The Future (5 page)

O
UTSOURCING AND ROBOSOURCING
have typically been seen as two separate and distinct phenomena—studied and discussed by different groups of economists, technologists, and policy experts. Yet they are deeply intertwined and represent two aspects of the same mega-phenomenon.

The tectonic shift toward robosourcing
and
IT-empowered outsourcing dramatically changes the ratio of capital inputs to labor inputs and weakens the ability of working people to demand higher wages in industrial countries.

The political battles over labor rights in the first half of the twentieth century were fought to determine the relative distribution of income from labor and capital in enterprises where workers were organized. But technology-driven changes are now playing a much larger role in determining the future of work and what people earn in return for it. Arguments that used to occur in a zero-sum context no longer seem as relevant or persuasive when employers have the readily available options to: (a) simply close the factory or business and replicate it in a low-wage country, or (b) replace the labor with robots and automated systems.

From the standpoint of factory workers in the United States or Europe whose jobs are eliminated, the impact of automation and outsourcing is essentially the same. From the standpoint of the factory owner, productivity figures typically go up as a result of both offshoring
and
robosourcing—whether the new technology is deployed in the existing facility or in some foreign country.

Policymakers often count the result as a success because increased productivity is regarded as equivalent to the Holy Grail of progress. Yet they are often blind to the full impact of this process on employment in the country where the companies credited with productivity growth are nominally located, even though the trend is now accelerating to the point where the fundamental role of labor in the economy of the future is being called into question.

One manifestation of how the accelerating interconnection of the global economy drives both outsourcing
and
robosourcing simultaneously is that robosourcing is also occurring more and more rapidly in emerging and developing economies, and is beginning to eliminate a growing percentage of the jobs that were so recently outsourced from the advanced industrial economies.

There is a big difference between the investment of money in an offshore factory to replicate the same jobs that used to be located in the
West, and the provision of what economists are beginning to label “technological capital”—investments that not only increase the productivity of business and industry, but over time eliminate large numbers of jobs both in the countries that originally lose the factories as well as in the countries to which they are relocated.

The workers in lower-wage countries initially benefit from the new employment opportunities—until the improved living standards they help to produce lead them to demand higher wages themselves. Then they too become vulnerable to being replaced when the factory owners are able to purchase ever improved—and ever cheaper—robots and automated processes with the new profits they have freshly earned as a result of outsourcing from the West. One Chinese consumer electronics manufacturer, Foxconn, announced in 2012 that it would soon deploy
one million new robots within two years.

A positive feedback loop has emerged between Earth Inc.’s increasing integration on the one hand, and the progressive introduction of interconnected intelligent machines on the other. In other words, both of these trends—increased robosourcing and the interconnectedness of the global economy driven by trade and investment—reinforce one another.

The impact of robosourcing on employment is sometimes misunderstood as a process in which entire categories of employment are completely eliminated when a technological breakthrough suddenly results in the replacement of people with intelligent interconnected machines. Far more common, however, is that the intelligent networked machines replace a significant percentage of the jobs while greatly enhancing the productivity of the smaller number of the employees remaining by empowering them to leverage the efficiency of the machines that are now part of the production process alongside them.

The jobs that remain sometimes command higher wages in return for the new skills required to work with the new technology. And this pattern reinforces our tendency to misunderstand the aggregate impact of this new acceleration of robosourcing and see it as part of the long familiar pattern by which old jobs are eliminated and replaced by new and better jobs.

But what is different today is that we are beginning to climb the steep part of this technology curve, and the aggregate impact of this same process occurring in multiple businesses and industries simultaneously produces a large decline in employment. Moreover, many employees lack
skills (in decimal arithmetic, for example, which is necessary to operate many robots) that they need to fill the new jobs.

New companies have emerged to connect online workers with jobs that can be cheaply and efficiently outsourced over the Internet. Gary Swart, the CEO of one of the more successful online job brokerages, oDesk, said he is seeing increased demand across the board, including for “lawyers, accountants, financial executives, even managers.” And robosourcing is beginning to have an impact on journalism.
Narrative Science, a robot reporting company founded by two directors of Northwestern University’s Intelligent Information Laboratory, is now producing articles for newspapers and magazines with algorithms that analyze statistical data from sporting events, financial reports, and government studies. One of the cofounders, Kristian Hammond, who is also a professor at the Medill School of Journalism, told me that the business is expanding rapidly into many new fields of journalism. The CEO, Stuart Frankel, said the few human writers who work for the company have become “meta-journalists” who design the templates, frames, and angles into which the algorithm inserts data. In this way, he said, they “can write millions of stories as opposed to a single story at a time.”

T
HE CUMULATIVE EFFECT
of the accelerating introduction of machine intelligence and the relocation of work to low-wage countries is also creating much greater inequality of incomes and net worth—not only in developed countries, but in the emerging economies as well. Those who lose their jobs have less income, while those who benefit from the increasing relative value of technological capital have increased income.

As this shift in the relative value of technology to labor continues to accelerate, so too will the levels of inequality. This phenomenon is not in the realm of theory. It is happening right now on a large scale. As technological capital becomes more and more important compared to the value of labor, more and more of the income derived from productive activities is becoming more and more concentrated in the hands of fewer and fewer elites, while a much larger number of people suffer the harm of lost income.

