Amazon, among other tech icons, enjoyed tax breaks until it became apparent that its impact had societal costs. The same may well be true of robotics, artificial intelligence, et al.
The question is how to continue to encourage innovation, but not at the expense of a majority of the population. JL
Tim Dunlop reports in The Guardian:
The difficulties begin with defining what is and isn’t a robot. “The first case in modern history of this was the power loom. Is this a robot or just a tool, a slightly more sophisticated hammer in a sense? Likewise farming equipment reduced the need for farm labour. Should we tax every tractor?” Software that took 20 engineers to build 20 years ago can now be built by just three. “This is because of the availability of open source code. Should we tax open source code?”
A tax on robots is one of those ideas that sounds attractive, and when it’s put forward by someone with the credibility of Bill Gates, as it was in a recent interview with Quartz magazine, you can guarantee it will generate a lot of interest. If he, of all people, says taxing robots is a good idea, then surely it is worth considering?
Well, perhaps not.
At first pass, the idea feels like common sense. After all, if robots replace workers but don’t generate tax revenue, it means not only that the funds available for government services are substantially diminished, but that inequality – already at record levels in developed nations – is likely to increase. Wages that would have been earned by human workers, now displaced by robots, will go straight to profits, increasing the wealth gap between those who own the robots and the growing pool of unemployed workers.
Indeed, such concerns underpin Gates’s suggestion for a robot tax and he recognises the role government will have to play in addressing it. He told Quartz, “If you want to do [something about] inequity ... absolutely government’s got a big role to play there.” In other words, in the absence of workers paying taxes because they have been replaced by machines, you need revenue to come from somewhere else.
So what’s wrong with taxing robots as a way of providing that revenue? The difficulties begin, says venture capitalist and executive Mark Herschberg, with defining what is and isn’t a robot.
“The first case in modern history of this was the power loom,” he says. “Is this a robot or just a tool, a slightly more sophisticated hammer in a sense? Likewise farming equipment reduced the need for farm labour. Should we tax every tractor?”
The complications increase the more you think about it. Speaking from personal experience, Herschberg says that software that took 20 engineers to build 20 years ago can now be built by just three. “This is not so much because of robots as it is the availability of open source code. Should we try to tax open source code?”
Jim Stanford, economist and director of the Centre for Future Work in Sydney, agrees.
“There are enormous problems in operationalising the idea of a robot tax. There are endless possibilities for evading and gaming that kind of system; for example, by incorporating the ‘robot’, however that is defined, into other kinds of capital equipment.”
For Gates, the other problem a robot tax addresses is to slow down the rate of investment in robots and so help society deal with its anxieties about the encroachment of technology into the workplace. It is the same logic as a carbon tax: by putting a price (a tax) on robots, the use of them is discouraged. “It is really bad if people overall have more fear about what innovation is going to do than they have enthusiasm,” Gates said. “That means they won’t shape it for the positive things it can do. And, you know, taxation is certainly a better way to handle it than just banning some elements of it.”
But Stanford is not convinced. He argues that capital investment generally is already too low. He says, “relative to other periods in history, advanced economies are investing less in new capital – to the point that in the US, for example, the capital-labour and capital-output ratios have been falling since 2010.”
Slowing down investment via a robot tax would risk harming the economy more generally.
“I think there are important external benefits from capital investment and I would not want to slow it. I think we should encourage the right kinds of investment (less in non-renewable resource extraction, for example), but I don’t think trying to shift investment away from ‘robots’ would be beneficial.”
Still, Gates’s concerns about inequality and the growing pressures on the economy and society from automation are valid. Unless we want to end up with enormous concentrations of wealth that leave many of us jobless, while robot-owners thrive, we have to consider new ways of redistributing wealth.
A potentially groundbreaking solution comes from Yanis Varoufakis, the former Greek finance minister. He points out – along with economists such as Mariana Mazzucato – that the corporations that build robots and other labour-displacing technologies benefit enormously from various forms of public investment.
That is, they are essentially using the research and intellectual property generated by government-funded organisations such as universities for free. A robot tax would be one way of correcting this free-rider problem, but Varoufakis prefers the idea of what he calls a “universal basic dividend” (UBD). It is a variation on the idea of universal basic income, but instead of being funded through taxation, it is funded through capital investment.This would mean that companies floated on the stock exchange would be obliged to set aside a certain percentage of their shares to be held in common for all of us through the government. A scheme such as this has operated in Alaska since 1976, where returns from state oil revenues are distributed to citizens via the Alaska Permanent Fund. A UBD is really a bigger version of this, involving investment from every industry in the nation.
“Imagine,” Varoufakis writes, “that a fixed portion of new equity issues (IPOs) goes into a public trust that, in turn, generates an income stream from which a UBD is paid. Effectively, society becomes a shareholder in every corporation, and the dividends are distributed evenly to all citizens.”
Such a system directly addresses the link between work and automation, and it does it much more efficiently than a robot tax.
“To the extent that automation improves productivity and corporate profitability, the whole of society would begin to share the benefits. No new tax, no complications in the tax code, and no effect on the existing funding of the welfare state. Indeed, as higher profits and their automatic redistribution via the UBD boosted incomes, more funds would become available for the welfare state.”
To give Gates his due, his willingness to use his personal prestige to address inequality and technological anxiety is admirable, and he has opened up discussion about what is likely to be one of the most crushing problems of the early 21st century: the future of work and the role of automation.
The main difficulty, Stanford argues, is that Gates has “misdiagnosed the core problem”. The real issue isn’t the technologies themselves but the “inequitable social structures and the policies and politics that support them.” Varoufakis makes a similar point when he says that a UBD can only work when it’s “coupled with stronger labour rights and a decent living wage.”
“When I see Gates proposing those kinds of measures,” Stanford says, “I will sign up for his manifesto.”