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Where Do We Go From Here?

The Shape of Automation

by Herbert Simon
Harper & Row, 111 pp., $3.95

The Guaranteed Income: Next Step in Economic Evolution?

edited by Robert Theobald
Doubleday, 233 pp., $4.95

The problem of technological unemployment will, I suspect, haunt us for the rest of our lives. I do not mean that at every moment it is going to be the paramount economic problem—as it is not, for example, at present when we are threatened with war-induced inflation. But, I believe that a persistent cloud of technological displacement will nonetheless hover over the future of capitalism, and proposals to remedy it will accordingly provide us with fare for our reformist appetites for a long time to come.

Both books under review are immediately concerned with this prospect, although from widely divergent points of view. Professor Simon’s short but carefully argued collection of essays contends that I am quite wrong, and that automation holds out no unduly severe challenge for capitalism—indeed, quite the reverse. Robert Theobald’s book, on the other hand, assumes that the cybernetic trend of technology already augurs the most drastic change in social organization, and therefore requires a remedy appropriate to what might otherwise be a disaster. To make things utterly confusing, I think that both books are wrong—for reasons that I hope to make clear to non-economists as well as to economists.

Professor Simon describes himself in a phrase that has become something of a catchword with the (many) economists of his persuasion: He calls himself a “technological radical and an economic conservative.” By this he means that he is prepared to grant that the computers can perform a sweeping variety of human tasks; but at the same time, he is not prepared to admit that the new technology, for all its virtuosity, constitutes an essentially different economic challenge from that posed by pre-computer machines, or that this challenge, past, present, or future, will prove essentially disruptive to our economic system.

It is difficult for me to judge the validity of Professor Simon’s technological radicalism, although what he writes about the nature of managerial decision-making and the possibility of duplicating it technically strikes me as original and important. But I have no such diffidence about his economic conservatism, which I believe to be not only incompatible with his technological radicalism, but based on much too narrow a description of the automation problem itself.

PROFESSOR Simon’s equanimity about the future rests on two rather technical but highly important arguments. One of them is a demonstration that under certain carefully specified conditions, any technological change that saves either labor or capital in the productive process redounds to the benefit of labor in the distribution of national income. The other, which I will discuss later, relies on the Law of Comparative Advantage to assure us that no matter how many workers may be thrown out of work in one industry or field, there will always be some other field where their labor power can be profitably used.

This is not the place to enter into a dispute with Professor Simon about his first contention—that technological progress always raises the rate of wages for those who continue to be employed. Rather, the point to be heavily underscored is that even if he is right—even if labor- or capital-saving inventions in themselves were invariably to operate to increase labor’s share—this would not prevent technical progress from eliminating workers from the process of production in a market system.

This is certainly not difficult to show. Suppose that a bakery installs machinery that will enable it to maintain the same volume of output with, say, 20 per cent fewer employees. The savings per loaf of bread may very well be applied in part to a reduction in price, in part to profits, and in part to higher wages for the remaining 80 per cent of the staff. If the demand for bread at its lower price is inelastic—unresponsive to the fall in price—sales of bread will rise by less than the amount needed to restore the former level of employment. But suppose that demand is very elastic—that customers rush to the bakery. Output may now rise high enough so that the bakery rehires all its former employees and even takes on more. Yet even in this happy case the effect on employment is not necessarily good within the economy as a whole. The fact that consumers are now spending more of their incomes on bread means that they are spending less on other products, and thus the gain in bakery employment will be offset by losses in employment elsewhere.

How do we break out of this seemingly closed and self-defeating circle of events? As every freshman in economics must learn, the escape mechanism lies in the creation of new “work places” brought about by business expansion. Ideally, the proprietors of the bakery will be so encouraged by rising sales that they will proceed to build an addition to their plant, thereby offering new employment opportunities. Or perhaps employers elsewhere will be tempted for some other reason into increasing their scale of operations. Thus, it may seem that investment can supply the needed increases in jobs. The trouble, as we know from bitter experience, is that investment is far from a wholly reliable economic process on which to depend for full employment.

But this is not the only trouble. Perhaps I should have written: Investment can supply the needed increases in jobs. For even when business investment is forthcoming, it may not enlarge the number of jobs in the economy. If the process of business expansion is itself affected by labor-saving technology, then labor-displacement can continuously run ahead of the growth of demand for labor. In other words, in trying to reemploy the 20 per cent of their help that was discharged, the bakery owners may install new equipment that will further increase their bread-making capacity, but which will use even fewer employees than before!

