Why automation means we need a new economic model

It’s now possible to sell a new product to hundreds of millions of people without needing many, if any, workers to produce or distribute it.

At its prime in 1988, Kodak, the iconic American photography company, had 145,000 employees. In 2012, Kodak filed for bankruptcy.

The same year Kodak went under, Instagram, the world’s newest photo company, had 13 employees serving 30 million customers.

The ratio of producers to customers continues to plummet. When Facebook purchased “WhatsApp” (the messaging app) for $19 billion last year, WhatsApp had 55 employees serving 450 million customers.

A friend, operating from his home in Tucson, recently invented a machine that can find particles of certain elements in the air.

He’s already sold hundreds of these machines over the Internet to customers all over the world. He’s manufacturing them in his garage with a 3D printer.

So far, his entire business depends on just one person — himself.

New technologies aren’t just labor-replacing. They’re also knowledge-replacing.

The combination of advanced sensors, voice recognition, artificial intelligence, big data, text-mining, and pattern-recognition algorithms, is generating smart robots capable of quickly learning human actions, and even learning from one another.

If you think being a “professional” makes your job safe, think again.

The two sectors of the economy harboring the most professionals — health care and education – are under increasing pressure to cut costs. And expert machines are poised to take over.

We’re on the verge of a wave of mobile health apps for measuring everything from your cholesterol to your blood pressure, along with diagnostic software that tells you what it means and what to do about it.

In coming years, software apps will be doing many of the things physicians, nurses, and technicians now do (think ultrasound, CT scans, and electrocardiograms).

Meanwhile, the jobs of many teachers and university professorswill disappear, replaced by online courses and interactive online textbooks.

Where will this end?

Imagine a small box – let’s call it an “iEverything” – capable of producing everything you could possibly desire, a modern day Aladdin’s lamp.

You simply tell it what you want, and – presto – the object of your desire arrives at your feet.

The iEverything also does whatever you want. It gives you a massage, fetches you your slippers, does your laundry and folds and irons it.

The iEverything will be the best machine ever invented.

The only problem is no one will be able to buy it. That’s because no one will have any means of earning money, since the iEverything will do it all.

This is obviously fanciful, but when more and more can be done by fewer and fewer people, the profits go to an ever-smaller circle of executives and owner-investors.

One of the young founders of WhatsApp, CEO Jan Koum, had a 45 percent equity stake in the company when Facebook purchased it, which yielded him $6.8 billion.

Cofounder Brian Acton got $3 billion for his 20 percent stake.

Each of the early employees reportedly had a 1 percent stake, which presumably netted them $160 million each.

Meanwhile, the rest of us will be left providing the only things technology can’t provide – person-to-person attention, human touch, and care. But these sorts of person-to-person jobs payvery little.

That means most of us will have less and less money to buy the dazzling array of products and services spawned by blockbuster technologies – because those same technologies will be supplanting our jobs and driving down our pay.

We need a new economic model.

The economic model that dominated most of the twentieth century was mass production by the many, for mass consumption by the many.

Workers were consumers; consumers were workers. As paychecks rose, people had more money to buy all the things they and others produced — like Kodak cameras. That resulted in more jobs and even higher pay.

That virtuous cycle is now falling apart. A future of almost unlimited production by a handful, for consumption by whoever can afford it, is a recipe for economic and social collapse.

Our underlying problem won’t be the number of jobs. It will be – it already is — the allocation of income and wealth.

What to do?

“Redistribution” has become a bad word.

But the economy toward which we’re hurtling — in which more and more is generated by fewer and fewer people who reap almost all the rewards, leaving the rest of us without enough purchasing power – can’t function.

It may be that a redistribution of income and wealth from the rich owners of breakthrough technologies to the rest of us becomes the only means of making the future economy work.

This article is published in collaboration with Robert Reich. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Robert B. Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies.

Image: A man shakes hands with a robotic prosthetic hand in the Intel booth at the International Consumer Electronics show. REUTERS/Rick Wilking.