The Luddites and Technocrats live on
- Ivo Vegter
- 01 Nov 2011 08:31 (South Africa)
“Have you calculated the potential job losses of operational staff at #FNB as a result of your tech packages?” Thus enquired Vuyisa Qabaka of Michael Jordaan, FNB's CEO, on Twitter recently.
The underlying assumption is as old as the hills. In 1945, Eleanor Roosevelt declared: “We have reached a point today where labour-saving devices are good only when they do not throw the worker out of his job.”
She'd probably have had Bill Gates, Steve Jobs and the other leading lights of the computer revolution up for sowing social discontent.
During the industrial revolution, many workers did lose their jobs as a result of automation. However, the longer-term impact was rather different. In 1760 Richard Arkwright invented a water-powered cotton spinning frame. He introduced factory-style production techniques many years before Henry Ford was even born. At the time, as Henry Hazlitt records, there were 5,200 spinners using wheels, and another 2,700 weavers, so 7,900 people in all depended for their living on manual carding of cotton.
“The introduction of Arkwright's invention was opposed on the ground that it threatened the livelihood of the workers, and the opposition had to be put down by force,” wrote Hazlitt. “Yet in 1787 – twenty-seven years after the invention appeared – a parliamentary inquiry showed that the number of persons actually engaged in the spinning and weaving of cotton had risen from 7,900 to 320,000, an increase of 4,400%.
The transition to a more efficient mode of production is not always smooth, of course. Often, workers need to learn new skills, and some aren't able to adapt at all. However, concluding that improving efficiency by the use of machinery is a bad thing leads to absurd logical positions.
If it were indeed worse to employ fewer people at a given job, why do we drive goods in large trucks, when many smaller trucks with many more drivers would do? Or how about donkey carts, which would employ even more drivers, plus a goodly number of donkey stables and feed farms? Why not just carry the goods between Joburg and Cape Town, on the backs of all those unemployed millions?
Government's own expanded public works programme is riddled with this fallacy. “In the infrastructure sector the emphasis is on creating additional work opportunities through the introduction of labour-intensive construction methods. Labour-intensive construction methods involve the use of an appropriate mix of labour and machines, with a preference for labour where technically and economically feasible, without compromising the quality of the product.”
If this theory works, then why not take it to its logical conclusion, and forbid the use of tools altogether? I can lay a splendid piece of concrete, entirely by hand. You get great quality, and I'll be employed at my square metre or two for an entire day.
Using labour-saving technology has many implications. Besides the obvious results of saving money and improving productivity, the most noticeable effect is that jobs might be lost.
However, the broader and longer-term effects are hidden from view. The user of technology will save cost, or produce a better product, or both. Ultimately, his hope is to make a higher profit. This profit, in turn, funds the social benefit in ways that are seldom added to the equation.
Profit gets used in one of three ways. It may be re-invested in the business, to buy more machines, employ more machine operators, and produce more goods for a lower price.
That's how cotton spinning was revolutionised. It started out as a small business employing a few thousand, and supplying only those few who were rich enough to pay for hand-carded textiles. Machinery turned it into a vast industry supplying the masses with high-quality, affordable cloth, and employing hundreds of thousands.
The profit might also be invested in another business, if the scope for expansion isn't there. When a company's profit is returned to investors, and they deploy the capital elsewhere, another industry is growing and expanding its demand for labour. This process is not directly visible, so the effect of all that moving capital is unseen, but that doesn't make the money simply vanish.
The profit might be retained and spent by the business owner too. If so, his consumption employs people other than those whose labour is no longer needed in the business.
Finally, let's not forget the impact on customers should competition drive prices down in the newly-automated business. They now have more money left over, and are able to buy more goods and services, or invest in businesses of their own. This investment and spending creates jobs too.
In every industry improved by technology or automation, the net effect has been to grow that industry, to reduce prices and to increase the general economic welfare of society.
If it wasn't so, the Luddites, who burnt textile mills and factory machines to protect the business of handloom weavers, would have been proven right, and either we'd still be wearing only a few items of very expensive, hand-produced clothing, or fewer people would have been employed in manufacturing clothes. The truth is, millions are employed at making vast quantities of high-quality clothing today.
The Technocrats, led by Thorstein Veblen, who early in the 20th century warned that machines threatened to permanently displace labour, would have been proven right, if more efficient production was genuinely something to fear. It wasn't, and the world has never seen such an advance in productivity, employment and consumption as it did in the 20th century.
It is true that technological progress leads to dislocations. Workers find that their old skills are no longer needed, or their labour becomes less valuable to employers. Factory owners find that their investment in machines has become worthless because a competitor invented a better machine.
The dislocations are often exaggerated, however. There isn't only a fixed amount of work to do. There's an infinite amount, limited only by our wants and needs and our ability to pay to satisfy them. For every inefficient job that falls by the wayside, room is made for one or more efficient jobs.
More importantly, these dislocations are not the only effect of technological progress. The wider effects are visible all around us: we no longer spend hours a day merely to find and prepare food, we can afford more comfortable clothing, we can travel faster and more conveniently. In real terms, we pay much less today for a great deal more than we did before machines and computers improved the process of producing the goods and services we need and want.
Ultimately, the interests of society as a whole ought to be considered.
If FNB can use technology to improve the service it renders, or reduce the cost of doing so, then either its shareholders, or its customers benefit. In both cases, the positive impact on society is greater than the temporary dislocation it might cause in how the service is provided. Even the dislocation is a hidden benefit, as the labour that has been made superfluous by technology can be redeployed at new tasks.
So the question that Qabaka asked, common though it is in government thinking, is entirely misplaced. It is as wrong as it was when the Luddites rioted about it, when the Technocrats preached it, and when Eleanor asked it.
Although the purpose of the economy is not to employ people, but to produce goods and services, the notion that doing the latter efficiently comes at the cost of the former is, quite simply, a fallacy.
As for Michael Jordaan, if technology does cause job losses, I expect to see this reflected in my bank service fees and in the range of innovative products available to me. Thanks. DM
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