By Nikhil Gampa
Recently, Bill Gates, the founder of Microsoft proposed that robots should be taxed in the form of Robot Tax. He anticipates that automation will replace large numbers of the workforce in the next two decades. There is absolutely no doubt that automation will cause widespread unemployment in sectors ranging from warehouse operations to truck driving and even the financial sector. This is a serious threat that will change the face of humanity as we know it, and steps must be taken to smoothen the transition.
The crux of the matter
The basis of his argument stands on the ground that in order to be “net ahead” as a society, once robots have replaced humans, the displaced labour must be able to perform any other kind of work to ensure an increase in production which would ultimately result in economic growth.He maintains that since the displaced labour would require additional training, the robots must be taxed in order to raise funds to finance this training program. These workers could then shift to new jobs in other sectors like health care and education where human interaction is required. He further added that taxing the robots would help in slowing down the pace of automation, mitigating any public resistance that would threaten its survival.
A dubious idea?
However, Gates’ ideas of imposing ‘Robot Tax’ and de-incentivizing automation are not completely rooted in logic, and may even be disastrous for the economy and society at large. Jobs have been taken by automation right from the age of the Industrial Revolution, with this phenomena always having a fruitful outcome in the form of new opportunities.
If we observe historically, prior to the mid-20th century, rapid automation in sectors like textiles and steel was accompanied by robust employment growth. In fact, the entire Industrial Revolution which took place earlier was powered by rapid automation. During the mentioned industrial revolution, 98% of the labour required to produce a yard of cloth in 1810 was completed by machines by 1910. Nevertheless, the number of textile workers grew during this period. How was this possible? Since the ‘demand’ for textiles increased with a surge in population, it led to an increase in the per capita consumption. However, when the market for cotton cloth got saturated, a price decline was not incentive enough for customers to buy more. As a result, automation has been reducing employment in the textile sector since the 1950s.
But it must be noted that today, when it comes to information technology, evidence still points to a large, unmet demand in most industries, generating an increase in employment.
Moreover, job opportunities can still be generated in various sectors as automation allows workers to deliver better, and cheaper services faster, services that are high in demand.
The roadblocks ahead
For the purpose of levying, paying and collecting ‘Robot Tax’, it is crucial to classify what comes under the category of robots. If we finally do manage to define ‘robots’, we are still left with the question of who exactly pays the tax. Since robots can’t physically pay taxes themselves, presumably either the owner or the manufacturer of robots will be held accountable.
If the manufacturer is to pay tax for producing robots, it will lead to the creation of a new kind of tax —production tax and if levied, this can lead to double taxation. Till today, corporations are taxed on their profits, and not on what they produce. If this does happen, the production efficiency — quality and/or quantity of robots — will decrease and the higher costs will be simply passed on to the consumers leading to an overall reduction in the ‘net-ahead’.
On the other hand, if the owners of the robots pay taxes, it will either lead to a reduction in consumption. Another possibility is that if these owners are manufacturers of other services themselves, their production efficiency will reduce, once again leading to a decrease in ‘net-ahead.’
Moreover, there is a high chance that the governments will not ensure the proper retraining of the displaced employees.These large-scale government interventions in the functioning of markets will result in massive inefficiencies and corruption opportunities.
Most importantly the idea of this tax is not feasible simply because manufacturers of robots can migrate to countries that don’t tax them, which would then mean job losses for the country that loses the manufacturer.
The final verdict
Even though the advances in robotics and artificial intelligence may accelerate over the next two decades, the impact of that change—whether it tends to increase or decrease employment—depends not on the technology, but on the demand. On the whole, these technological advances will boost employment because they are addressing major unmet needs. I believe that until this ‘Robot Tax’ is coupled with backup measures to aid the displaced, Gates’ idea is not the answer to an automated economy.