9 May 2018

Industrial Revolutions Are Political Wrecking Balls

By Thomas B. Edsall
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We may never stop arguing about which historic currents swept President Trump into the White House. Klaus Schwab, chairman of the World Economic Forum, is unlikely to have had Trump in mind when he described the fourth industrial revolution in Davos in January 2016: We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. Compared with previous industrial revolutions, Schwab continued,

the fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

First Schwab looked at the bright side:

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

Schwab then turned his attention to the downside. Many “workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate,” he said, and the “middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness.”

We tend to think of immigration — now fracturing parties of the left and right both here and in Europe — as distinct from technological innovation, but the two issues are intertwined on many levels, even down to the fact that most unauthorized immigrants are people who fly here and overstay their visas, not those who cross rural borders on foot. And air travel is the least of it.

In an August 2015 Times story, “A 21st-Century Migrant’s Essentials: Food, Shelter, Smartphone,” Matthew Brunwasser described the situation that obtains now:

In this modern migration, smartphone maps, global positioning apps, social media and WhatsApp have become essential tools. Migrants depend on them to post real-time updates about routes, arrests, border guard movements and transport, as well as places to stay and prices, all the while keeping in touch with family and friends.

Long before this, Douglas Massey, a sociologist at Princeton, described the link between immigration and technology in a 2003 paper, “Patterns and Processes of International Migration in the 21st Century”:

The same processes of economic globalization that create mobile populations in developing regions, and which generate a demand for their services in global cities, also create links of transportation, communication, as well as politics and culture, to make the international movement of people cheaper, quicker, and easier.

There are innumerable social and economic pluses and minuses. In politics, however, the emphasis has often been on the negative.

“The IT revolution improved living standards and its great technical achievements enjoy a high level of consumer and political support,” Mordecai Kurz, an economist at Stanford, wrote in a June 2017 paper. “However these sources of social benefits are also the cause of social losses and rising inequality that threaten the foundation of democratic society.”

Schwab, a year earlier, had put it this way: There is an “inexorable shift from simple digitization (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution).”

With remarkable understatement, Schwab laid out the possible adverse consequences:

As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor.

Just to give a sense of the exponential nature of the rate of technological change, here’s how Sergey Brin described it in this year’s “Founders’ Letter,” which was released earlier this week:

The Pentium IIs we used in the first year of Google performed about 100 million floating point operations per second. The GPUs we use today perform about 20 trillion such operations — a factor of about 200,000 difference — and our very own TPUs are now capable of 180 trillion (180,000,000,000,000) floating point operations per second.

In point of fact, the use of robots — and of other methods of replacing workers with machines — has been growing in every advanced economy, particularly in Europe.

According to the International Federation of Robotics, “By regions, the average robot density per 10,000 employees in Europe is 99 units, in the Americas 84 and in Asia 63 units.”

In a March 2018 paper, “We Were The Robots: Automation in Manufacturing and Voting Behavior in Western Europe,” Massimo Anelli, Italo Colantone and Piero Stanig, of Bocconi University in Milan, found that “robot shock increases support for nationalist and radical right parties.”

The authors note that “both technology and trade seem to drive structural changes which are consequential for voting behavior.”

“Job losses in manufacturing due to automation do create fertile territory for continued populist appeal,” Daron Acemoglu, an economist at M.I.T., said by email:

In fact, some of the places where Trump made the biggest gains relative to McCain or Romney are in the heartland of heavy manufacturing where robots did lead to losses of manufacturing jobs.

Hostile voter reaction to automation, according to three scholars at the Oxford Martin School at Oxford University — Carl Benedikt Frey, Thor Berger and Chinchih Chen — was crucial to Trump’s victory.

In their October 2017 paper, “Political Machinery: Did Robots Swing the 2016 U.S. Presidential Election?” the authors demonstrate that

Support for Donald Trump was significantly higher in local labor markets more exposed to the adoption of robots. Other things equal, a counterfactual analysis shows that Michigan, Wisconsin, and Pennsylvania would have swung in favor of the Hillary Clinton if robot adoption had been two percent lower over the investigated period, leaving the Democrats with a majority in the Electoral College.

Along similar lines, Frank Levy, also an economist at M.I.T., wrote in a December 2017 paper:

AI (artificial intelligence) is helping to slowly polarize the occupational structure as it both creates high wage work and displaces men and women from certain blue collar and clerical (‘mid-skilled’) jobs into lower wage work. The result is similar to the displacement caused by manufactured imports and off-shored services.

On balance, near-term AI will have the greatest effect on blue collar work, clerical work and other mid-skilled occupations. Given globalization’s effect on the 2016 presidential election, it is worth noting that near-term AI and globalization replace many of the same jobs.

