Capitalism in an Age of Robots Adair Turner Chairman Institute for - PowerPoint PPT Presentation

Institute for Institute for New Economic Thinking New Economic Thinking Capitalism in an Age of Robots Adair Turner Chairman Institute for New Economic Thinking School of Advanced International Studies Washington DC, 10 April 2018 ineteconomics.org | facebook.com/ineteconomics USA 300 Park Avenue South, 5th Floor, New York, NY 10010 | UK 22 Park Street, London W1K 2JB

Current automation capability versus humans performance Automation capability Sensory Sensory perception Below median perception Median Cognitive Recognising known patterns /categories (supervised learning) Source: A Future that Works , McKinsey Global Institute Report, 2017 Top quartile capabilities Generating novel patterns/ categories Logical reasoning/problem solving Optimisation and planning Creativity Capability level Information retrieval Coordination with multiple agents Output articulation/presentation Natural Natural language generation language Natural language understanding processing Social and Social and emotional sensing emotional Social and emotional reasoning capabilities Social and emotional output Physical Fine motor skills/dexterity capabilities Gross motor skills Navigation Institute for 1 Exhibit New Economic Thinking Mobility

Automation potential by type of activity % of time automatable with current technology % of time in all US occupations Predictable physical 81 18 Process data 69 16 Collect data 64 17 Unpredictable physical 26 12 Interface 20 16 Expertise 18 14 Manage 9 7 Source: McKinsey Global Institute, A Future that Works, 2017 Institute for 2 Exhibit New Economic Thinking

Automation potential by occupation % of specific activities automatable Example occupations % of specific roles and time which can be automated Sewing machine operators, graders and sorters of agricultural products Stock clerks, travel agents, watch repairers Chemical technicians, nursing assistants, Web developers Fashion designers, chief executives, statisticians Psychiatrists, legislators Source: McKinsey Global Institute, A Future that Works, 2017 Institute for 3 Exhibit New Economic Thinking

Potential to automate by sector % of time automatable with current technology Accommodation and food services 73 Manufacturing 60 Transportation and warehousing 60 Retail trade 53 Construction 47 Finance and insurance 43 Real estate 40 Health and social care 36 Professionals 35 Management 35 Education services 27 Source: US Bureau of Labor Statistics McKinsey Global Institute Analysis Institute for 4 Exhibit New Economic Thinking

Scenarios for automation Technical automation Early scenario potential Late scenario % of time spent o current works Source: McKinsey Global Institute , A Future that Works, 2017 Institute for 5 Exhibit New Economic Thinking

Productivity growth in the US % per annum 3 2.82 2.41 2.5 2 1.84 1.79 1.77 1.62 1.5 1 0.5 0 1870-1920 1920-1970 1970-2014 Output per person output per hour Source: Robert Gordon, The rise and Fall of American Growth (Princeton University Press, 2016 Institute for 6 Exhibit New Economic Thinking

The standard paradigm New position Starting Point 50 farmers produce 100 units of food 100 self-sufficient farmers produce 50 workers produce 100 100 units of food Technical units of cars, washing progress machines, televisions, etc. Measured total economy productivity doubles Institute for 7 Exhibit New Economic Thinking

Endlessly repeatable progress?  25 farmers producing 100 food  50 factory workers producing 50 farmers produce 200 cars, washing machines, 100 units of food televisions Further  15 factory workers producing 60 technical 50 factory workers units of computers, mobile phones and software applications progress produce 100 manufactured goods  10 service workers producing 40 units of healthcare 400 units of value – productivity doubled again Institute for 8 Exhibit New Economic Thinking

The Baumol Effect 50 farmers produce 100 units of food 50 domestic servants paid ½ as much produce 50 units of value 100 farmers produce Technical 100 units of food progress • Agricultural productivity doubles • Total economy productivity increased 50% Institute for 9 Exhibit New Economic Thinking

Asymptotic rather than endlessly repeatable progress 50 farmers produce 25 farmers 100 food 1 farmer 100 food 100 units of food Double Further agricultural 50 domestic progress productivity servants produce 50 services 75 servants 75 99 servants 99 services services Total measured Asymptotic limit productivity: at +100% +16.6% Institute for 10 Exhibit New Economic Thinking