There is a growing concentration of wealth at the top of the income
ladder in almost every industrial country and emerging nations like China and India.
Latin America is the rare exception. Globally, technological offshoring has at least temporarily improved the equality of income, because of the massive transfer of industrial—and now service—jobs to lower-wage countries as a group. On a nation by nation basis, though, inequality of income distribution—and of net worth—is increasing even faster in China and India than in the U.S or Europe. And
income inequality reached a twenty-year high in 2012 in thirty-two developing countries surveyed by the global NGO Save the Children.

Over the past quarter century, the Gini coefficient—which measures inequality of income nation by nation on a scale from 0 to 100 (from everyone having the same income at 0 to one person having all the nation’s income at 100)—has
risen in the United States from 35 to 45, in
China from 30 to the low 40s, in
Russia from the mid 20s to the low 40s, and in the
United Kingdom from 30 to 36. These nationwide numbers can obscure even more dramatic impacts within the wage ladder. For example, according to the OECD, the Organisation for Economic Co-operation and Development, the top 10 percent of wage earners in India now make more than twelve times what the bottom 10 percent
make compared to six times just two decades ago.

The growing inequality of income and net worth in the United States has also been driven by changes in tax laws that favor those in higher-income brackets, including the virtual elimination of inheritance taxes and especially the taxation of
investment income at the lowest tax rate of all—15 percent. When the tax rate imposed on income from capital investments is significantly lower than the tax rates imposed on income earned in return for labor or from those who sell the natural resources used in the process, then the ratio of income flowing to those providing the capital naturally increases.

In the United States 50 percent of all
capital gains income goes to the top one thousandth of one percent. The current political ideology that supports this distribution of income refers to these wealthy investors as “job creators,” but with robosourcing and outsourcing, the cumulative impact of the capital they provide is, whatever its beneficial effects, negative in terms of jobs.

It is interesting to note that the United States
now has more inequality than either Egypt or Tunisia. The Occupy Wall Street movement caught fire because of a broad awakening to the dramatic increase in
the concentration of wealth held by the top one percent, who now
have more wealth than the people in the bottom 90 percent. The wealthiest 400 Americans—all of them billionaires—have more wealth as a group than
the 150 million Americans in the bottom 50 percent. The five children and one daughter-in-law of Sam and Bud Walton (the founders of Walmart)
have more wealth than the bottom 30 percent of Americans.

In terms of annual income, the top one percent now receive almost 25 percent of all U.S. income annually,
up from 12 percent just a quarter century ago. While the after-tax income of the average American climbed only 21 percent over the last twenty-five years, the income of
the top 0.1 percent increased over the same period by 400 percent.

Now that many jobs in services as well as manufacturing and agriculture are all subject to progressive dislocation by the innovation and productivity curves that measure the accelerating impact of the underlying technology revolution, the need for income replacement is becoming acute.

By 2011, the cumulative investment by industrial countries in the rest of the world had increased eightfold over the previous thirty years, in the process growing
from 5 to 40 percent of the GDP in developed countries. While overall world GDP is projected to increase by almost 25 percent in the next five years, cross-border
capital flows are expected to continue increasing three times faster than GDP.

The cumulative investment by the rest of the world in advanced economies is also growing—though not by as much. Stocks of foreign direct investment in industrialized countries like the United States increased
from 5 to 30 percent of GDP from 1980 to 2011. Partly as a result, these global trends have not only eliminated jobs in the U.S. but also created many new ones. Foreign-owned automobile companies, for example, now employ almost a half million people in the
United States, paying them wages that are 20 percent higher than the national average.

Overall, foreign-majority-owned companies now provide jobs
for more than five million U.S. citizens. And many other jobs have been created in companies that serve as suppliers and subcontractors to foreign companies. For example, even though China now dominates the manufacture of solar panels, the United States has a positive balance of trade with China in the solar sector—because of U.S. exports to
China of processed polysilicon and advanced manufacturing equipment.

Nevertheless, the impacts of this global economic revolution are already producing a tectonic reordering of the relative roles of the United
States, Europe, China, and other emerging economies. China’s economy, one third the size of the United States’ economy only ten years ago, will surpass the U.S. as the
largest economy in the world within this decade. Indeed, China has already moved beyond America in manufacturing output, new fixed investment, exports, steel consumption, energy consumption, CO
₂
emissions, car sales, new patents granted to residents, and mobile phones.
It now has twice the number of Internet users. China’s rise has become the most powerful symbol of the new pattern in the global economy quickly supplanting the one long associated with U.S. dominance.

The consequences of this transformation in the global economy are beginning to be manifested in unusually high rates of persistent unemployment and underemployment—and a slowdown in the demand for goods and services in consumer-oriented economies. The loss of middle-income jobs in industrial countries can no longer be blamed primarily on the business cycle—the alternating periods of recession and recovery that bring jobs in and out like the tide. Cyclical factors still account for considerable job gains and losses, but virtually all industrial countries seem perplexed and powerless in their efforts to create jobs with adequate wages, and are struggling with how to replace consumer demand for goods and services to reignite and/or solidify another recovery phase in the business cycle.

In the United States, the last ten years represents the only decade since the Great Depression when there have been zero net jobs added to the economy. During the same ten years,
productivity growth has been higher than in any decade since the 1960s. Along with productivity, corporate profits have resumed healthy
rates of increase while unemployment has barely declined. U.S. business spending on equipment and software increased by almost 30 percent while
spending on private sector jobs increased by only 2 percent. Significantly, orders for
new industrial robots in North America increased 41 percent.