What Adam Smith missed out

Two hundred and forty years ago yesterday what is considered to be the greatest book on economics was published. This is, of course, The Wealth of Nations. However, one crucial factor that Adam Smith completely missed out of his book was energy. Man’s economic system, a supernumerary of the natural ecosystem couldn’t exist without access to supernumerary energy beyond direct solar radiation. In Smith’s day, if you wanted to build a needle factory or a cotton mill you obviously did so wherever you could find or build a water mill. The saving of human energy is, of course, the fundamental basis of the division of labour but, in effect, energy could then be considered as free.

The industrial revolution would never have happened unless mill-driven factories had not given way almost immediately to steam-engine driven factories. In turn, these, of course, required existing resources of coal which could also be massively extended by the use of the same steam engine.

As Richard Feynman reminded us in his famous Lectures in the 1970s, all physical systems that occur outside the atomic nucleus operate according to the principle of least effort, the surplus of any applied supernumerary energy being expended as waste heat or entropy. The world’s present economic doldrums can’t be explained by anything Smith wrote about but only by the fact that our supernumerary energy sources cannot at present be extended as easily as in the days of water mills and the early steam engines. We could, of course, easily tap into vast additional quantities of fossil fuels in a technical way — if only we also knew how to make vast quantities of consumer goods cheaply enough using methods of least effort (total automation ultimately).

The failure of the Davos conference

The title of the same report-back from Davis by James Quinn (see my penultimate post) was “Davos: four days that failed to save the world.”  The reason why it was a failure this years is that it chose Automation as its theme.  At the end of the five days, as their own summary of the conference, the Davis people produced a rambling 2,000 essay on automation. They have no answers at all as to what will happene when automation will take care of most of the jobs still being carried out by people.

Pathetically it ends with the following: “Will companies, individual governments and society at large (including educational systems and social safety nets) be able to adapt quickly enough to this new paradigm and create an environment in which all can contribute? For this to happen, all parties will need to collaborate in order to invent a systemic, social and sustainable model for a better future of work.”

There’s little chance of such piety, I’m afraid, giveen our bellicose nature. The answer, however, is quite simple. As the bulk of the populations of advanced nation-states continue to proceed further down a lower-skill, lower-paid future they can’t afford to replenish themselves with enough children,  They’ll die out over three or four generations.

The highly educated elite will who devise, program and own the automated machinery that supplies all the food, manufactured goods and basic infrastructure services will supply themselves for what they want as well as being able to afford to have a sufficient number of children to replenish their numbers.

Adjusting to an automated economy

An article on Tecrepublic website by Conner Forrest tells us of an ‘unmanned’ factory in Dongguan City, Guangdong which produces parts for cell phones.  Before the production line was automated the factory had employed 650 people, now there are only 60.  The 60 will be comprised mainly of low-skill loaders and un-loaders — still the spatial sorts of jobs that computers can’t do! — but also, more importantly, of high-skill engineers, to deal with breakdowns and software engineers to deal with changes of parts specifications that will inevitably occur from time to time.

The advancing tide of automation cannot be stopped because competition between forms to produce items at cheaper costs is constant.  But what about the surplus 590 workers?  Many economists have tried to brush this type of problem aside by saying that these can be found jobs in new industries.  But this implies an ever-growing world economy !

The longer-term answer can only be very much better standards of education so that the high-skill jobs that will always remain in an automated economy can be shared. Working weeks can also be seriously reduced. Low-skill jobs will also remain, but there will always be genetically low-skill people even in a high standard educational environment. Also, if a firm is successful enough it might also employ low-skill workers in environmental work in order t make the firm a more interesting place to be in order to attract the best of the high-skill workers it needs.

The shape of governments to come

Governments of advanced countries will always be competing with one another in order to attract the best businesses for taxation purposes — for themselves — or employment — for their electorate.. The main method is to offer lower rates of corporate taxation. But this would apply equally to all foreign companies and no government wants to be seen to be too aggressive in reducing taxation in too large stages because there are always other matters where they want to remain on good inter-governmental terms.  Other perks and ‘understandings’ can also go on quietly with individual firms.

Nevertheless, there is always on-going competition and multinational corporations are thus able to play-off one government against another. If they are immensely large corporations with large sales among the electorate — as well as offering some employment — then they can get away with hardly paying any taxes at all. They do this by establishing their headquarters in pocket-size countries elsewhere where their governments have extremely low taxation — if at all in some cases, only needing to charge office rents..

