Can Europe Make It?

The robot economy may already have arrived

But the austere response to rapid technological advances is resulting in increased polarisation and precarity. What are we going to do about it?

Francesca Bria
20 February 2016
i am not a robot, it's not my problem.jpg

Shutterstock/studiostoks. All rights reserved.In order to understand both where we are going and why we are witnessing the disappearance of good jobs and increased polarisation in society, we must broaden our focus beyond a mere analysis of technological change. Rather, the debate that we should be having should be about our political choices and the economic agenda that will shape technological change in the long-term.

This was the approach I set out in a seminar held in the UK's Houses of Parliament last week as part of the series of economic events, hosted by Shadow Chancellor John McDonnell MP.

For now, the main political answer to rapid technological change has been a wave of fiscal austerity across Europe, not more investment in innovation, technology and education. The recent rapid technological change didn’t bring about the “golden age of the knowledge society”, along with its promised investments in green technology, new jobs and wellbeing.

The robot economy is already here.Instead, we are still suffering big stagnation; income polarisation is rapidly increasing, wages have been falling, and the rate of technological progress is slowing down. In addition, the latest wave of digital innovation has resulted in excessive returns to capital, with a massive amount of cash going to the balance sheets of big tech companies, while very little is invested in welfare, social infrastructures, education, health and clean energy. This situation is exacerbated by the apparent inability of governments to tax profits made by hi-tech and financial giants, as seen, for instance, in the very generous tax settlement between Google and the government.

We shouldn’t underestimate the scale of the current technological transformation, and its impact on work. Full automation is certainly just at the beginning. The internet in its newest forms, for example, 'the internet of things', aims to become pervasive across all productive sectors – from communication, to energy and logistics – and to seamlessly permeate every level of society. In a way, the robot economy is already here. Foxconn, the world’s largest manufacturer, is now introducing 30,000 robots per year, and Amazon has 15,000 robots already working in delivery centres. According to Brian Arthur, this “second economy”, where machines transact only with other machines, could replace the work of approximately 100 million workers globally.

Most of the current digital platforms are multi-side marketplaces that can match potential customers with everyone and everything. The strategy of these powerful 'algorithmic institutions' is to enter a variety of economic sectors rapidly and disrupt current industries. By controlling their digital ecosystems, they can turn everything into a productive asset and every transaction into an auction where they set their bidding and pricing rules. In addition to the changes being brought by automation, the job market is being transformed by digital data-intensive platforms like Uber. We are seeing a shift of power from service intermediaries to information intermediaries, a kind of 'Uberisation' of services.

The common rationale is that platform owners will automatically reinvest profits into the real economy...  This is not the case. 

Uber, for example, does not own cars and doesn’t employ drivers; they consider their workers independent contractors. In this way, they externalise most costs to their workers, eliminating collective bargaining, and implementing intrusive data-driven mechanisms of reputation and rankings to reduce transaction costs for the companies. The concern should be that the growth of the sharing economy comes with increasing precarity, an erosion of job security, social protection and a safety net for workers. In this context, the introduction of a guaranteed basic income as primary income, investment in public infrastructures and the deployment of an expansionary policy to reduce unemployment could be the right policy answers.

The common rationale when discussing the platform economy is that it will generate a huge wealth for the platform owners, and that they will automatically reinvest these profits into the real economy, thus serving the public good. Unfortunately this is not the case. The World Economic Forum released a report arguing that the combined value of digital transformation across society and industries could be greater than $100 trillion by 2025. 

To be able to harness this technology-driven transformation to improve our society, work, and welfare for the collective benefit, the solution lies in ensuring that this profit doesn’t sit in offshore accounts of Silicon Valley and Wall Street firms, but is invested in data-driven and common-based societal infrastructures to create long-term value for society and promote smart, inclusive, and sustainable growth. 

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