Michael Roberts Blog

I’ve just attended a one-day workshop on the rate of profit and crisis organised by Simon Mohun, Al Campbell and other Marxist economists as a prequel to the annual IIPPE conference taking place in Leeds over the next few days.  And an excellent initiative it was too.

Simon Mohun, emeritus professor of economics at Queen Mary College, London, opened the first session with a presentation on Marx’s value theory and its relation to the capitalist accumulation process and Marx’s law of the tendency of the rate of profit to fall.  Mohun started by making the key point that values equal prices in the aggregate.  This is the ‘conservation principle’ that labour value equals prices in the whole economy, although at the level of individual commodities, price can vary from value.  Indeed, the value of labour power (the socially necessary labour time taken to produce the commodities that workers consume in order to work) will not match the real wage (the price of labour).  Prices of production of commodities vary from their value through competition among capitalists, leading to an equalisation of the rate of profit across an economy.

Under capitalism, the accumulation process is designed to increase the level of technique and the productivity of labour so that ‘relative’ surplus value rises (surplus value as a share of total new value).  Increased productivity will lower the value of commodities as measured in labour time as the number produced rises in a fixed time period.  So there are more use values and less exchange value – the great contradiction.

Mohun summed up Marx’s main assumptions or postulates as 1) capitalist accumulation leads to rising labour productivity; 2) real wages rise as the value of labour power cheapens; and 3) and there is usually a rising capital-labour composition.  According to Mohun, these postulates may lead to a fall in the rate of profit but it is indeterminate (shades of Heinrich here).

Having previously pointed out that an explanation of a falling rate of profit based on rising wages was originally that of the classical economist David Ricardo and effectively refuted by Marx, Mohun seemed to accept that if real wages stay constant, then the rate of profit must rise.  This latter point is the conclusion drawn from the so-called Okishio theorem that no capitalist would voluntarily introduce a new machine or technique unless it reduced the cost of production (labour costs) and raised profitability.  So, according to Okishio, wages must rise before the rate of profit can fall.  Mohun seemed to accept the theorem but argued that Okishio was refuted because, in reality, real wages have risen as the value of labour power has fallen, so Okishio is addressing the wrong issue.

Actually, Okishio is wrong anyway about the capitalist accumulation process, not Marx, as several authors, like G Carchedi (see Behind the Crisis p87-92 http://digamo.free.fr/carched11.pd), Andrew Kliman (see Reclaiming Capital, chapter 7) and others have shown.  The Okishio theorem assumes a simultaneous change in prices of inputs to production and outputs – a physical impossibility in the reality of production over time.  Investment is first, production second and realisation last.  They can all be at different values or prices.  Reality is temporal.  In period one, capital is advanced for labour and means of production at a certain price or value.  Then a new technique is introduced and the cost of production falls.  Commodities are produced at a lower value or price BUT not the original investment.  That was advanced at the older (higher) price.  So the rate of profit can and will fall without a rise in real wages.

Moreover, using game theory and the ‘prisoners dilemma’, Mohun brilliantly showed why Okishio is wrong in practice.  Marx’s argument was that, if one capitalist innovates to gain a higher rate of profit over others, eventually the others will be forced to innovate too, leading to an equalisation of the rate of profit at a lower level (as the organic composition of capital rises).  Here is how I understood Mohun’s schema that shows why innovation under capitalism and competition can lead to fall in average rate of profit, contrary to Okishio.

There are two capitalists: A and B.  Each starts with 3 in profit.  If neither A and B innovate to reduce costs and boost profits, A stays at 3 and B stays at 3. But if A innovates and B does not; then A gets a higher profit (4) while B loses market share and gets only profit (1).  Alternatively, if A does not innovate and B does, then A gets 1 and B gets 4.  If both innovate, then A gets 2 and B gets 2.  There is a drive to innovate because A or B can raise profit from 3 to 4.  So there cannot be an agreement not to innovate, leaving A on 3 and B on 3.  But if one innovates first to get 4, then the other must do so or its profit will fall to 1.  But with both innovating, they both end up on 2 instead of 3 (if they had done nothing).  So innovation boosts the individual profit of the leader but eventually when both innovate, the profit is lower.  Again, this is over time.  If A and B could simultaneously introduce the innovation (as Okishio assumes), then they may not do so, and stay at 3, rather than fall to 2.  But that would not be reality.  Reality is temporal.