The result of all this is that, since the heyday of the nation-state — probably around 50 years ago — advanced governments have found it increasingly difficult to avoid getting into debt.  However, although so-called ‘sovereign debt’ can be held off for many years it can’t be postponed forever.  The consequence is that governments will have to slim down considerably.  In the case of the Nordic countries which hitherto had the highest levels of public expenditure, serious budgeting to that end has already started.

Ultimately they will have to slim down to the bone because business corporations will themselves be feeling the pinch with increasing global competition between themselves.  Except for the huge profits from the sales of smartphones and tablets in recent years — which is only a temporary phenomenon — narrower and narrower profit margins are already becoming the norm in the production of standard consumer goods of the advanced countries.

Automation has been with us ever since cotton spinning in the earliest Manchester factories 230 years ago.  But automation will become increasingly necessary in both governments and business corporations as competition for efficiency in both cases becomes increasingly fierce.  It is relatively easy to imagine business operations becoming smaller and smaller in the coming decades, less easy to imagine how governments will have to change. Will we have a city-state + provincial states basic structure? Or perhaps devolution into ‘mini-nation-states’? Or perhaps even further devolution into smaller towns, villages and hamlets with infrastructure sub-contracted to agencies?

Up-skilling and down-skilling simultaneously

A recent analysis of Japanese jobs by an international team from the Nomura Research Institute (NRI) says hat 50% of Japanese jobs will be lost to automation by 2035, 47% of American jobs and 35% of British jobs.

What should we make of these dire forecasts?  Nothing. At least most people won’t.  Most people are not inclined to think 20 years forward, still less when it might be uncomfortable.  Such is the likelihood of astonishing innovations these days that almost anything night be possible in 20 years.  There are only two groups of businesses that can be confident about 20-year forecasts — those selling food and those selling oil and gas. Their products can’t be more basic and both will be as much needed in 20 years as now.

All that some people are worried about are their jobs and their jobs now.  By this we mean the steady 1% or 2% of jobs every year which disappears in every advanced country due to automation and are never adequately replaced.

Politicians and government-friendly economists say that automation actually produces more jobs.  That’s true at present in the advanced countries.  Redundant workers get other lower-paid jobs. Employers of such realise that many people are so desperate for jobs that they can even change full-time jobs to part-time jobs paying only for time actually being worked.  Thus more people are having to work in two jobs, sometimes even three. Meanwhile the number of those in mid-life without work are taking themselves off the register as available for work so this number is steadily growing also.

This is the reason behind the increasing number of jobs in this country and America in recent years — as though they are all products of significant new sectors. But this intermediate state of affairs won’t last much longer unless both countries can somehow produce new labour-intensive sectors. Unfortunately the only ones that can be foreseen — medicine and education — require candidates of a much higher level of education than is available. All advanced countries are down-skilling (for a majority) and up-skilling (for a minority) at the same time,

Moravec’s Paradox and automated jobs — perhaps yours?

Something called the Moravec’s Paradox explains why Amazon’s highly automated warehouses are so very large.  It is because the individual physical acts that need to be done are simple and definable — for example, the choice of individual items, collecting them together for a particular order and then placing them on a conveyor belt for final packing — which for some consignments can still be too complex for robots to do.

Jeff Bezos knew this from the beginning even though his earliest warehouses had to be human operated. He soon discovered, however, that an awful lot of investment would be required for engineers and software programmers to design and build successful robots.  However, once installed, the robots would be able to carry out a much larger throughput.  Thus is made sense to build very large warehouses as soon as possible in Amazon’s growth.

Moravec’s Paradox also applies to the many simple industrial jobs we often see on television usually taking place in small or medium-sized engineering firms.  These simple routine jobs could easily be robotised but the necessary investment is too large for the firm in question.  If the firm is working as a sub-contractor to a large firm — as they often are — then automation will have to wait until the small firm, along with other suppliers of similar parts, is ultimately bought-out by the larger firm.  The investment in robots can then be justified.

The principle is even more paradoxical when considering activities that even young children can do — but robots are still unable to. For example, a child can  see and reach out to a barely discernible item in a hazy or busy background and grasp it firmly by his or her finger-tips. Robots find this very difficult.  The same with walking.  So far, walking robots have taken many years to develop and, even so, they’re still risible imitations of a walking child.  All these are tasks which even the human brain takes years to develop by the slow and successive refinement of neurons into smaller and more specialised micro-modules.

