Workers and Robots; H. Sennholz

Hans ~ Sennholz Workers and ~'-"".. .-=~==-====---/ Robots WHEN, shortly after World War II, the first electronic computers were placed into service, they occupied large rooms, contained miles of wire and hundreds of vacuum tubes, and cost many thousands of dollars. To day, a computer with similar capa bilities fits on a desk top and, de spite rampant inflation, costs less than $1,000. The early computers consumed enough power to drive a locomotive; the modern computer uses less electricity than a televi sion set. Two technological inven tions gave rise to this spectacular computer revolution: the transistor and the integrated circuit. They ushered in what the National Aca demy of Sciences called "the second Dr. Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political andmone taryaffairs. 236 industrial revolution." It is thor oughly affecting not only the way we communicate, store and use infor mation, but also the very nature of industrial production. It is trans forming millions of jobs and chang ing the skills needed in productive society.

Computer manufacturing is the fastest-growing industry in the United States. In 1980 its sales were estimated at $24 billion and its growth rate was averaging more than 20% per year. It gave us a growing array of computerized consumer goods, such as pocket calculators, digital watches, electronic games, computer toys, and microelectronic timing devices in washing machines and microwave ovens. It provided the automobile industry with comput erized engine controls regulating fuel and air intake and ignition timing.

WORKERS AND ROBOTS 237 Computer technology is applied to every operation of the engine and dri ve-train as well as to speedome ters, clocks, and other dashboard instruments. Other Uses for Computers Computers have begun to affect product structuring for many other industries as well, for apparel, food distribution, petroleum, energy, printing, publishing, retailing and transportation. They are invading the halls of government and the of fices of banking, insurance, account ing, and the securities industry. They are helping to provide health and welfare services and forcing educa tion to adapt to its new ways. Com puters are touching the lives and work habits of people in all trades and professions, of millions of hourly workers and professional engineers, managers, lawyers, doctors, den tists, scientists, writers, editors, his torians, economists, and others. Word processors, which are rela tively cheap computers equipped with the capacity to edit text stored electronically in the machine's memory, are finding their way into many offices. An estimated half a million were in operation by 1980, and sales are expected to exceed 200,000 a year by the mid-1980s. We are seeing a new generation of "in telligent" office equipment, such as facsimile machines, which can read printed text and transmit it over telephone lines to other facsimile machines that reproduce the printed text. It is converting more and more information from paper documents to electronic signals that are stored in electronic data banks and trans mitted to other banks. It is reshap ing the nature of white-collar work.

Computerized machinery is help ing engineers to design products and parts thereof on computer screens and then draw up the specifications for manufacturing them. In the pro duction process the computer that designs a part then generates the instructions for the machine that will manufacture it. A new generation of industrial robots, which are flexible computer-controlled arms holding tools, is performing a wide range of complex tasks. In 1980 some 3000 were performing heavy repetitive labor on American assembly lines. By the end of the decade a hundred thousand more versatile robots may be clanking away in shops and fac tories. Some experts are predicting that more than 50% of all jobs in the American economy may soon be af fected by computer-based automa tion. And the microelectronic "revo lution" has barely begun. 1 Antagonism to the New Many Americans are painfully afraid of the economic and social consequences of the revolution. They are convinced that the computer technology is responsible for the high rates of unempI-oymeni, and that it is boand to get worse with the addi tion of every new robot. The com puter-intensive industries are bur dening saciety wiih mass unemployment, they lament, which.

may greatly inteJilsifythe soeial ten sion and polari~ation between its productive members aDd milli0ns of people out of work. How terrifying!. Tools and ma chines are said to cause unempley ment. If it were true it would sug gest a simple solution: pass more laws and regulatiens that restrict or even bar the application of comput ers. Let's return to the simple ways of the past that made for hard labor and full employment! Popular hostility toward any type of innovation probably is as old as the first invention. Since the dawn of history it sought to block the way toward economic betterment. Early stonecutters probably objected to the discovery of metal and the casting and forging of a wide assortment of metal tools. The monastic scribes copying ancient manuscripts un doubtedly were alarmed about J0 hann Gutenberg's first printing press, built in the 1430s. Laborers re sented the harnessing of wind and water power, and when steam power appeared on the scene, the use of steam engines. Water carriers re gretted the introduction of water pipes, messengers deplored the in vention of the telegraph and telephone, and horse breeders an.

