I have an article in the March/April 2023 issue of Foreign Affairs titled: “People over Robots: The Global Economy Needs Immigration Before Automation.” I encourage you to read the whole article there, but I wanted to add a little allegory that I think clarifies some main points and addresses the most commonly heard objections.
My key argument is that in the current global economy we have some of the scarcest resources on the planet devoting themselves to economizing one of the most abundant resources on the planet. Highly talented and capable business leaders and highly educated and trained scientists and engineers are working to reduce the use of labor by throwing themselves at developing labor saving technologies. For instance, Jeff Bezos, Elon Musk, and Larry and Sergei of Google have all at some stage had teams of superbly educated people working on developing a self-driving truck, despite the millions of people across the world willing and able to drive trucks. Now of course “economizing” should work in reverse—people should invest in production techniques that use less of what is scarce, not use less of what is abundant.
The problem is that in the current configuration of the global economy, capital can zip around the world at the speed of light (according to the BIS in April 2022 the volume of foreign exchange markets was estimated to be $7.5 trillion a day). Similarly, ideas and communication know no borders or boundaries, and lower administrative hurdles and improvements in logistics means even physical goods move around at such low cost that the production process of goods is often split across many countries.
But borders in rich countries–especially for “core skilled” people like truck drivers—prevent people from moving legally to jobs and employers from hiring people. Hence the cost to Amazon of a truck driver in the United States is based on prices that do not reflect global scarcity. As a result, their pattern of research and development is devoted to trying to replace people with machines. This is not because there are not people who would drive trucks for Amazon in the world, and not because “natural” scientific progress has made machines that drive trucks easy and cheap, but because in a global economy which is “flat” for capital, information, and goods, there is a legal “cliff at the border” for labor, as prices don’t reflect scarcity.
Therefore, we have the perverse situation that the richest people are hiring some of the most talented and technologically sophisticated people on the planet to engage in innovation aimed at driving down the demand for labor—the major and often only asset of the world’s poor.
From long experience of making this argument, I know the first objection is that I am somehow “against” technology or that, in trying to create conditions in which people can choose people over machines I am a modern Luddite. But I am not against technology nor against investments in innovations that improve productivity if they respond to actual global scarcity. But no economist believes that simply improving production processes in physical terms creates social value.
Let me give a simple allegory about sugar:
For a very long time the US has maintained strict quotas on the imports of sugar (due to the politically influential domestic sugar industry). From 1999 to 2016 these restrictions led the US refined sugar price to be about double the world price (34 vs 17 cents a pound).
Sugar was dear in the US not because there was a global shortage of available sugar or because global production costs were high but because of US trade policy of not allowing US consumers (and producers of sugar using products) to buy the amount of sugar from abroad that they wished.
Now, suppose the import quota covers the importation of refined sugar but does not cover the importation of pre-sweetened cocoa mix that is 95 percent sugar and 5 percent flavoring. Then a clever entrepreneur could buy refined sugar in a sugar producing country for 17 cents, add cocoa at 2 cents per pound, ship the mixture to the USA for 2 cents a pound, and then invent a technological process that extracts the cocoa for 5 cents a pound. Viola, this new “technology” produces refined sugar available to sell in the USA for 26 cents a pound (17 plus 2 plus 2 plus 5) which can be sold in the USA for 34 cents a pound.
There are now three “technologies” for producing refined sugar for sale in the USA: (a) grow it and refine it in the USA, (b) grow it and refine it abroad and ship it to the USA and (c) grow it and refine it abroad, add cocoa, ship it to the USA, take the cocoa out.
I hope we can all agree that, even if it makes financial sense for the individual entrepreneur at the import quota driven gap between world and domestic prices, this new technology is wasteful and, no matter how much cool science and technology and engineering—or even AI–goes into extracting added cocoa from sugar, doing so is just economically dumb.
Moreover, suppose that our sugar importing entrepreneur hired a team of scientists and they invented improvements in the cocoa extraction process that lowered the cost from 5 cents a pound to 2 cents a pound. This would be a technological “innovation” and “productivity” would go up and, depending on the investment to make the breakthrough, might be a profitable decision. But, whether it makes financial sense or not for the individuals involved, they are responding to distorted prices, not scarcity, and the world is not better off from their invention and innovation.
There is an old saying that “necessity is the mother of invention” but it is also true that policies can create false necessity and false necessity can be the mother of costly, resource consuming, dumb inventions.
If we collectively devoted the same levels of investment and inventive power and entrepreneurship to developing more and better legal pathways for people to move across borders to needed jobs, including a variety of modalities for labor mobility, we could solve the growing challenge of labor scarcity. At the same time, we would meet the needs for essential jobs in a way that, instead of driving down demand for labor, allows millions of people new opportunities and helps them move out of poverty.
The following paper “Future of the Labor Market: Labor Mobility or I, Robot” was written as an independent research project by Masoomeh Khandan in Spring 2022, and as such represents her own views, not the views of Labor Mobility Partnerships (LaMP).