Robot Protectionism; E. Ross

Ernest G.Ross ROBOT PROTECTIONISM ROBOTS are nothing special. Oh, they are wonderful machines and the world has never seen their likes be fore. But in an economic sense, that's all they are-machines. Conse quently, the almost frenetic fears we are witnessing-the fear that robots will have a devastating effect on employment, that they are "taking over" the job market-are ridicu lously misplaced. Worse, these fears ignore the economic principles which apply to the introduction of any kinds of machines. Fear of machines is probably as old as the wheel. I can imagine a brief prehistoric conversation which went like this: "Gee, Ugar," said the first cave man to his friend, "that thing you call a 'wheel' is really amazing, but Mr. Ross is an Oregon commentator and writer es pecially concerned with new developments in human freedom. 248 I'm not sure the tribal council is going to allow it."

"Why in the world not, Grug?" asked the other caveman. "Can't they see that it's helped the tribe im mensely? The women can use carts to haul the water, the men to bring back heavier game, we can even carry in big rocks to build walls to fortify our caves against those pesky Neanderthals who keep stealing our flint spears! How can that be bad?" "Yes, I know you mean well, Ugar. But I doubt that you've noticed all the ramifications. Some of us think that the wheel is making for idle hands. After all, since the wheel makes certain kinds of work easier, some of the people who used to haul things on their backs don't have anything to do now. It's causing un employment in the tribe! I'm not sure that should be allowed." "But for goodness sake, Grug, that ROBOT PROTECTIONISM 249 just means those people are free to do other things!" "Well, it seems they don't really want to,Ugar. After all, the only thing most of these people know is hauling; they've grown up with it."

"But the wheel has made us a wealthier tribe!" "Yes, Ugar, it has. But wealth isn't everything. Job security is pretty important. The displaced haulers have demanded protection from your invention!" At this point we leave the frus trated Ugar sputtering with rage over man's first encounter with gov ernment fiat against a machine. The same argument circulated through history whenever any new machine was introduced: calligra phers objected to the printing press; blacksmiths to automobiles; hand weavers to weaving machines; newspapermen to radio and televi sion. You name it, wherever a new machine was introduced, there was one standard argument: this ma chine is going to throw people out of work! In the short run, it is often true. And it can be quite tragic. As F. A. Hayek wrote nearly forty years ago, "That anyone should suffer a great diminution of his income and bitter disappointment of all his hopes through no fault of his own, and de spite hard work and exceptional skill, undoubtedly offends our sense of justice. [But fulfilling the] demands of those who suffer in this way, for state interference on their behalf to safeguard their legitimate expecta tions ... becomes a privilege at the expense of others whose security is thereby necessarily diminished. "1 We can easily see what Hayek meant. Often the very reason pro ducers buy machinery, such as ro bots, is to lower their labor costs.

Labor makes up the bulk of ex penses in most businesses. If a ma chine can produce more than a worker, then the businessman is smart to get it in order to maximize profits. And this is precisely what manufacturers the world over are doing with robots. The Other Side While some workers are losing their jobs to these mechanical mar vels, there is another side to the story-a side which the labor-pro tectionist lobbyists and policymak ers are conveniently ignoring: Any increase in productivity ultimately results in higher profits which are then reinvested. The reinvestment in turn ends up creating more jobs although frequently of an entirely new type. However, when policymakers pass legislation outlawing or restricting the use of robot labor-saving de vices, they are granting the "privi lege" Hayek was addressing-a privilege which diminishes the se curity of others who would have had 250 THE FREEMAN April the new and often better jobs that the increased productivity would have eventually created.