elacksmiths bemoaned the ctmling 8f th.e automobile. 2 Old ways and habits are always defended by antagonism to the n.ew. But new ideas are difficult to resist fer leng if they are heneficial to someone. In a free economy with private property in the means of production, eager entrepreneurs are aIways searching for new tools and machines that make human laBor more productive. New inventions may necessitate the development of new skills and proficieneies, and may require more learning and readjust ment. But they do not cause unem ployment. As they increase the pro ductivity of labor and thereby reduce its costs, the demand for labor in ef fect tends to rise, which creates more employment opportunities. "Automated"Water Delivery The great benefits of "automa tion" are clearly visible in many ex amples from the distant past. It is difficult to imagine life in a city of 500,000 people, like New York in 1850, before the days of "auto mated" water delivery. Several times a day many residents trudged to the nearest public well or cistern where they obtained a small quantity of polluted water which, when mixed with brandy or gin, was presumed to be safe to drink. Women and chil dren, in particular, were carrying barrels of water hundreds of yards 1983 WORKERS AND ROBOTS 239 to their crowded tenements. Those who could afford the extra expense relied on professional water carriers who, by cart or on foot, delivered water to more affluent homes. Surely, it is no exaggeration that a hundred thousand New Yorkers labored daily to secure a few gallons of water, and that thousands of fully-employed professionals carved out a meager living from the manual delivery of needed supplies. 3 During the middle of the 19th century, industry was developing cast-iron and steel pipes that came to the market at ever lower prices.

Gradually the water system began to change, new techniques and methods were introduced, and mod ern plumbing came into existence. By the end of the century, some 3.4 million New Yorkers enjoyed an au tomated delivery system. The water carriers, those toilers of the ages peddling their supplies like luxu ries, had disappeared, and the horse drawn tank wagons hustling through the streets were forgotten. But there were thousands of workers manu facturing plumbing supplies, count less stores and shops handling the supplies, movers and haulers deliv ering them, and tens of thousands of pIumbers fully employed in the task of installing and servicing them. The "automation" of water deliv ery not only created many more em ployment opportunities, but also im measurably improved the living conditions of millions of people. Surely, it must have been difficult for the water carriers to adjust to the new technology. But in the end, even they benefited from the plumb ing revolution.

Triple Benefitsfor Workers The American labor market today is in a significant transition that is as beneficial as the plumbing revo lution during the second half of the nineteenth century. There are la bels for this new era. Some call it the post-industrial society, the high technology economy, the service economy, the information economy. But no matter how you may call it, it is a new technology that is im proving the lives of millions of peo 'pIe as consumers and producers. It is basically and fundamentally transforming the work that needs to be done. In the course of two or three decades direct manufacturing as we know it today, is likely to be restruc tured completely. Old tasks are dis appearing and new opportunities are opening up in high technology. It is erroneous and misleading to blame the computer technology for the chronic unemployment. The ma jor patterns of joblessness in key manufacturing industries, such as autos, steel and construction, were visible long before the first com puter appeared on the scene. There has been unemployment whenever, for any reason, the costs of labor ex240 THE FREEMAN April ceeded its usefulness and value in production. Tools and equipment make human labor more productive, they do not cause "technological un employment." Surely, new tools ne cessitate the learning of new skills as they make old skills obsolete. They may necessitate the movement of la bor from old locations to new loca tions·as economic changes have done from the beginning of time.

