’”

It’s long past due to recognize that these transitions are now a part of economic life. The feeling of stability and security we once knew has been replaced by an economy of constant change based on new technologies and new opportunities. The force of these changes can’t be stopped by a president nostalgic for a “muscular” coal and steel-based manufacturing economy. The jobs aren’t stolen by immigrants and in a few decades won’t be moved overseas due to lower-priced labor, as the economic logic of automation replaces that of poorly-paid workers.

What will people do? The answers are seen in the changing nature of the modern workforce. The number of jobs we have invented for services we didn’t even know we needed. Think of the Best Buy “Geek Squad” or the folks working at Apple Store’s Genius Bar and similar jobs. How many people were employed installing home entertainment and internet systems in the 1980s? How many worked in a store to help you learn how to retrieve your photos from “the cloud?” How about all the people developing those applications everyone is running on their smartphones as they ride the subway? Did anyone know in 1990 that everyone would be carrying a miniature computer in their pocket? Smartphone hardware is a smaller and smaller part of our GDP as the real money moves to the software. Think about some of the people who work in the “food service business:” Restaurants are not simply places that provide food and drink anymore but are places we go to enjoy “experiences.” This form of dining is, in part, entertainment designed by people who are experts in producing the food, décor and the overall ambiance that generates the restaurant “experience.”

To remain employed and employable in the modern economy, change has replaced constancy. There are some basics of organizational, family, social and personal life that do not change. The need for love and social interaction and personal fulfillment remains, but the world we meet those needs in is constantly changing. Many families are separated by thousands of miles and see each other on screens more often than over a dinner table. I sometimes think about how much I wish I’d had the patience to teach my late mother how to use FaceTime. She refused to ever use the internet. That unwillingness to learn carried a cost for her and our family. Thought of more broadly, we must institutionalize life-long learning in the new technologies and new professions that are now emerging daily. And people must somehow learn to accept and even embrace constant change. Automation will continue to replace human labor with machine labor. The economic history of this change has been to reduce the drudgery of work, but those routine tasks must be replaced by something else.

We need government and public policy to get in the middle of this mess. Here’s one idea for starters: Young people are gravitating toward new business start-ups and seeking to avoid established bureaucracies. Let’s use tax policy to encourage investments in these new businesses and both public policy and direct subsidies to encourage start-ups to train and hire people whose jobs have been replaced by machines. Let’s marshal the energy of the market to mitigate its harshest impacts. But to do that we need to develop public policies designed to deal with the impact of automation on people.