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Fighting Efficiency

As tasks are getting automated and don't require much human intervention anymore we are heading to the world where 10% of population would be able to produce all the goods needed.

While that sounds like a good news at first, there's a big question lurking in the background: How is the 90% going to make their living?

They are not. If nothing changes they are going to die of hunger. And even worse, once that happens there will be only 10% of the population left, so the market shrinks to one tenth of its original size. At that point only only one tenth of the survivors — 1% of the orginal population — will be needed to produce all the goods. Thus, 9% will be left with no work to do and will also die of hunger. Now, of course, the demand plummets to 1% of what it used to be in the past and, given the improved efficiency, only 0.1% is needed to satisfy it. 0.9% is left with no work, is starved to death etc. Vicious circle perpetuates until the last human being dies of hunger.

This thinking isn't novel in any way. If I recall correctly, Keynes though about the problem in first half of XX. century and believed that in the future people will be working only few hours a day to deal with the problem.

All in all, there are three possible solutions:

  1. Decrease efficiency
  2. Work less
  3. Consume more

Each of the options is an intersting topic by itself, so let's check them in detail.

Decrease Efficiency

The first idea that pops to mind here is to ban efficient technologies, in other words to implement a global version on Amish horse-and-buggy-style society. It sounds ludicrous and makes us dismiss the idea of decreased efficiency straight away.

However, have a look at the world we are living in. Have you ever wondered about all the inefficiency surrounding us? Bloated governments, annoying and unnecessary paperwork, corporations with ten levels of middle management and so on? May it be that the ultimate cause of such phenomena is the need to artificially create work for people that would otherwise have no work at all? Emergent version of digging and filling holes?

It doesn't sound right, as it contradicts our basic intitions about the economy: Less efficient institutions should be, via competition in the marketplace, replaced by more efficient ones. However, if you look at individual cases, the said economic intuitions don't seem to apply. There's no marketplace for government. Thus, there's no drive for efficiency. Just the opposite: Individual bureaucrats are incentivised to invent more paperwork and more arbitrary rules to produce more work for themselves and thus secure their position in the future. They gain from employing more people because making their departments bigger gives them more authority and power. As for the corporations, they stay out of marketplace by forming cartels, creating monopolies via lobbying, rigging the legislative, patents and similar measures.

People like to fantasize about shrinking the goverment or replacing old inefficient magacorporations by lean agile startups. Before doing so though, they should think about all those people that will find themselves laid off once the efficiency measure is implemented.

If they are not offered an alternative way to make a living, they will sabotage the efficiency improvement by any means available. In short, when improving efficiency we have to provide a way out for those that are obsoleted by the improvement. Which brings us to the next points.

Work Less

Working less is the most obvious and palatable solution to the efficiency problem. It's no surpise that Keynes expected it to be adopted in the future. However, it doesn't seem to work. Shorter working hours were introduced in France, but, as I read, it doesn't work very well. People are simply working over time to compensate for shorter working hours. As for the other countries, they haven't even tried to introduce similar measures.

Let me speculate on why that may be the case, why we seem to be heading towards the society where some people work for insane hours while other are left with no work at all.

My feeling is that it has to do with the nature of work. There's work that can be easily split among multiple people: 8 people digging a hole in 1 hour shifts are more efficient than a single person working for 8 hours. However, the same principle doesn't apply to work done by a programmer, lawyer or scientist. Quite the opposite, in fact. 8 programmers working 1 hour each are likely to do less work that a single one working for 8 hours.

In the modern world, the former kind of work is being gradually automated. Consequently, more and more jobs fall into the latter category, the work that cannot be efficiently split among many people. Therefore, there's an incentive to cut the costs by employing as few people as possible working as long hours as possible.

Spend More

Of course, the easiest way to sustain improved efficiency is to simply consume more. If we can grow twice as much grain, people can simply eat twice as much bread. Some people may not want to eat that much bread, but we have the advertising industry to save the day. At some point people are going to choke on all that bread, but we can increase spending even further by producing goods which are not meant to be consumed directly and rather be used as a way of maintaining social status (a.k.a. conspicuous consumption). In theory, conspicuous consumption has no set limits and the advertising industry can very well persuade us that we should buy ever more stuff to be seen as succesful, attractive and generally better than an average person.

The process, however, is endagered by its very nature: Asserting social status can be done only if the goods used for the purpose are scarce. Yet, with improved efficiency everything manufactured is becoming less and less scarce. If food is abundant, there's no social status to be gained by being fat. If everyone owns a TV, owning a TV doesn't give you any extra status. And so on.

It seems likely that this system of prove-your-status-by-your-eartly-possesions is going to colapse.

Some hints are visible even today: Being slim, i.e. consuming less food, is the sign of status, rather than being fat. Not owning a TV may be considered to be a way to signal that you a "better" person that can afford to care about trifles such as healthy and balanced lifestyle.

To finish the section let me introduce one more quote: "Professors Thomas J. Stanley and William D. Danko reported that Americans with a net worth of more than one million dollars are likely to avoid conspicuous consumption. In contrast, millionaires tend to practice frugality (e.g., they don't finance the purchase of new cars to avoid both the rapid depreciation of new vehicles and paying interest on loans, and instead pay cash for quality used cars)."

The fourth option

It doesn't look like any of the three options above (or any combination thereof) can be made to work in a long term.

The fourth option would thus be to not even try to provide paid work for everyone, rather to introduce some kind of re-distribution scheme. The basic income policy (much discussed in the context of upcoming Swiss referendum about the topic) is a very crude tool, but it gives you an idea. However, it's a complex topic beyond the scope of this article. Hopefully, I'll get a chance to discuss it in more detail later on.

Dec 15th, 2013