IS THAT what is actually happening within the American economy today? I think it must honestly be said that we do not know. The forces hearing on total employment are so varied—the coming-of-age of the children born after the war, the flux of normal business demand, the shifting requirements of the war economy—that it is impossible to isolate or measure the current impact of technology alone. Yet, looking back over the American economy during the last century or more, I believe we can make out just this kind of race between the job-creating and the labor-displacing effects of investment. Further, I think that one can maintain that the labor-displacing effects have run ahead of the job-creating effects within the two historically most important areas of work—the “farm” and the “factory.”

There is no argument about agriculture. In 1900 nearly eleven million people worked on the farm. Had farm employment risen proportionally with population, we would expect farm employment today to be around 25 million or so. Instead it is just over 4 million. More interesting is the case of “factory” work—meaning not manufacturing alone, but mining, construction, transportation, and utilities. Here the trends are varied. In mining, we see the same absolute shrinkage as in agriculture, in spite of a huge rise in output (as in agriculture). Eight hundred thousand men entered the earth or worked at the mine surface in 1900; only 600,000 in 1965. In transportation and utilities, a somewhat different picture emerges. Between 1900 and 1929 employment rose sharply here—from 2.1 million to 4.9. Thereafter it has shrunk to the present level of 4.1 millions—again, in spite of vast increases in ton-miles and kilowatts. Construction shows a rise in employment that more or less matches the rise in population, implying that investment there has been largely job-creating.

Last, manufacturing. Between 1900 and 1929 employment here near-doubled, growing ahead of population: Investment during this period was obviously job-creating. Between 1930 and 1940, employment in the factory remained static, in spite of a 10 per cent rise in population and a 20 per cent increase in output; investment in this period probably eliminated jobs. Employment then jumped sharply during the war, until it reached some 17 millions in manufacturing. With reconversion, the figure fell to about 15 million in 1947. Thereafter it rose slowly and irregularly through 1963, lagging far behind the growth of population or output. Over the last two years it has again jumped ahead to 18 million, although the full rise, from 1947 to the present, is still only half as fast as population growth and only a fifth as rapid as the growth of output.

Thus it seems beyond dispute that the labor-displacing effect of investment can outpace the job-creating effect, and in fact has done so in many key sectors of the economy—a conclusion that seems justified without even taking into account the cut in working hours that averaged as much as a third between 1900 and 1965. To this trend—or to its portents for the future—Professor Simon pays little heed, however, for he has a ready answer to the problem. If investment will squeeze men out of one field, he would argue, the Law of Comparative Advantage will assure their placement in another.

Freshmen always have difficulty with this Law, which tells them how an inefficient producer of several goods can often trade profitably with someone who can produce the same goods more efficiently. The usual enlightening paradigm concerns a writer who is also the fastest typist in town, but who finds it worthwhile nonetheless to hire the services of a relatively slow secretary because he can then devote his whole time to more highly paid writing. Alas, freshmen are usually not taught that this law doesn’t work unless there is enough demand for the full output of the more efficient producer. The writer will not hire the typist if his publisher won’t buy any more words from him than he can write and type in a week.

THIS brings us back to the present economic situation. Is there a ceiling on demand that would interfere with the workings of the Law of Comparative Advantage? Judging by the statistics of the past several decades, there is a very definite ceiling on our per capita demands for farm output. With “factory” goods, the situation is more complex. We buy even more goods as we collectively grow richer and more productive; but we show no disposition to consume proportionally more “goods.” Instead we have for some time steadily diverted our growing incomes to that variety of outputs from the office, store, school, government bureau, etc., we call “services.”

This swing in demand might be compared to the publisher who tells the writer he wants no more words than before (for which he will however, pay more), but that he now needs all manuscripts not only typed but styled for the printer. In this event, the writer might well be forced to hire two secretaries, in order to preserve his time for writing. In much the same fashion, our shift in demand from farm and factory goods to services, has resulted in a shift in employment from those sectors into services. Only a quarter of our labor force produced services in 1900; over 50 per cent do in 1965.

Now this migration from farm and factory into services is exactly what the Law of Comparative Advantage would lead us to expect. But here is the critical point: Technology today seems to be invading the services as well as other kinds of work. One secretary, with a machine, can now type and style a writer’s work. In an essay in Theobald’s book Ben Seligman gives us some startling examples of what is actually happening—and what is likely to happen—in the service occupations, the banks, the insurance companies, and so on. More telling, Professor Simon’s own technological radicalism implies that there is no reason why technology should not penetrate deep into the job skills of the white collar class.