The Baumol Effect with high paid artists 50 farmers produce 100 units of food 45 domestic servants paid ½ as much produce 45 units of value 100 farmers produce Technical 5 artists, singers, entertainers and 100 units of food progress fashion designers paid twice as much produce 20 units of value Productivity growth still eventually asymptotes Institute for 11 Exhibit New Economic Thinking

Twenty first century technology London Institute for 12 Exhibit New Economic Thinking

US Jobs growth forecast 2014 – 2024 Occupational categories by speed of Forecast job Median annual wage job growth growth (000s) May 2014 ($000s) 1 Personal care aides 458 1 20 2 Registered nurses 439 2 67 3 Home health aides 348 3 21 4 Food preparation and serving workers 343 4 21 5 Retail sales persons 314 5 18 6 Nursing assistants 262 6 25 7 Customer services reps 253 7 22 8 Cooks, restaurant 158 8 31 9 9 General and operations managers 151 97 1… 31 10 Construction labourers 147 Total top 10 2873 (29%) 13 Janitors and cleaners 136 1… 23 14 Software developers, applications 135 2… 95 All sector Source: Bureau of Labor Statistics, www.bls.gov; Projections of Occupational average: 36 Employment, 2014 – 2024 Institute for 13 Exhibit New Economic Thinking

The Baumol effect in India: Automation of tea packing A manager explains what will happen when he opens the crates: His job will go. And But the manager insists that, his over there; and as in the past, he will that one’s too somehow find jobs for everyone – as drivers or even watchmen if necessary India’s Economy: Just the job . The Economist , 16 September 2017 Institute for 14 Exhibit New Economic Thinking

Zero-sum activities in the simple model 50 farmers produce 100 food 100 farmers produce Technical 25 criminals 100 units of food progress 25 police paid same as farmers • Total measured productivity increases 25% • But no human welfare benefit of increased consumption Institute for 15 Exhibit New Economic Thinking

Wonder drug contribution to nominal GDP With private development and patent protection Patent $ protection Contribution to period • Positive if R+D nominal GDP capitalised • Nil if expensed Generic manufacturing with relentless automation Research + Development Time Institute for 16 Exhibit New Economic Thinking

Wonder drug contribution to nominal GDP If government or charitable development $ Contribution to nominal GDP Generic manufacturing with relentless automation Research + Development Time Institute for 17 Exhibit New Economic Thinking

Three effects combined: An illustrative scenario % of Assumptions Breakdown of Employment Productivity growth employment Non-automatable 10% 20% Of automatable sectors: low productivity 2.5% increasing to 2.7% 10 Automatable 90% 80% Low productivity 20 of which: non-automatable 18 20% 30% Of all sectors: Zero-sum activities Zero-sum — 2% productivity growth constant around 2.05% 24 Non zero-sum 80% 70% … with 50% of zero -sum activity in GDP and 50% not Of measured GDP: 58 Productivity growth in 1.9% declining to 1.5% Non zero-sum activities 45 automatable sectors: — 2% productivity growth 2% p.a. in 80% of activities 5% p.a. in 20% of activities Under-recorded benefits = 33% Non zero-sum 14 11 of growth in the high growth — 5% productivity growth sectors Year 0 Year 25 Institute for 18 Exhibit New Economic Thinking

The standard assumption Technological advance Which shows up in Which provides a good drives productivity GDP measures of measure of improvement across output per hour improvements in the economy worked and per capita human welfare Imperfect but adequate Imperfect but adequate assumption as income grows assumption in farm factory from $1000 to $20000 per transition capita … but becomes more imperfect … but becomes more in face of information technology imperfect as incomes rise goes and proliferation of zero- and basic needs satiated sum activities Institute for 19 Exhibit New Economic Thinking

Capital in France 1700 – 2010 800% Net foreign assets 700% Other domestic capital 600% Housing % national income Agricultural land 500% 400% 300% 200% 100% 0% 1990 1700 1750 1780 1810 1850 1880 1910 1920 1950 1970 2000 2010 Source: Capital in the Twenty First Century, T. Piketty (2013) Institute for 20 Exhibit New Economic Thinking

The rising importance of non-produced assets UK National Balance Sheet 2000 – 2016 5 5 4.8 4 £ Trillion 3 2.4 2 1.6 1 0 2000 2016 Source: UK Office for National Statistics: Statistical Bulletin on the UK National Balance Sheet Institute for 21 Exhibit New Economic Thinking