Introducing robots and other new machinery is a crucial use of capital in a free economy. Efforts to prevent its introduction constitute what Brian Summers aptly called "capital held hostage," a condition which has stultifying economic effects. "New businesses, new products, and new jobs," Summers writes, "won't ap pear because the needed resources are tied up in inefficient production processes rwhich lead to1 greater costs, higher prices, and lower real incomes."2 Despite these effects, more and more unions and industries are de manding "protection" either from the new robots themselves, or from the competition of other producers who have already installed the ma chines, or from those in less devel oped nations with lower labor costs. These demands reflect an inabilit y3 and unwillingness to see or act far enough ahead. The protectionist cries are coming mainly "from industries in developed countries which have not modernized their production processes and find themselves un able to compete with more efficient and low-cost plants in developing countries."4 In addition, developing nations (or new, young industries in developed nations!) may have signif icantly lower wage rates enabling them to produce the same goods for lower costs with the same, outmoded equipment that the older industries use-a clear demonstration that higher labor costs underlie much of the industrial spur to automate and robotize.

Even on "Robot Island" (Japan) where up to 80,000 robots (depend ing on whether one includes nonpro grammable devices) are produc tively cranking away, helping to keep unemployment under three percent, the workers' fears of robots are gain ing foothold as "trade unions began [in 19811 raising the issue of job protection in the wake of robot automation as a clause for new contracts."5 RestrictingRobot Use and SUbsidizingDisplacedWorkers If Japanese or American workers actually begin to get such job protec tion, aside from protection from competitors, it is likely to take two forms: (1) Restrictions on the use or introduction of robots-which could include banning robots entirely from some industries, restricting robot numbers for a particular type of job, or slowing down the pace at which they can be introduced. (2) Man dated monetary compensation which could include lump-sum pay ments to displaced workers, "tie-over"

funds for a specified period of months in order to allow workers time to find other work, schooling/retraining grants to allow workers to more eas1983 ROBOT PROTECTIONISM 251 By obtain other jobs, or any combi nation of these. Whichever of the two categories is accepted, Hayek's warning will still assert itself. Either restrictions on robot use or mandated compensa tion will inhibit profits of the com panies involved, thereby slowing capital accumulation and eroding the reinvestment which would eventu ally result in a total increase in the number of jobs available to others (or, for that matter, to those whom the robots might have otherwise displaced!) . Interestingly, protection from competition produces the same ef fects. Governments must subsidize protectionist measures through taxes, inflation, or by borrowing. These subsidies crowd out capital, making it more difficul t on many other businesses. When a govern ment takes more in taxes or infla tion, or drives up interest rates by increased borrowing, there is less left in the private sector for businesses which are not favored by govern ment protectionism. They find it harder to save enough money out of their reduced profits for reinvest ment, research, retooling, or any thing else, thereby lowering their competitive vitality in the market.

It is one more illustration of the fact that efforts to coercively "cre ate" or "preserve" jobs (two sides of the same coin) for any reason will in the long run wind up destroying more jobs by eroding the capital base nec essary for efficient (market-gener ated) job creation. The motive is quite irrelevant: Whether government's aim is to make new jobs or to protect existing jobs from foreign competi tion or from robot displacement, the result is to degrade overall employ ment opportunities. Salvaging Valuable Workers Please note that mandated protec tion of workers has a result very dif ferent from worker protection or aid programs which businesses them selves voluntarily undertake. The latter type of protection tends to be successful because the companies which decide to retrain, relocate, or otherwise help workers do so, not based on altruistic concerns for the workers' welfare, but rather for a more powerful reason. That reason is the self-interest of the firms them selves. If the firms find a way to make worker retraining and other "pro tection" profitable, they will do it.

For instance, it is well known that the giant telecommunications firm, AT&T, all through the recession, its current divestiture, and for many years before, has made Herculean efforts to protect its workers. Why? Because the company has placed a high value on the expertise and knowledge of its employees. AT&T does not wish to lose the workers whom it has spent so much time training and is confident that it can 252 THE FREEMAN April retrain workers for new jobs. AT&T has in fact been a consistent world leader in this kind of job protec tion-despite all the talk about how big American companies do not un derstand the value of investment in employees the way that the Japa nese or Swedes or Germans do! But it is not just the reinvestment factor which robot restrictions and mandated compensations would in hibit. Robots are having the effect of "rapidly transforming business in all economically advanced societies, and most rapidly in the United States.

