By Praveen Chunduru
Nearly a month ago, Manan Vyas told me that he thinks a revolution is in the offing – skills inequality, ownership inequality, and ultimately, income inequality, is increasing. To make matters worse, technology (especially those in third platform fields such as artificial intelligence and big data analytics) is developing at a remarkable pace. This has empowered a few developers and shareholders with a specific and dare I say, a ‘privileged’, background. Though the world’s gini coefficient has not steeply increased over the last couple of years, the signs are all there.
Technology and the Manufacturing Sector
Foxconn recently announced that it was planning to fire 60,000 workers as their role could now be done by robots. Sure, we may have seen this coming, but we certainly weren’t prepared for it. Most of the 60,000 aren’t programmers or highly skilled employees. They cannot find employment easily, leave alone start ventures of their own. The vendor of the robots, the employer of them (Foxconn), and Foxconn’s shareholders have benefited. But this is at the expense of the 60,000 workers fired. There exists high income divide and the lack of access to financial markets for millions. Thus it is safe to assume that only very few of the 60,000 were shareholders in Foxconn, thus not benefiting in the second degree from this improved productivity.
Unfortunately, those whose primary income-earning assets are their hands and not their minds cannot make a quick switch. Let’s be very clear – no matter how much manufacturing picks up from this day on, manufacturing jobs will decline.
Technology and the Service Sector
Those of us who are in services-focused jobs have hitherto been comfortable. We think that services will forever remain the stronghold of humans and not machines. After all, robots cannot perform surgery, practice law, or have conversations, right? Well guess what, they can, already. Please read-up on robot-assisted surgery, robot-assisted law, and voice recognition for business. What can the present rate of progress in the fields of artificial intelligence, machine learning result in in 10 years?
I am in the field of investing. Seeing the frightening pace of high frequency trading and the level to which more data is informing investment decisions in the private equity space, I can imagine a future where algorithms will communicate with one another to agree on a price and structure of deals. It’s clear – unless we are the developers of or investors in the next wave of high-tech products, our income-earning days are numbered.
What Awaits in the Future?
Play this out 20 odd years, when even the somewhat well-off among us find our skills obsolete, and you’ll have a missing middle, with a tiny fraction of the people controlling the world’s wealth. And maybe some of us will invest in newer technology and somewhat shield ourselves from the seemingly imminent job-loss, but unfortunately, many are too poor to invest for the long-term.
Maybe higher taxes on the rich and greater redistribution will support the poor in the future. If the rich successfully find ways to keep their taxes low (through, say lobbying or outright corruption), a full-blown revolution seems nearly inevitable in the 20 year horizon. The end-outcome would be a ‘resetting’ of wealth. If they slowly give in to greater taxes to stave off a revolution, the world will be more socialist. Either scenario makes for gloomy reading. The virtues of unhindered capitalism where everybody has a chance to work hard for a good life appears elusive.
Need Of the Hour
The three solutions for governments to avoid the above scenarios then become:
- Increase taxes early (to keep a lid on inequality) and improve redistribution
- Encourage rapid financial integration
- Enhance skills of entire populations before the skill-obsolescence trap hits.
I was going to end this post by saying that it ultimately is impossible for 50,000 ‘privileged’ to control the world’s wealth sustainably, leaving the rest dependent on them. But unfortunately, with better technology, even private military aided by technology to control large portions of the population (historical read: Battle of Omdurman) isn’t difficult to imagine.
I am nervous about the future.
Praveen Chunduru is presently employed as an Investment Analyst with International Finance Corporation. In TIE, he tries to focus on writing from experience and observation than from research. He hopes that you find his articles convincing sometimes, disagreeable sometimes, but thought-provoking and enjoyable, always.