To reduce manufacturing costs and make themselves more competitive, manufacturing industries are intro ducing ever more productive tech nology. General Motors, for in stance, has laid off some 100,000 workers because its cars are not selling. But in the depth of this se vere depression, GM has announced plans to purchase 20,000 robots in the next 10 years. It is resorting to a massive infusion of "labor-saving" technology that may affect many of its workers. They will have to learn new skills and fill new positions. Many will have to leave the centers of change for new jobs elsewhere; only skilled technicians and those unwilling or unable to adjust will stay behind. A Rise in Productivity To speak of "labor-saving" equip ment is to speak exclusively for those workers who need to learn new skills and pursue new opportunities for employment. When seen from the point of view of consumers and the whole society, modern computers raise the productivity of labor and improve working conditions. They increase the supply of goods and raise the levels of living by permi tting consumption of more goods. Con sumers may choose to buy those goods manufactured with computer assistance or any other items and services.

Wage earners reap triple benefits from the introduction of technologi cal improvements: 1. As the productivity of labor in creases wage rates tend to rise. Econo mists speak of a rise in the marginal utility of every kind of labor, which is the value added to or subtracted from the value of the output by the employment or withdrawal of a worker. 2. Rising labor productivity lifts some unemployed labor whose costs up to now exceeded its usefulness above the thresh old of employability, and thus creates new jobs. 3. As consumers, wage earners tend to benefit from the fall in goods prices which the rise in productivity and output tends to bring about. All workers benefit from the gen eral rise in the productivity of labor. But in the short run some may suf fer economic losses from the neces sity of retraining and relocating. They may have certain skills that are made obsolete by the technolog ical improvements. Despite the gen eral rise in wage rates they may earn less than before, or be unemployed if they refuse to adjust.

1983 WORKERS AND ROBOTS 241 Technological improvements do inflict painful losses on some inves tors and entrepreneurs. The in crease in the quantity of computer equipment tends to lower its mar ginal productivity, that is, the value added by the application of yet an other computer, which tends to lower computer prices. Moreover, old equipment may lose in productivity and value, which will hurt the inter ests of those investors who, for any reason, fail to keep up with the changes. Learning New Skills Technological innovations neces sitate adjustments not only by investors and entrepreneurs but also by workers. They all are subject to the dictates of the market where consumers, through their buying or abstention from buying, issue the orders. Consumers also determine the methods of production. In choos ing between new Detroit cars or for eign imports, or just a used car, or any other item, consumers implic itly decide the issue of equipment, in particular, the continuing use of old equipment or its replacement by computerized robots.

In a changing market economy all factors of production tend to move toward those uses and locations where they attain their greatest usefulness. They are guided by price which is the consumers' signal of concern and value. Labor is guided by wages and benefits, which are the prices paid for the factor of produc tion, human labor. In an unham pered labor market the adjustments and movements of labor tend to equalize the wages and benefits of the same quality labor throughout the market. Changes in the market structure always bring about new wage differ ences that bring forth new labor ad justments. The magnitude of the dif ference tends to affect directly the speed of adjustment which is a time consuming process. A wide differen tial tends to hasten the adjustment, a small difference may retard it. Retraining Costs Many personal and institutional factors also enter into the adjust ment process. The time and expense required for retraining play an im portant role. Schooling and training may have made a worker a special ist with special abilities for render ing valuable services. He may have invested effort, time, and money in his training, which the computer technology may have made obsolete.

He is facing new expenses for re training. His decision is likely to be difficult and painful-as all entre preneurial decisions usually are. The expenses incurred in retrain ing vary with the levels of skills that are sought. A professional person with many years of university train ing would face large expenditures if 242 THE FREEMAN April he were to seek expertise in an en tirely different field. An unskilled laborer who acquired his skills in a few hours of on-the-job training, may just need a few hours of instruction for a different job. The retraining expense made nec essary by the computer technology depends entirely on the level of spe cial skill that is sought in the com puter market. The professional per son would have to seek many years of graduate education, the unskilled laborer a few hours of instruction. If industrial robots actually displace unskilled workers with simple on the-job training, the retraining ex penses should be rather minimal.