Take the case of truck drivers. Driverless trucks are already in use abroad in ports and mines, and, according to Levy, “there should be a sizable number of fully automated U.S. port facilities, mines and other industrial facilities” by 2024. With these developments, he estimated, there will be 76,000 fewer truck driving jobs in 2024 than the Bureau of Labor Statistics currently projects.

Surveying the trucking industry recently in “The Future of Work: Robots, AI, and Automation,” Darrell West, a scholar at Brookings, warns that full adoption of driverless vehicles “would put at least 2.5 million drivers out of work.”

Assessing the full range of employment, West observes that

Robots, autonomous vehicles, virtual reality, artificial intelligence, machine learning, drones and the Internet of Things are moving ahead rapidly and transforming the way businesses operate and how people earn their livelihoods. For millions who work in occupations like food service, retail sales and truck driving, machines are replacing their jobs.

Levy argues that if the use of industrial robots on assembly and production lines continues to grow at the current pace,

the stock of robots in the U.S. would be 105,000 higher in 2024 than in 2014. If I conservatively assume that each robot replaces two assemblers and fabricators, the 105,000 additional robots would result in 210,000 fewer assembler and fabricator jobs in 2024 than otherwise would have been the case.

Where do these displaced workers look for a way to make a living? Levy’s answer is: farther down the ladder:

AI’s near-term effect will not be mass unemployment but occupational polarization resulting in a slowly growing number of persons moving from mid-skilled jobs into lower wage work

into such fields as food preparation and serving, building and grounds cleaning and maintenance and personal care and services.

For many men, moving from the manufacturing or comparable job he took pride in to a job in a fast-food operation or in caring for the elderly is tough to swallow. (Not to mention the dislocating effects of the technological innovations in contraception that helped usher in the women’s and reproductive rights movements.)

Levy points out that the cuts resulting from A.I. and automation in middle skill employment will be relatively modest in the short term, but the cuts will resonate far beyond their limited numbers:

Job losses will appear as accelerating trends. Over time, trucks driving in dedicated lanes will appear on the roads and in multiple news stories. Increased numbers of people will be working side-by-side with robots. When a media story describes an AI-induced layoff in occupation, other persons in that occupation will assume they are also at risk. These developments will occur against a backdrop of monopoly-like firms like Alphabet (Google), Amazon, Apple, Microsoft and Facebook.

What is the political significance of the A.I.-driven changes in the work force? They are the grist for the populist mill.

Levy writes:

A populist politician who campaigned on AI-induced job loss would start with ready-made definitions of the "people” and the “elite” based on national fault lines that were sharpened in the 2016 presidential election. This politician also would have a ready-made example of disrespect: the set of highly educated coastal “elites” who make a very good living developing robots to put “the people” out of work.

While Levy looks at the issue from the vantage point of those harmed by A.I., robotics and information technology, Kurz, the Stanford economist, examines the economic winners. In a recent essay for Project Syndicate, he writes:

IT-driven automation proceeded at the same time that corporate market power was rising. Because technological improvements are the crucial engine of rising productivity and growth, IT advances are universally viewed as economically beneficial.

The favorable view, according to Kurz, masks the

dark side: by enabling and supporting the rise of corporate monopoly power, IT innovations have caused the rise in inequality and contributed to the slowdown in wage growth.

While operating legally — indeed with the full support of the legal system — contemporary corporate technology leaders, including Brin, Jeff Bezos, Steve Jobs (who died in 2011) and Mark Zuckerberg, accumulated unprecedented amounts of wealth. According to Kurz:

Once an IT monopoly is established, it endows the company with the advantage of first mover. A combination of associated factors — additional patents, intellectual-property rights, trade secrets, falling computing and storage costs, and decreasing network user costs — then enable the company to consolidate market power, raise barriers to competition, and make it virtually impossible for potential competitors to break its power. IT networks endow a market leader with economies of scale that allow it to grow rapidly. Using their market power, such firms choke off innovations that threaten their position, often by purchasing competing firms.

According to Kurz, the concentration of economic power, and with it political power, in the major technology companies has dangerous consequences:

Monopoly profits have risen dramatically in the last three decades, from near zero in the early 1980s to $2.1 trillion — equivalent to 23 percent of total US corporate income — in 2015. During the same period, monopoly power caused the combined shares of wages and interest paid to capital to decline by 23 percentage points.

The result is a cascading effect caused

both by fueling the rise of corporate monopoly power and also by undermining the position of labor. It has altered the balance of market power in favor of corporations and against their customers, workers, and suppliers. And it has had a profoundly negative impact on lower-skill workers, in particular.

