Alexandra writes*
According to political economist and founder of the World Economic Forum Klaus Schwab, “major technological innovations are on the brink of fueling momentous change throughout the world – inevitably so.” He is referring to what some describe as the fourth industrial revolution. In the first industrial revolution, steam machines and railroads gave rise to mechanical production. The second one gave us electricity and assembly lines leading to mass production, which was later followed by the digital revolution brought about by the internet and increasing computing power.
The fourth industrial revolution is, among other things, is characterized by artificial intelligence (AI) and machine learning. AI has the potential to massively increase the efficiency of many processes and strongly increase economic growth, but could also be very disruptive [pdf] to economies and societies. Experts worn of risks [pdf] such as increased inequality, mass unemployment and the development of large monopolistic firms. In response to this foresight, people like Klaus Schwab have emphasized that we need to radically rethink our political, economic and social systems. In this blogpost I will present some of the ideas that people have come up with to mediate and/or prevent the 4th Industrial Revolution’s potential negative effects on equality, employment and income.
This could take form as either companies paying income taxes that would formerly have been paid by the replaced human workers, or as an increase in profit taxes if companies use robots that have increased their profits. The idea of taxing robots would help solve the problem of declining income taxes due to unemployment. With these robot taxes, governments could fund the much-needed social security system for all those who have become unemployed. It would also slow down the replacement of human workers with robots. The first (sort of) robot tax has been introduced in South Korea in 2017. However, a strong point of criticism against taxing robots is that it would slow down innovation and harm the economy by decreasing capital investment.
Universal Basic Income (UBI)
This would be an “unconditional transfer payment” to all citizens of a country. UBI would be one way of shaping a broader social security system, which is likely to be necessary with increased automation and the unemployment linked to that. Moreover, since this system would redistribute wealth, it would also help to decrease inequality. So far, no country has introduced a real UBI, but many pilots have been, and are being conducted. Moreover, this idea is gaining more and more traction. For instance, 64% of EU citizens were in favor of UBI in 2016 and this number has increased to 71% in 2020.
Universal Basic Dividend (UBD)
This is a variation on UBI, but rather than being funded by taxes, UBD would be funded through a government’s capital investments into companies. With UBD, corporations would have to have an X percentage of their shares held by the government. This would make sense considering that those corporations profiting thanks to technology (e.g. through the use of robots) are strongly benefitting from public investments into research. By transferring part of their profits to the public through the government-held shares, this free-riding problem would be solved. One example of UBD that has existed since 1976 is the Alaska Permanent Fund, which gives citizens part of its oil revenues. In 2019, Alaskan citizens received about $1,600 from the fund.
Bottom Line:: AI is bringing about the fourth industrial revolution, so it is time to radically rethink our political, economic and social systems to prevent mass unemployment, skyrocketing inequality and a weakened social security system. Robot taxes, UBI and UBD could be options.
* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).