Employers can be expected to pro vide the training as they did in the past. Many companies, in fact, are of fering inexpensi ve retraining pro grams that provide a possible career path from computer operator up ward through programmer, systems designer, and analyst. Some are conducting evening classes for peo ple from all types of background, from 18 to 50 years of age. After some 40 hours of instruction many be come computer programmers. 4 But such training may already exceed the demands of readjustment. Factory workers and clerical per sonnel may not need to know how the computer works. They must know what the computer can do as it re lates to their jobs. This type of training can be imparted anywhere, in school or on the job, to young and old alike. It is commonly known as the fundamentals of data processing, such as files and coding concepts, re trieval and accuracy, which is pre paring the individual to manage data bases and building his confidence in the other end of the terminal. Young children and many disadvantaged are learning it,5 and factory hands, too, can learn it. They merely need to interface and interact with the computer.

Moving to Another Location Labor adjustment may require more than simple retraining. It may impose the additional expenses of pulling up the family stakes and moving to another location. The worker may have to explore the la bor market in other places, perhaps in other states. He may need to seek information provided by the news media, or avail himself of the assis tance of private employment agen cies serving the desired market. He may have to bear the expenses of this service, which may amount to a few percentage points of his initial wage. And after he has found his desired place of employment he may need to relocate his family at an additional expense. If he is the proud owner of real property he will have to sell it, prob ably at depressed prices in a de pressed community, and then, in the 1983 WORKERS AND ROBOTS 243 new location, acquire other prop erty, probably at premium prices in a growing community. Indeed, the economic cost of relocation may be very high. Other costs may make it even more painful. He will have to sever his social bonds with friends and colleagues, with schools, clubs and churches, and turn away from his little world he grew to love. There is always the fear of the unknown which tends to exaggerate the diffi culties and aggravate the anxieties.

Therefore, he may not choose to ad just and seek relocation. He may de cide to resist the market pressures for change and suffer the financial consequences. In an unhampered labor market the situation is very clear and sim ple. The technological changes that make certain skills obsolete tend to depress the corresponding wage rates, and thus create a visible dif ference between the generally rising rates and the specifically depressed .rates. This difference then gener ates the pressures for retraining and relocating. In a severely hampered labor market, where minimum wage rates prohibit the adjustment and power ful labor unions greatly distort the market, the situation is quite differ ent. The technological changes meet with institutional barriers that pre vent wage rate adjustments, and therefore lead to to mass unemploy ment. The worker with obsolete skills is not free to offer his services at lower rates. He is condemned to be unemployed and cast out of produc tive society. But when, in despera tion, he seeks employment else where he faces wage rates that may be substantially lower than those to which he is accustomed.

The unemployed automobile worker from Detroit who seeks re location in Texas may be shocked to find the going rate for his level of skills to be one-half of his UAW rate. For him, to seek employment is to submit to lower rates, which do not appear very desirable. Only pro longed unemployment with all its woes and pains may force him to consent to relocation. The same may be true in the case of retraining. The unemployed au tomobile worker who becomes a computer programmer outside his union fold, may have to acquiesce to a rate of pay that amounts to much less than his union scale. His new training apparently reduces his pay, which may not nourish his zeal for retraining. Institutional Barriers Labor migration from places with lower labor productivity to places with higher productivity may be impeded further by institutional barriers which interventionist gov ernments like to erect. Many states have license and permit require ments that make it painfully diffi244 THE FREEMAN April cult for newcomers to enter a given market. There may be lengthy resi dence requirements or difficult en trance examinations that aim at discouraging out-of-staters. Labor unions endowed with legal pri vi leges and immunities may deny membership to workers from other states and other vocations. And if membership is actually extended, a union invariably discriminates against its "junior" members, that is, newcomers from out of state.

