Human beings don’t act out of naked self interest. Given the choice, we prefer to pursue a fair outcome rather than one that leaves one side with everything. This was amongst the findings of Daniel Kahneman and Amos Tversky in their work that came to define the field of behavioural economics. (The pair are the subject of a new book, The Undoing Project, by Michael Lewis, author of The Big Short — well worth listening to his interview with Adam Buxton).
Large companies don’t have this compunction. Allowed to do so, they act in the interests only of their shareholders. In fact, they are compelled to do so. The only question is whether they are looking to maximise returns over the short term or the long term. The longer term the thinking, the more likely it seems the interests of shareholders and the rest of the planet might align, though this is hardly a firm rule.
That they are focused on profit to the frequent exclusion of social good isn’t a criticism of companies or their leaders. Much as we might dislike their behaviour sometimes, they’re playing the game by the rules. Given multiple opportunities, we’ve chosen not to change those rules and perhaps for good reason. There’s at least a solid argument to be made that the game to date has been a net positive for most of us.
The question is whether it will continue to be so in the future.
The great divide
While many might — legitimately — question whether the current technological revolution will be different to the past, in destroying more jobs than it creates, there are some worrying signs. Large companies now operate with many fewer employees than they used to, with Apple, Alphabet (Google) and Facebook all making north of $1m per employee. Though employment is at historically high levels in many places, the quality of the work being created is often low and highly precarious. Levels of self-employment have risen dramatically.
The risk is a growing division between rich and poor, with a shrinking number having access to the security of employment, or a freelance skillset that provides a reasonable income, and a growing number surviving on a mixture of benefits and gig-economy work.
This scenario is at least plausible based on the current track. What might policy responses be to such a reality?
For me there are two clear routes of intervention. We can regulate employers to force them to better look after the interests of their workers. Or we can let take a laissez-faire approach to regulation, but raise taxes to build a state system that supports people without or between employment.
As the ongoing battle between Uber and its drivers shows, action is already being taken to reign in the more extreme employment practices. In fact, this is just one of many cases challenging the ‘contractor’ model common in the gig economy. Should Uber lose, it will be forced to ensure drivers receive minimum wage and other entitlements, and be subject to a much larger tax bill. But its drivers will also be subject to much tighter controls: no more logging on, as and when you want to.
Ensuring minimum standards for workers in the gig economy doesn’t come without costs to the flexibility of the model, either for workers or for customers. But it’s also not without limitations as a move: should it lose, Uber is likely to accelerate its already-rapid drive to bring in self-driving vehicles with no drivers at all. All other gig-economy driving jobs will likely follow.
You can argue that much of the work in the gig economy only exists because people are cheaper than machines right now. But we know the cost of technology only goes in one direction, and ultimately people can’t compete on price.
What about a more extreme intervention, enforcing employee representation at board level (common in places like Germany) and even perhaps some form of employee ownership? This may well improve practices over all and is likely to raise living standards for those in employment. Though it’s no guarantee of employment levels remaining high: mutually-owned John Lewis was forced to lay off many staff last year to focus on “better jobs, for better performing partners, on better pay.”
The result may be better lives for those with jobs, but it’s unlikely to do much for those without. If automation is rising, the ratio between those groups will continue to worsen.
Rebuilding the state
Another option is to accept that market-generated employment is unlikely to provide support for large portions of the population, at least at some point in their lives. If corporate profits are rising, and a smaller proportion of people are holding more wealth, then there’s an argument for increasing taxes and distributing the proceeds in a variety of forms.
Part of this might mean creating work by investing in infrastructure. Crumbling roads, a desperate shortage of affordable housing, an ageing power network and limited generating capacity: there are many places the UK could use a large state investment in improvements that would benefit citizens and businesses alike.
Part of it might mean tackling the holes in our health and social care systems: massively overworked doctors, underpaid nurses, and a critical shortage in trained care staff — only likely to worsen post-Brexit.
We might look at pushing the price of education back into general taxation and raising standards across the board, with increased investment.
And yes, we may ultimately have to look at some form of universal income, albeit one that accounts for complex differences in need. The savings from eliminating the administration of the current benefits system represent a fraction of the hundreds of billions that a universal income at any sensible level might cost.
Of course, these routes are not mutually exclusive. We’re likely to see more of the former option in the short term, as governments stick with what they know and try to maintain the status quo. But personally, I’d like to see us put more time into considering the latter.
Taxing corporations is complex, particularly in our globalised economy. High corporation tax rates may look scary to businesses. But states generally deliver services like healthcare (and travel) much more cost-effectively than smaller-scale private options (just compare UK and US costs). Surely companies would want to invest in countries where they know their obligations are met with a single bill, rather than a complex legal framework of employee support?
Thought, if nothing else
I’m not a political scientist, or an economist. Posts like these are about exploring ideas rather than advocating them. But what I will advocate is consideration. I believe that automation threatens employment as the basis for an economy. I’m willing (and hopeful) to be proven wrong, but right now, the signs don’t look good. And beyond the surface conversation about universal basic income, I see very little consideration about what this means for the future.