The Great Divide

As you know, digital technology is transforming the workplace at a breakneck pace.  Add machine-learning and AI to the mix, and we have on our hands an utter revolution in the productivity of the economy.

That’s a good thing, right?

Well, it depends on who you are. You see, up until about the mid 70’s productivity growth and wage growth were closely tied together.  It went something like this: Henry Ford invests in equipment so he can introduce the assembly line.  As a result, each worker becomes so much more productive that Ford sees fit to pay them accordingly, and in doing so he helps to stimulate a burgeoning middle class of consumers.

But then something happened that caused those lines to diverge.  The benefits of productivity growth started going predominantly to The Man (better known as ‘The Owners of Capital’ in economic-speak).   And that is gap widening at an accelerating pace.  The attached chart is one of the most cited and argued about visualizations of this phenomenon out there.  It’s serves as a Rorschach Test for economists, with many interpretations for what this chart seems to show.

In fact, as of this writing, there are approximately 9,332 interpretations per 10,000 accredited economists in the US and Europe. (OK. I made that up.)  Having read through a few of these painfully dull theories so that you don’t have to (you’re welcome), my non-scholarly conclusion is that all of them are at least partially correct; the end of the post-war ‘goldilocks’ economy, women entering the workforce en-mass, something to do with the gold standard under Nixon, blah, blah, blah…

But the one that sticks out for me is the advent and rapid growth of computers, automation and digital technology.  I highly recommend chapter 9 of Erik Brynjolfsson & Andrew McAfee’s excellent book “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies.” for their argument in favor of this theory.  Actually, I recommend the whole darn book. (I have shamelessly borrowed a couple over-arching thoughts from that chapter to make my points in this essay.)

Charts are one thing, but what does this ‘Great Divide’ look like in the real world?  Well, I have a couple anecdotes that should suffice to drive the point home.

First, y’all remember that movie 9 to 5, right?  The one where Dolly Parton, Lilly Tomlin and Jane Fonda terrorize and emasculate Dabney Coleman?  We all loved it.  Especially the ladies. Am I right, ladies?  That was a 1980 film.  That’s right.  Post-disco.  The decade that brought us Roller Blades and MTV.  Not really all that long ago in the overall scheme of things.

But do you remember the huge outer office with row upon row of (all female) secretaries clicking away on IMB Selectric Typewriters? Not a computer terminal in sight.  Well, in the never released, little known sequel to the movie, Dabney automated the office by adopting a digital document processing workflow. He was then able to fire most of the staff and ended up receiving a huge bonus as profits soared.  Most of the out-of-work secretaries now work at Walmart, where they have fewer benefits and lower wages than they had at Consolidated Companies, Inc.  (But don’t worry; the Walton family is kicking BUTT!)

Not a typical Hollywood happy ending.  Unless you’re Dabney.  Or you, assuming you’ve held stock in Consolidated Companies, Inc. since the early 80’s.

Let’s move on.

Fast forward a couple years to 1982.  Rochester, NY is booming as local employer Kodak reaches peak employment of 60,400.  (145,300 worldwide). Most of these are what we now call ‘family wage jobs’.  Meaning, one of these workers in a married household with a couple of kids could usually afford a house, while the spouse was able to take care of said kids because a second income wasn’t essential to secure enough money to eat and stuff.

Now let’s jump to 2010.  Instagram is founded, and at it’s peak (prior to being absorbed by Facebook) employed all of 15 people in what can only be assumed were also family-wage jobs. (Yes, I’m being sarcastic.)

It is estimated that in 2000, 85 billion ‘analog’ photos were taken, the majority of them on Kodak film and processed and printed on Kodak paper.  One decade later in 2010 some 300 BILLION photos were taken on cellphones.  It is estimated that 300 million photos will be uploaded to Facebook… today.

On January 19, 2012 Kodak filed for Chapter 11 bankruptcy protection.  It has re-emerged in some form and has survived on its considerable patent portfolio.  But suffice to say that Rochester no longer is basking in the glow of those 60 thousand paychecks.  (However, I’d bet that the Rochester Walmart job fare was SRO!)

These are both backward-looking examples.  They don’t even take into account the new or soon-to-arrive applications of narrow AI (or AI Lite). I can think of lots of examples of disrupted fields like tax preparation, para-legal services, commercial truck drivers and even tons of obscure little occupations you may not even give much thought to, like this.

When you look at the gap in that chart, you start to understand the fear and frustration that’s out there in the world.  It is born of economic insecurity and, barring good sources of information, it gives birth to scapegoating (it’s Obama’s fault! – it’s all the jobs going to foreigners! – It’s that damn Gulf War!…) which in turn gives birth to mass following of charismatic leaders with simple answers and tough talk. (Brexit, Trump, Nazi resurgence in Europe, etc.)  The news media doesn’t cover it, but it is a fairly well understood progression.  It’s not as if it hasn’t happened before.

If economic policy were to blame for the trajectory of this chart, one would think that it wouldn’t hold true in other countries with completely different political and economic systems…but it does.  Facebook, which employs fewer than 15,000 people, has created several billionaires, each of whom have a net worth many times that of Kodak founder George Eastman.  THAT’S what’s behind the great divide.  The alarm bells which were sounded in the 60’s and 70’s regarding soaring long-term unemployment and income inequality were simply premature.  The consequences they warned us about were 40 years down the road.  As a result of this boy crying wolf, no economist who cared about his reputation dared touch the subject.  Until just recently.

A quick Google search will find you plenty of articles about how, while past technological changes may have caused disruption, in the long term all of those displaced farm workers and buggy whip makers found even better, more interesting jobs.  However, this is the first time in history where AI allows for the automation of tasks that once required human reasoning. Tesla Motors CEO Elon Musk in explaining why the new mass market Model 3 will be assembled entirely by robots quipped, “You really can’t have people in the production line itself, otherwise you’ll automatically drop to people speed.”

It’s enough to make you wonder; is this time different?

To explore that question further, I’ll point you to chapter 2 of Martin Ford’s book, Rise of the Robots, titled, ‘Is This Time Different?”  Ford outlines 7 overlapping trends to support the argument that the explosion in the application of information technology is largely responsible for ‘The Great Divide’ illustrated in our above chart.  And then he points to the exponential advancement of technology into AI as something that stands out above other factors pushing us in the direction of ‘structural unemployment’.  It’s an enlightening read.

So let’s do the math here:

Since it is generally understood that A) growing income inequality is not sustainable (torches and pitchforks), and since it is increasingly understood that B) capitalism has a natural tendency to move in the direction of income disparity (the Owners of Capital reap the rewards), and since C) mass adoption of robotics and AI will accelerate the growth of this disparity (robot lawyers? Robo maids?), it would seem prudent for us to take a serious look at the very structure of our economy and what we should do with all the wealth that it is creating.  (Maybe we should listen to Benjamin Franklin on this topic.)

Because if only a very few of us win, we’ll ALL end up losing.  That would be a shame, because there is some very cool shit up there ahead of us.  Assuming we can get there.