Institutional barriers that render migration most difficult are rein forced by institutional incentives for remaining immobile. Generous un employment compensation for lengthy periods of time may induce an idle worker to wait for his "re call," rather than search for employ ment elsewhere. The compensation may be supplemented by other ben efits, such as federal foodstamps and tax refunds, various employer exac tions, and union aid. And in case some benefits should run out, there is always public assistance to which unskilled workers may get accus tomed. It offers a very valuable ben efit, "medicaid," that is, free medical services for all family members. With so many powerful disincentives, it is surprising that some workers ac tually do muster the courage and strength to move to other places with more employment opportunities. It is said that older people object too much, consult too long, and adventure too little. If this is true, it cannot be expected that many older workers will want to learn new com puter skills or relocate in other places. It may be left to the coming generation now playing with com puterized toys to achieve the neces sary adjustment. In time young peo ple may seize the opportunities rejected by their parents.

EconomicSuperiorityor TechnicalEfficiency Technological changes take time. On every level of production, from the manufacturers of the new equip ment to its users and their workers, certain difficulties retard the read justment process. The new process may be shrouded in secrecy or pro tected by patents. It may face the ignorance or indolence of entrepre neurs, or the lack of skilled labor that can work with the new equipment. New computers are not applied everywhere as soon as they become available. People do not always trade, in their old cars as soon as new mod els become available, or buy the lat est computers when they first ap pear on the market. They are guided by considerations of scarcity and cost. Old equipment is not scrapped in the instant new equipment becomes available. Economic calculation pro vides the data that permits selection of the most appropriate procedure. It searches for economic superiority by comparing the economic profitabil1983 WORKERS AND ROBOTS 245 ity of the old, less efficient, and still usable equipment with the profit ability of the new, more efficient computer equipment. Technological efficiency and economic superiority are two entirely different things.

The factors that enter such a cal culation would include the price of the new computer, the price of "scrap value" that can be realized from the sale of the old equipment, the cost of production per unit of output by the computer, the cost of production by the old equipment, the anticipated future price of the product, the ex pected .useful life of the computer, and the return from competing op portunities for investment. Replace ment of old equipment by a new computer would be advantageous only if the savings in production cost by the computer during its expected useful life exceed its own purchase price minus the scrap value of the old equipment, and if this excess is greater than the return from other competing opportunities for invest ment. A computer costing $100,000 net, that during its useful life lowers production costs by $100,000, is not economically superior to the old less efficient equipment. It would have to reduce production costs by an ad ditional amount that exceeds the re turn from competing opportunities for investment.

In periods of rapidly changing computer technology, the useful life of a computer may be very short. Economic calculation may once again ascertain that there is superior equipment that necessitates the scrapping of the old. And again investors and entrepreneurs may be forced to choose between economic superiority and technological effi ciency. The choice may be further complicated by changes in market conditions that may result from the changes in the methods of produc tion. Declining costs ofproduction per unit of output, for instance, may lead to lower goods prices, which in turn tend to reduce the value of the equipment that helps to produce the goods. In short, the computer-robot may decline in usefulness and value, which may materially alter the su periority calculation. Technological Maladjustments The development and employ ment of high technology require the outlay of large amounts of capital, which must first be accumulated through corporate profits or individ ual savings. If, some hundred years ago, new capital had not been avail able for the automated water deliv ery in New York City, it simply would have remained a "pipe dream"

as it did in many other cities of the world. New capital must be avail able at a rate that promises a saving in total costs. This condition also points at the harmful effects of confiscatory taxa246 THE FREEMAN April tion and union practices that con sume capital rather than create it. In particular, it refutes the popular notion that union pressures for ever higher labor costs bring forth a trend toward more and more industrial automation. Squeezed by new union demands, employers are said to seek refuge in high technology in order to raise productivity and reduce costs. Higher productivity then encour ages the unions to demand still higher wages that propel the indus trial surge toward unforeseeable producti vity. Oh lucky land of labor unions! It is the fabled land of Aladdin's lamp. Its owner merely rubs the lamp to invoke the friendly genie. Labor unions merely rub employers for higher pay and costlier benefits, and affluent businessmen realize the dream of ever higher levels of living.

