Larry Elliott reports in The Guardian:
The hard problems that are easy for AI are those that require the application of complex algorithms and pattern recognition to large quantities of data – such as beating a grandmaster at chess. Or a job such as calculating a credit score or insurance premium, translating a report from English to Mandarin Chinese, or managing a stock portfolio.
Guy Ryder is an old hand at Davos. The director general of the International Labour Organisation has seen it all: the years when the global business elite is brimful of confidence and the years, such as 2017, when the top 1% of the top 1% is fretful.
Ryder detected parallels with 2009, when the global economy seemed to be heading for a second Great Depression. Eight years ago, the attendees were shaken by the banking collapse but showed little contrition. This year, they were alarmed by the populist anger that was evident in Brexit and Donald Trump’s arrival in the White House but couldn’t really understand why it was happening.
“The global elite has been saying all week that the public doesn’t really understand all the good things they are doing for it,” Ryder says. He is quite right about that. The 2017 Davos was a classic example of how people can be, at one and the same time, very bright and utterly obtuse.
There were two distinct camps. In the first group were the really dumb ones: those who think that what happened in 2016 was an aberration and that globalisation will be back on track as soon as voters in advanced countries come to their senses.
In the second camp were those – the policymakers rather than the chief executives of the big multinational corporations – who understand that the only way to save global capitalism is to reform it in a fundamental way, just as it was after the economic horrors of the 1930s.
Advances in artificial intelligence (AI) mean a second wave of change is approaching – and this time the jobs at risk from the machines are going to be jobs in the service sector.This second group has sniffed the way the wind is blowing. Studies have shown that technological change rather than trade has been responsible for the vast majority of the jobs lost in manufacturing in the developed world. Put simply, machines have replaced humans. Robots have taken over factories.
As Dhaval Joshi, economist at BCA Research, has noted, it is not going to be the low-paid jobs in the service sector such as cleaning, gardening, carers, bar staff or cooks, whose jobs are most at risk. That’s because machines find it hard to replicate the movements of humans in everyday tasks.
“The hard problems that are easy for AI are those that require the application of complex algorithms and pattern recognition to large quantities of data – such as beating a grandmaster at chess”, says Joshi. “Or a job such as calculating a credit score or insurance premium, translating a report from English to Mandarin Chinese, or managing a stock portfolio.”
Seen in this light, the looming threat is obvious. The first army of machines wiped out well-paid jobs in manufacturing; the second army is about to wipe out well-paid jobs in the service sector. In many cases, the people who will be surplus to requirements will have spent many years in school and university building up their skills.
Humans are still more innovative and entrepreneurial than machines, which means there will be rich rewards for the creative. They will be few in number, however, so the dynamic of recent years – exceptionally high rewards for those at the top, a hollowing out of the middle class, and the expansion of low-paid insecure jobs at the bottom – will not just continue but become more pronounced.
This fourth industrial revolution, just like all the others, will lead to a growth spurt. But the last big epoch of technological change was accompanied by political change that ensured those making the cars, the washing machines and the TV sets could also buy them. Full employment policies, capital controls, progressive income tax and strong trade unions ensured this was the case.
In Davos last week, one of Trump’s advisers, Anthony Scaramucci, made the point that Henry Ford was a ruthless, rich capitalist but he understood that there was no point in churning out cars that his workforce could not afford to buy.
There was, however, not much evidence that the bankers, the oil company executives and the Silicon Valley tech entrepreneurs were listening. They know they are supposed to wring their hands about inequality and to say that something must be done to stem the tide of populism but they are not prepared to countenance anything that might help, such as higher minimum wages, more collective bargaining, higher taxes to pay for an expansion of education and training, and greater redistribution.
It was not all bad news. Prof Guy Standing said that after years of being ignored he had found that concerns about the impact of automation meant plenty of interest in the idea of a basic income to be paid to all citizens and paid for by rentier capitalists. “The returns to property, intellectual property and natural resources are going to a tiny majority and we must do something about that.”
The World Economic Forum, the body that runs Davos, is also trying to get its members to rethink the idea that all will be well, provided nothing is done to meddle with market forces. In its Inclusive Growth and Development Report, the WEF noted it was not much of a success to have an expanding economy if all the fruits of growth were going to the few and not the many.
“The ultimate objective of national economic performance is broad-based and sustained progress in living standards, a concept that encompasses wage and non-wage income (eg pension benefits) as well as economic security and quality of life”.
Noting that median incomes in 26 advanced countries fell by 2.4% between 2008 and 2013, the report added: “Many countries have had difficulty in satisfying expectations in this regard.”
The WEF’s argument is that the ecosystem that once ensured growth was translated into higher living standards has deteriorated as a result of technological change, global integration, domestic deregulation and increased immigration. It has a comprehensive list of remedies, including fair and efficient taxes to ensure adequate investment in education and physical infrastructure, action to tackle corruption and the concentration of rents, an adherence to core labour standard and worker protections.
Instead of ranking countries by GDP, the WEF has created an inclusive development index. Surprise, surprise; those countries that do well tend to have higher taxes, generous welfare systems and a stronger role for organised labour. Norway, Luxembourg, Switzerland, Iceland, Denmark, Sweden and the Netherlands fill the top seven places. Britain comes 21st, the US 23rd.
Judging by last week’s Davos, things will have to get worse before the WEF’s warning is heeded. But as the masters of the universe clambered into their helicopters last Friday watching Trump’s inauguration in Washington on their smartphones, they ought to have been smart enough to figure out that they just did.