Let there be no doubt, however. almost all jobs of today will be computerised one day even those seemingly requirement much personal judgement.  Are there any exceptions?  Yes, there are. These are the jobs of those who are designing the next improved robot for a particular physical task or personal judgement — that is, of those skilled people who have a much wider judgement that energy-efficiency for a much wider infrastructure of the economy will be gained.

Until then — in decades or centuries to come — although the speed of progress of automation as it may apply to this or that job may be unforeseeable, its inevitability for jobs of today is.

Wonders will never cease!

Well  . . well, even Ambrose Evans-Pritchard is now getting to the nub of the economic problem when he writes as follows:

“Robots will take over 45pc of all jobs in manufacturing and shave $9 trillion off labour costs within a decade, leaving great swathes of the global society on the historical scrap heap.”

It took a 300 page report by the Bank of America to jolt him out of his usual analytics on balances of payments, trade barriers, strengths of currencies and the like.  Wonders will never cease!  As he wrote in a right-wing newspaper, the Daily Telegraph, perhaps this will convey to the Conservative government that there’s an awful lot that is missing in their policy view of things.

Confused logic!

I have seldom read such confused logic as that of one Rohit Talwar speaking to 300 Head Teachers at a Conference in St Andrews, Scotland. He said that there’ll be so many robots in future years and we’ll be living so long that all children will have to learn many different jobs and be working to 100 years or more..

Uh?  What in earth does he mean?  Surely the more that robots do our routine jobs the less we need to work.

What he needs to be telling headteachers is something they already know.  This is that learning a skill is one of the most exciting activities known to man and that, ideally every person would like to learn a specialisation, practise it and earn himself a social reputation. If he or she feels like it, learning a second or a third skill. Or, in some cases, not learning any skill at all and then discovering that if you’re of no use to everyone else then they’ll not try to be helpful to you.

Did no-0ne tell him what nonsense he was talking?

“Time for us to lead”. . . ?

The full title of the op-ed piece in my morning paper goes “Time for us to lead, in Europe and beyond” Phew! Is the writer thinking that Britain should go into space?  If so, where?  And to exploit who or what? No, the writer, Tim Collins, is just thinking of us leading this world, the whole world.  Not anywhere in particular. Just the power of having that sort of power.  As you’ve probably guessed, Tim Collins is an ex-Army officer.

The problem is that some in Britain simply can’t let go — particularly army officers and politicians.  We had the world’s largest empire 140 years ago. There was no doubt about that.  The red regions on the map facing us in my junior classroom said so — and, oh yes, we children were very proud that we Britons could be so clever to spread ourselves around so widely . . . so wisely?  Perhaps not.

We’re an ex-empire now, just like the Spaniards, or the Dutch or until fairly recently, the Russians. In these increasingly specialised times, there are only two empires left now.  There’s the American empire, which probably peaked at around the early 1990s when China got second wind in its dash to be modernised.  Then there’s the Chinese empire– which it’s actually been pretty well non-stop since 200BC when Emperor Qin smashed five other countries’ armies and joined the whole bunch together with one written language on the pain of death to those one in a thousand who actually wanted to read to write. One of the ways recalcitrant scholars used to be terminated was to chop them in half somewhere above the hip, stick the top half on a tarred copper platter and take them round the city where they gesticulated and spoke to the citizens for a while.

No, for our sins ever since we became civilized, we have steadily become more specialised.  Empires give way to smaller nation-states, the more advanced nation-states are morphing into city-states. And the city states will probably change into multinational specialisations in due course not only in business but everything else that occupies our minds and bodies.  But I wouldn’t expect Tim Collins to be thinking about these just yet — but just to be a little more realistic in accepting the ordinariness of the country we are becoming.  With one proviso — since I would like Britain to remain competitive — and this is to maintain our scientific expertise in order to remain fairly well up in education and health which is what our great-grandchildren will be spending most of their income on, all their standard consumer goods being made cheaply by robots.

Silly Willy

Keith Hudson

David Willetts, who used to be called “Two Brains” by his political friends, even before he became Minister for Universities and Science in 2010, is saying something that is both silly  and non-silly in my paper today.  The headline of the story is: “Selling education to the Chinese is no different from selling cars.”

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