Jason Furman, an economist at Harvard who served as chairman of the Council of Economic Advisers under President Barack Obama, pointed out in a December 2017 paper, “Should We Be Reassured If Automation in the Future Looks Like Automation in the Past?” that

The history of automation — and how the U.S. economy has handled it over the last several decades — suggests that even if AI is similar to previous waves of automation, that should not be entirely comforting since technological advances in recent decades have brought tremendous benefits but have also contributed to increasing inequality and falling labor force participation.

Furman rejects the argument that automation will lead to the permanent elimination of jobs:

The concern is not that robots will take human jobs and render humans unemployable. The traditional economic arguments against that are borne out by centuries of experience.

Instead, Furman contends that the problem lies in “the process of turnover,” which “could lead to sustained periods of time with a large fraction of people not working.” In the short run,

not all workers will have the training or ability to find the new jobs created by AI. Moreover, this “short run” could last for decades and, in fact, the economy could be in a series of “short runs” for even longer.

A short run that lasts for decades — or a series of short runs that last even longer — would seem to warrant grave alarm.

While much of the focus on job losses resulting from robotization and trade has been on men, a January 2018 study led by Saadia Zahidi, head of Education, Gender and Work, at the World Economic Forum, found that “among the workers affected by labor market disruptions, under both models, a larger share — 57 percent — are projected to be female.”

A separate study of the potential consequences of automation in England, “Managing automation: Employment, inequality and ethics in the digital age,” written by Carys Roberts, Mathew Lawrence and Loren King, researchers at the Institute for Public Policy Research, found that

Of all the jobs in the UK, a greater proportion of those held by women compared to men are likely to be technically automatable, and women make up a smaller proportion of people in high-skill occupations that are resilient to automation or complemented by technology.

Among liberal-leaning economists and public policy experts, there is a loose consensus on what should be done to manage the adverse consequences of both automation and trade.

Furman lists some initiatives:

expanding education and training so more people have skills that complement and benefit from innovations, increasing the progressivity of the tax system to make sure that everyone shares in the overall benefits of the economy, and expanding institutional support for higher wages, including a higher minimum wage and stronger collective bargaining and other forms of worker voice.

Other related proposals include a major increase in the earned-income tax credit, a focus on job-specific training at community colleges, portable pensions, liberalization of occupational licensing and, more controversially, the creation of a universal basic income.

These proposals — some underwhelming or undoable — find strong support among Democratic elected officials.

Still, opposition from Republicans is adamant — not only do they oppose increased domestic spending, but it appears to be in the political interests of the party to exacerbate the negative consequences of automation and free trade.

David Autor, an economist at M.I.T., examined the political consequences in congressional districts hurt by increased trade with China and found a significant increase in the election of very conservative Republicans.

Using the same techniques to examine the 2016 election, Autor calculated that if the post-2000 increase in China trade had been half as large as it in fact was, Hillary Clinton would have won majorities in Michigan, Pennsylvania and Wisconsin. That would have been enough to make her the victor in the Electoral College, as the accompanying graphic shows. There is also a dose effect.

Expanding on Autor’s work, Andrea Cerrato and Francesco Ruggieri, of the University of Chicago’s Booth School of Business, and Federico Maria Ferrara, of the University of Geneva, wrote in their March 2018 paper, “Why Does Import Competition Favor Republicans? Localized Trade Shocks, Voting Behavior, and Scapegoating in the U.S.”:

Rather than directly opposing free trade policies, individuals in import-exposed communities tend to target scapegoats such as immigrants and minorities. This drives support for right-wing candidates, as they compete electorally by targeting out-groups.

The authors conclude that in areas affected by trade, the scapegoating of immigrants “takes place across the board and is not limited to manufacturing workers.”

In other words, job losses and plant closings are a political gold mine for the Republican Party, crucial to their victories in House and presidential races and almost certainly in Senate, gubernatorial and state legislative races as well.

In highly polarized times, when partisans view victory by the opposition as a threat to the nation, Republicans will easily find ways to rationalize continued economic deterioration and the ongoing demonization of immigrants and minorities. They’ve had a lot of practice and they have effectively boxed themselves into a scapegoat strategy that capitalizes on — instead of improving — the suffering of many of their most loyal supporters.

The hard core of Trump’s voters — more than half of all Republican votersdon’t just approve of him, but strongly approve — have, in turn, demonstrated a willingness to deify the president no matter what he does or says — a deification dependent in no small part on Trump’s adoption of new communications technologies like Twitter.

The determination of the Trump wing of the Republican Party to profiteer on technologically driven economic and cultural upheaval — and the success of this strategy to date — suggests that the party will continue on its path. For this reason and many others, it is critically important that Democrats develop a more far-reaching understanding of the disruptive, technologically fueled economic and cultural forces that are now shaping American politics — if they intend to steer the country in a more constructive direction, that is.

I invite you to follow me on Twitter, @Edsall.

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