Where, then, will the new labor emigrants go? The arrow of Comparative Advantage continues to point, as Ricardo noted over a century ago, in the direction of the least capitalized occupations—to Ricardo these were “menials” and the Army. In our own day, it is not so simple to find noncapitalized occupations that would offer employment—I am now looking some decades ahead—to half or two-thirds or even three-quarters of the population. Indeed, as Professor Simon himself says, “We shall have to, finally, come to grips with the problem of leisure.”

But suppose that we can employ most of the population as psychiatrists, artists, or whatever. I am afraid there is still an upper limit on employment due, very simply, to the prospect of a ceiling on the total demand that can be generated for marketable goods and services.

I AM AWARE of course, that this is a shocking suggestion. Yet everything about the age in which we live—its political egalitarianism, its dislike of conspicuous consumption, its very technological genius—makes it altogether likely that we shall run out of demand. Professor Simon foresees an average family income (in today’s prices) of $14,000 twenty years hence, and $28,000 forty years hence; and he has no doubt that these families will have plenty of use for their entire income. But why stop there? On his assumptions of a 3 per cent annual growth rate, average family incomes will be $56,000 by the year 2025; $112,000 by 2045; and $224,000 a century from today. Is it beyond human nature to think that at this point (or a great deal sooner), a ceiling will have been imposed on demand—if not by edict, then tacitly? To my mind, it is hard not to picture such a ceiling unless the economy is to become a collective vomitorium.

If there is such a limit—and in the long run in which Professor Simon and I are both interested, I think there must be one—the Law of Comparative Advantage simply ceases to apply, and we are left with the plain fact that technology will progressively reduce the amount of labor needed to satisfy the demand for goods. I believe this is likely to happen long before we reach the ceiling of total market demand, and that considerable reductions in the work week, and similar measures, will be required within the next decade or two, to match the supply of labor with the dwindling demand for it.

IN THE END however, the crucial question is not the mere adjustment of society to a new mixture of labor and leisure, or of technology and demand. In one way or another that can be accomplished. It is the question of whether the market process will be able to supervise the inevitable transition to a society in which less labor will be used. I do not believe it will, nor do I think that the market will serve, at the terminal point of that transition, as an adequate mechanism for the distribution of income to the population in general, or of jobs to those who will work.

This is the central question ignored by Professor Simon. The contributors to Mr. Theobald’s book, on the other hand, are certainly aware of it. All of them share the assumption that the technological disturbance of automation is already so threatening that we shall have to meet it with a system of guaranteed annual income to prevent serious social dysfunction.

In the long run it must be clear that I share this assumption, and I would have no objection to guaranteed incomes as a very useful remedy. But the long run is still a long way off, and in the meantime we have to operate within the confines of a market economy where technology is only gradually and incrementally making known its effects. In such a situation, to introduce guaranteed incomes wholesale would be to risk the most disruptive damage. (Think of the duration of the New York City transit strike, if the strikers could have counted on assured incomes of $5,000, or even $4,000 a year!)

This does not rule out some form of guaranteed income, such as Milton Friedman’s suggested Negative Income Tax, to bring all incomes up to some socially acceptable minimum. Indeed, I think such a plan is the most effective next step we can take in alleviating the misery of many impoverished persons, and I am happy to note its inclusion in the recent report of the President’s Commission on Automation (an imaginative report whose Simonian optimism I forgive since it is only concerned with the next decade). But alleviating poverty is one thing, and shoring up all incomes close to the line of present earnings is another. A world in which labor (including middle-class labor) no longer felt the lash of necessity would no doubt be a better world, but it would not be a world that the market system could control.

The trouble with Mr. Theobald’s collection is that none of the essays, despite the many interesting things they have to say, recognizes this awkward but central fact. Only Erich Fromm’s provocative piece builds on the social (as well as the psychological) implications of a radically altered system of rewards, but even he does not attempt to bridge the problem of the transition. Thus, in the end what is disappointing is a failure of nerve in both books. Professor Simon fails to see the economic radicalism inherent in his technological radicalism, and the essays in Mr. Theobald’s book, including his own, do not sense the political radicalism inherent in their economic radicalism. What we need now, it seems to me, is a fresh consideration of technology and its interaction with a market economy—a consideration free of both the sterile assumptions of neoclassical theory and the heady premises of cyberfiction. For over a hundred years technology has been the single most important propulsive and revolutionizing force within capitalism, but we still know very little about its workings. Until we do, the power of the machine will continue to be praised and feared in extravagant terms, but not understood.

Letters

Automation May 26, 1966

Automation May 26, 1966

Automation May 26, 1966

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