The fact is that labor unions usually view all labor-saving equipment with great suspicion and seek to prevent its employment through prohibitive labor contracts. Hidden Costs Expensive severance pay and gen erous pensions for "early retire ment," or supplementary unemploy ment benefits paid by employers, greatly discourage the introduction of labor-saving tools and machines. If, nevertheless, an employer chooses to install new equipment, its tech nological efficiency must be imNew Revised Edition DEATH & TAXES by Hans F. Sennholz 109 pages $5.95 Order from: The Foundation for Economic Education Irvington-on-Hudson, N.V. 10533 mense in order to justify the accom panying labor expenses. But in many cases the technological efficiency does not suffice for economic superiority, which causes unionized industries to cling to antiquated equipment. American industries with powerful unions, such as· steel, automobiles, and construction, are not known for their prompt introduction of the lat est high-technology equipment.

It is also conceivable that an em ployer may resort to some techno logical changes that in the absence of union coercion would not have been advisable. But this is by no means a laudable union accomplish ment. The capital needed for the costly retooling must be withdrawn from other more productive uses. Other industries that were about to acquire more productive equipment are pushed back in the waiting line. They have to be content with old in ferior tools and are forced to wait until more capital is accumulated. In the meantime, consumers must 1983 WORKERS AND ROBOTS 247 pay higher prices than they would have paid in an unhampered mar ket. In other words, the technologi cal improvement necessitated by union coercion constitutes a "mal adjustment" of technology, that is, a diversion of funds from more pro ductive to less productive uses. On balance it depresses labor produc tivity and lowers wage rates.

A Brighter Tomorrow Despite such obstacles to greater productivity and higher levels of Iiv ing, the computer revolution affords hope for a brighter economic future for all people. We may at times de spair about our political institutions that are feasting on and squander ing our economic substance. Gov ernments may be laboring dili gently to maintain the status quo by erecting obnoxious barriers to change at every turn. And politicians who are aware that children have no votes may want to burden them with our How to Raise Wages debts. But the computer revolution, this incredible achievement of American inventors and entrepre neurs, is nourishing an imperturb able faith in a brighter tomorrow. i -FOOTNOTESlRW. Berner, ed., Computers and Crisis, As sociation for Computing Machinery, 1973; also Steve Jobs, "When We Invented the Personal Computer," Computers and People, July-Au gust 1981; Clarence C. Walton, "Computers Fast Instruments and Slow Minds," Computers and People, July-August, 1982, p. 7 et seq., Sep tember-October, 1982, p. 10 et seq.

2Sigvard Strandh, A History of the Machine (New York: A & W Publisher, Inc., 1979). 3Cf. John Duffy, A History ofPublic Health in New York City, 1625-1866 (Russell Sage Foun dation, 1968), pp. 209, 391; also J. Kennard, "Sanitary Engineering: Water Supply" in A History ofTechnology (Oxford, at the Clarendon Press, 1958), pp. 989 et seq.; Robert Ernst, Im migrant Life in New York City, 1825-1863 (New York: King's Crown Press, Columbia Univer sity, 1949), p. 51 et seq.; Sigvard Strandh, ibid., p.214. 4R. W. Berner, ibid., pp. 23-25. 5Ibid., pp. 8-15, 59-70. IDEAS ON UBERTY THERE is no other method to make wage rates rise than by investing more capital per worker. More investment of capital means: to give to the laborer more efficient tools. With the aid of better tools and ma chines, the quantity of the products increases and their quality im proves. As the employer consequently will be in a position to obtain from the consumers more for what the employee has produced in one hour of work, he is able-and, by the competition of other employers, forced-to pay a higher price for the man's work.

LUDWIG VON MISES, "The Economic Role of Saving and Capital Goods"