Robot Protectionism

Fear of machines is probably as old as the wheel. I can imagine a brief prehistoric conversation which went like this:

“Gee, Ugar,” said the first caveman to his friend, “that thing you call a ‘wheel’ is really amazing, but I’m not sure the tribal council is going to allow it.”

“Why in the world not, Grug?” asked the other caveman. “Can’t they see that it’s helped the tribe immensely? The women can use carts to haul the water, the men to bring back heavier game, we can even carry in big rocks to build walls to fortify our caves against those pesky Neanderthals who keep stealing our flint spears! How can that be bad?”

“Yes, I know you mean well, Ugar. But I doubt that you’ve noticed all the ramifications. Some of us think that the wheel is making for idle hands. After all, since the wheel makes certain kinds of work easier, some of the people who used to haul things on their backs don’t have anything to do now. It’s causing unemployment in the tribe! I’m not sure that should be allowed.”

“But for goodness sake, Grug, that just means those people are free to do other things!”

“Well, it seems they don’t really want to, Ugar. After all, the only thing most of these people know is hauling; they’ve grown up with it.”

“But the wheel has made us a wealthier tribe!”

“Yes, Ugar, it has. But wealth isn’t everything. Job security is pretty important. The displaced haulers have demanded protection from your invention!”

At this point we leave the frustrated Ugar sputtering with rage over man’s first encounter with government fiat against a machine.

The same argument circulated through history whenever any new machine was introduced: calligraphers objected to the printing press; blacksmiths to automobiles; hand-weavers to weaving machines; newspapermen to radio and television. You name it, wherever a new machine was introduced, there was one standard argument: this machine is going to throw people out of work!

In the short run, it is often true. And it can be quite tragic. As F. A. Hayek wrote nearly forty years ago, “That anyone should suffer a great diminution of his income and bitter disappointment of all his hopes through no fault of his own, and despite hard work and exceptional skill, undoubtedly offends our sense of justice. [But fulfilling the] demands of those who suffer in this way, for state interference on their behalf to safeguard their legitimate expectations . . . becomes a privilege at the expense of others whose security is thereby necessarily diminished.”^[1]

We can easily see what Hayek meant. Often the very reason producers buy machinery, such as robots, is to lower their labor costs. Labor makes up the bulk of expenses in most businesses. If a machine can produce more than a worker, then the businessman is smart to get it in order to maximize profits. And this is precisely what manufacturers the world over are doing with robots.

The Other Side

While some workers are losing their jobs to these mechanical marvels, there is another side to the story—a side which the labor-protectionist lobbyists and policymakers are conveniently ignoring: Any increase in productivity ultimately results in higher profits which are then reinvested. The reinvestment in turn ends up creating more jobs—although frequently of an entirely new type.

However, when policymakers pass legislation outlawing or restricting the use of robot labor- saving devices, they are granting the “privilege” Hayek was addressing—a privilege which diminishes the security of others who would have had the new and often better jobs that the increased productivity would have eventually created.

Introducing robots and other new machinery is a crucial use of capital in a free economy. Efforts to prevent its introduction constitute what Brian Summers aptly called “capital held hostage,” a condition which has stultifying economic effects. “New businesses, new products, and new jobs,” Summers writes, “won’t appear because the needed resources are tied up in inefficient production processes [which lead to] greater costs, higher prices, and lower real incomes.”^[2]

Despite these effects, more and more unions and industries are demanding “protection” either from the new robots themselves, or from the competition of other producers who have already installed the machines, or from those in less developed nations with lower labor costs. These demands reflect an inability^[3] and unwillingness to see or act far enough ahead. The protectionist cries are coming mainly “from industries in developed countries which have not modernized their production processes and find themselves unable to compete with more efficient and low-cost plants in developing countries.”^[4] In addition, developing nations (or new, young industries in developed nations!) may have significantly lower wage rates enabling them to produce the same goods for lower costs with the same, outmoded equipment that the older industries use—a clear demonstration that higher labor costs underlie much of the industrial spur to automate and robotize.

Even on “Robot Island” (Japan) where up to 80,000 robots (depending on whether one includes nonprogrammable devices) are productively cranking away, helping to keep unemployment under three percent, the workers’ fears of robots are gaining foothold as “trade unions began [in 1981] raising the issue of job protection in the wake of robot automation as a clause for new contracts.”^[5]

Restricting Robot Use and Subsidizing Displaced Workers

If Japanese or American workers actually begin to get such job protection, aside from protection from competitors, it is likely to take two forms: (1) Restrictions on the use or introduction of robots—which could include banning robots entirely from some industries, restricting robot numbers for a particular type of job, or slowing down the pace at which they can be introduced. (2) Mandated monetary compensation—which could include lump-sum payments to displaced workers, “tie-over” funds for a specified period of months in order to allow workers time to find other work, schooling/retraining grants to allow workers to more easily obtain other jobs, or any combination of these.

Whichever of the two categories is accepted, Hayek’s warning will still assert itself. Either restrictions on robot use or mandated compensation will inhibit profits of the companies involved, thereby slowing capital accumulation and eroding the reinvestment which would eventually result in a total increase in the number of jobs available to others (or, for that matter, to those whom the robots might have otherwise displaced!).

