Robots, Rockets and Rents
Experts | 05.08.2018 | Fernando de Frutos
Science fiction has a history of missing deadlines. At the turn of the century, humans were grappling with Windows XP, but nothing like the epic fight with HAL in 2001: A Space Odyssey. And as in 2019 biologically-engineered replicants are far from becoming a threat to humans, Warner Bros released a sequel to Blade Runner setting the scene in 2049.
One wonders why, with such a poor record, they did not move the date further in the future; but with LA so close to Silicon Valley, the choice maybe just a reflection of the prevailing enthusiasm in the areas of robotics and artificial intelligence.
In the early days of these disciplines, progress was rather linear. This helped to automate a growing range of routine and predictable activities, but failed to replace humans in complex contextual activities entailing judgment. However, the exponential growth in computing power seems to be bringing us closer to the tipping point where computers can start to outsmart humans.
Amongst the many societal consequences that this technological leap may bring, there will be a profound economic impact. A larger scope for automation will drastically affect the main factors of production. Starting with labor, according to a McKinsey report, the equivalent of 1.1 billion jobs could be automated with existing viable technologies. As happened with the transition from an agricultural society, new type of jobs will also be created, but the replacement rate will critically depend on the speed of the transition a recent Bain report estimates that automation in services could displace labor two to three times more rapidly than in previous transformations.
The impact on capital will be less direct. In a first stage, the rush for automation will require large capital investments, boosting interest rates. However, once the potential for automation has been exhausted, rates will plummet as we will be left with an economy with depressed demand due to low wages and high levels of unemployment and a low need for further capital investment.
Of course there will also be winners from automation. Those lucky enough to avoid being replaced by a machine or an algorithm will enjoy higher salaries as their productivity increases. But proportions matter, and if the majority of the population is unemployed or relegated to poorly paid jobs, strong political backlash aimed at the technological cast it is to be expected. In anticipation of such a scenario, prominent tech moguls like Elon Musk are advocating for a “universal basic income” (Bill Gates, being a software guy, backs a “robot tax” instead). From an economic perspective, a universal salary can be seen as a monetization of citizenship rights once a society does not produce enough jobs to distribute wealth. Similar to a dividend from the exploitation of the riches of a country, like Alaska’s Permanent Fund, although in this case in exchange for ensuring key public goods like security and legal rights protection.
But after years of arbitraging the international tax system, tech luminaries are now plotting how to escape jurisdictional gravity by building their own space programs. If Bezos or Musk ever colonize Mars, they will not have to pay taxes (provided there are no Martians). One intriguing aspect is how will interplanetary trade be regulated; and it is sobering to remember that it was the blockade dictated by the Trade Federation on the planet of Naboo that triggered the Star Wars.
This article was published on Markets and Strategies, the monthly publication in which our experts at MoraBanc Asset Management analyze and give their vision of the most important international economic news.
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