Computers wed to robots are rapidly making it possible for mini-factories to efficiently manufacture products with far greater flexibility than has been possible, thus allowing a far greater variety in the end products."6 To state it another way, robots are now a major part of a basic restruc turing of modern business-a re structuring which affects not merely the marginal efficiency of busi nesses' but their very way of doing business. Consider: If this change is allowed to continue, it will renovate whole areas of efficiencies, lowering building site rental and construc tion costs (smaller businesses need less land and floorspace), energy bills (smaller businesses consume less electrical power and require less heating), warehouse and other stor age costs (the ability to efficiently produce smaller quantities will al low the maintenance of smaller inventories), and lower business taxes (smaller inventories, less energy, and more compact buildings mean a business will pay fewer taxes on these items). All of these gains-and numerous others-will be stunted, however, along with normal effi ciency gains if protective labor leg islation thwarts the introduction of robots. All of these magnificent gains will become the victims of the short term "security" afforded to the "vic tims" of robot machinery.

Unpredictable Ways to Succeed While it is seldom stated so openly, one major objection to the claim that robots end up creating more jobs than they displace is the following: "The claim is unscientific because no one has ever been able to point to a spe cific, single, exact process by which the job gain occurs. Science de mands specifics. Where are they?" It is true that in free markets there is no single, specific process, no magic avenue by which the economy can be assured of creating more jobs than new machines replace. But that is not how the market works. To de mand that one identify such an un realistic, specific job-creation path is equivalent to demanding that one be shown "the" way to make money, "the" way to design a refrigerator, "the" way to rise to the top in a profession. Part of the very nature of the market is its diversity, its many and often unexpected, unpre1983 ROBOT PROTECTIONISM 253 dictable ways of solving problems.

What we do know about how free markets create jobs is of a substan tially higher order-the principle that liberty encourages profit-seek ing, technological (machine) inno vation, which results in greater pro ductivity, and that from these qualities inevitably emerges more employment. The scientific evidence for this theory-indeed the proof lies in the record of every free mar ket in history and its comparison with controlled markets. There is specific evidence involved, but it is not of the strawman variety which the antagonists of robots and other new machinery demand. The un scientific taint of their argument lies in its denial of the nature of the market itself. It is not science, but fantasy, to demand a "proof' which lies outside the nature of a thing. In essence, then, the fear that ro bots are anti-employment is an ex tremely short-range, irrational fear, a descent into Ludditism. Robots are a part of a man's technological na ture and his future. One cannot ra tionally object to their entrance into the marketplace without simultaJ ames Madison neously demanding that man deny the kind of being that he is. As Jake Page concluded so eloquently in a recent issue of Science 82, "To moan about new technologies disrupting the social order ... is to look at your hand and wish it were a paw."7 The hand and mind of man have, through the use of ingenious ma chines, created all the opportunities, the prosperity, and employment of our species. Let us not reject the lat est of those machines, but embrace them-for the delightfully en hanced tomorrows they can bring. i -FOOTNOTESIThe Road to Serfdom, University of Chicago Press, 1944,p. 123.

2"Industrial Hostages," The Freeman, De cember 1982, pp. 748-9. 3The inability includes government hin drances on capital gains, a situation which is fortunately being corrected in America. 48. Dhanabalan, "The Protectionist Threat to the Third World," The Wall Street Journal, November 22, 1982, p. 25. 5"Robots: Japan's answer to Guest Workers," Science News, November 6, 1982, p. 299. 6Jack D. Douglas, "The De-Bureaucratization of American Business," The Freeman, Novem ber 1982, p. 670. 7''A Case of Technocide," November 1982, p. 94. IDEAS ON UBERfY THAT is not a just government, nor is property secure under it, where the property which a man has in his personal safety and personal lib erty, is violated by arbitrary seizures of one class of citizens for the service of the rest.