Interestingly, protection from competition produces the same effects. Governments must subsidize protectionist measures through taxes, inflation, or by borrowing. These subsidies crowd out capital, making it more difficult on many other businesses. When a government takes more in taxes or inflation, or drives up interest rates by increased borrowing, there is less left in the private sector for businesses which are not favored by government protectionism. They find it harder to save enough money out of their reduced profits for reinvestment, research, retooling, or anything else, thereby lowering their competitive vitality in the market.

It is one more illustration of the fact that efforts to coercively “create” or “preserve” jobs (two sides of the same coin) for any reason will in the long run wind up destroying more jobs by eroding the capital base necessary for efficient (market-generated) job creation. The motive is quite irrelevant: Whether government’s aim is to make new jobs or to protect existing jobs from foreign competition or from robot displacement, the result is to degrade overall employment opportunities.

Salvaging Valuable Workers

Please note that mandated protection of workers has a result very different from worker protection or aid programs which businesses themselves voluntarily undertake. The latter type of protection tends to be successful because the companies which decide to retrain, relocate, or otherwise help workers do so, not based on altruistic concerns for the workers’ welfare, but rather for a more powerful reason. That reason is the self-interest of the firms themselves. If the firms find a way to make worker retraining and other “protection” profitable, they will do it.

For instance, it is well known that the giant telecommunications firm, AT&T, all through the recession, its current divestiture, and for many years before, has made Herculean efforts to protect its workers. Why? Because the company has placed a high value on the expertise and knowledge of its employees. AT&T does not wish to lose the workers whom it has spent so much time training and is confident that it can retrain workers for new jobs. AT&T has in fact been a consistent world leader in this kind of job protection—despite all the talk about how big American companies do not understand the value of investment in employees the way that the Japanese or Swedes or Germans do!

But it is not just the reinvestment factor which robot restrictions and mandated compensations would inhibit. Robots are having the effect of “rapidly transforming business in all economically advanced societies, and most rapidly in the United States. Computers wed to robots are rapidly making it possible for mini-factories to efficiently manufacture products with far greater flexibility than has been possible, thus allowing a far greater variety in the end products.”^[6]

To state it another way, robots are now a major part of a basic restructuring of modern business—a restructuring which affects not merely the marginal efficiency of businesses, but their very way of doing business. Consider: If this change is allowed to continue, it will renovate whole areas of efficiencies, lowering building site rental and construction costs (smaller businesses need less land and floorspace), energy bills (smaller businesses consume less electrical power and require less heating), warehouse and other storage costs (the ability to efficiently produce smaller quantities will allow the maintenance of smaller inventories), and lower business taxes (smaller inventories, less energy, and more compact buildings mean a business will pay fewer taxes on these items). All of these gains—and numerous others—will be stunted, however, along with normal efficiency gains if protective labor legislation thwarts the introduction of robots. All of these magnificent gains will become the victims of the short-term “security” afforded to the “victims” of robot machinery.

Unpredictable Ways to Succeed

While it is seldom stated so openly, one major objection to the claim that robots end up creating more jobs than they displace is the following: “The claim is unscientific because no one has ever been able to point to a specific, single, exact process by which the job gain occurs. Science demands specifics. Where are they?”

It is true that in free markets there is no single, specific process, no magic avenue by which the economy can be assured of creating more jobs than new machines replace. But that is not how the market works. To demand that one identify such an unrealistic, specific job-creation path is equivalent to demanding that one be shown “the” way to make money, “the” way to design a refrigerator, “the” way to rise to the top in a profession. Part of the very nature of the market is its diversity, its many and often unexpected, unpredictable ways of solving problems.

What we do know about how free markets create jobs is of a substantially higher order—the principle that liberty encourages profit-seeking, technological (machine) innovation, which results in greater productivity, and that from these qualities inevitably emerges more employment. The scientific evidence for this theory—indeed the proof—lies in the record of every free market in history and its comparison with controlled markets. There is specific evidence involved, but it is not of the strawman variety which the antagonists of robots and other new machinery demand. The unscientific taint of their argument lies in its denial of the nature of the market itself. It is not science, but fantasy, to demand a “proof” which lies outside the nature of a thing.

In essence, then, the fear that robots are anti-employment is an extremely short-range, irrational fear, a descent into Ludditism. Robots are a part of a man’s technological nature and his future. One cannot rationally object to their entrance into the marketplace without simultaneously demanding that man deny the kind of being that he is. As Jake Page concluded so eloquently in a recent issue of Science 82, “To moan about new technologies disrupting the social order . . . is to look at your hand and wish it were a paw.”^[7]

The hand and mind of man have, through the use of ingenious machines, created all the opportunities, the prosperity, and employment of our species. Let us not reject the latest of those machines, but embrace them—for the delightfully enhanced tomorrows they can bring.

1.   The Road to Serfdom, University of Chicago Press, 1944, p. 123.

2.   “Industrial Hostages,” The Freeman, December 1982, pp. 748-9.

3.   The inability includes government hindrances on capital gains, a situation which is fortunately being corrected in America.

4.   S. Dhanabalan, “The Protectionist Threat to the Third World,” The Wall Street Journal, November 22, 1982, p. 25.

5.   “Robots: Japan’s answer to Guest Workers,” Science News, November 6, 1982, p. 299.

6.   Jack D. Douglas, “The De-Bureaucratization of American Business,” The Freeman, November 1982, p. 670.

7.   “A Case of Technocide,” November 1982, p. 94.