Despite these arguments for Marx’s law of profitability, Mohun left us wondering whether Marx’s law is ‘indeterminate’ and so does not explain or show why the rate of profit will or must fall.  Mohun also threw doubt on whether the rate of profit has actually fallen in reality.  Mohun pointed out the huge difficulties in measuring the rate of profit a la Marx from official statistics and we don’t have much more than the US or the UK to work on.  And Mohun left open the question of whether Marx’s law related in any way to crises.

Actually, Mohun himself has done excellent empirical work on the UK rate of profit in the inter-war period and more recently delivered a super paper on measuring the share of wages and profit in the US economy (ClassStructure1918to2011wmf.) Indeed, I’d like to think that some of us have made progress on the calculation issues and also in looking at profitability of capital globally beyond the US. In that latter regard, I have done work on a world rate of profit and even more recently a study of the UK rate of profit over the last 150 years (UK rate of profit August 2015).  And don’t forget the sterling work done by Esteban Maito on a world rate of profit based on 14 countries.  Next year, G Carchedi and I will publish a book containing the work of several young scholars who have measured the rate of profit in many countries globally.  These analyses will give renewed support to the relevance of Marx’s law of profitability.  Work is being done empirically.

John Weeks, eminent emeritus professor of economics at London’s SOAS university and author of many great books on Marxist economic theory took up the issue of the causal process between Marx’s law of profitability and crises.  He presented a flow chart that showed various possible outcomes (John Weeks handouts-1 (1)).  Weeks said we needed to define exactly what we meant by a crisis – which he reckoned was a significant sharp fall or contraction in output.  This is a point he made in a recent paper and I agree with him there.  If that is the definition of crisis, then Weeks reckoned there have been only three capitalist crises: the 1880s, 1930 and now.  I prefer to call these depressions and have outlined before the difference between ‘normal slumps’ and depressions.

But be that as it may.  As far as I could see, Weeks did not reach a conclusion about how Marx’s law could lead to crises, as he defined them.  You see, for Weeks, just a small fall in profitability cannot cause a crisis.  It needed to be big and long-lasting.  So, according to Weeks, we don’t have any proof of a connection between profitability and capitalist crises.  Well, actually, several authors have done just such work on the connection between profitability and growth in the post war period.  And G Carchedi has recently published a new paper showing the close connection between a change in new value (a fall) and recessions.  And I have raised the work of Tapia Granados on the causal connection between profits and investment in my blog on numerous occasions.  Apparently, all this has passed Weeks by.

Professor Alfred Saad-Filho, also at SOAS , then presented the workshop with a comprehensive history of the various interpretations of Marx’s crisis theory: overproduction (Engels-Kautsky); underconsumption (Luxemburg, Sweezy) disproportion (Tugan-Baronovsky,Hilferding) and the tendency of the rate of profit to fall (proponents of which he called ‘fundamentalists’ of a somewhat sectarian nature!).  For Saad-Filho, we needed to get away from adopting one interpretation of Marx’s incomplete crisis theory over another.  They were all in Marx at some point.  What we needed to do was integrate or synthesise them into one comprehensive theory to explain capitalist crises.  This still needs to be done, according to Saad-Filho.  But he did not provide any guide or show any progress on how to do this, except to present his own version of ‘financialisation’ as the cause of the current ‘neoliberal’ crisis.

Indeed, that appeared to be the conclusion I draw for the day as a whole.  I learnt about Marx’s value theory and the law of profitability; I learnt about the need to show how it connected or led to crises; I learnt how Marxists before have adopted all sorts of explanations for crises that have proved to have significant faults. But if this workshop is any guide, Marxist economics has not reached any definitive conclusions on these issues.  We don’t seem to have progressed much in delivering a coherent Marxist theory of capitalist crises since Marx died.

Actually I beg to differ: I’d like to think we have made progress, especially recently and even to the point of making predictions.  Still the workshop was very good.  We need more.

The G20 group of top economies meets in Turkey this weekend.  For the meeting, the IMF issued an update on the state of the global economy – and the IMF is worried.  It points out that global growth in the first half of 2015 was lower than in the second half of 2014, reflecting a further slowdown in emerging economies and a weaker recovery in advanced economies. Productivity growth has been persistently weak.

So, once again, the IMF has lowered its confidence in global growth, and yet, once again, expects a ‘modest’ pick-up in the 2nd half of this year and into 2016. But apparently the “risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a much weaker outlook.”

This G20 meeting was the last for the IMF’s chief economist, Olivier Blanchard, who is leaving to take up a lucrative new post with the mainstream economic think-tank, the Peterson Institute .  Blanchard gave an interview on the IMF blog that outlined his thoughts and reviewed his successes and failures.  French-born Blanchard, a former chairman of the economics department at the Massachusetts Institute of Technology, joined the IMF in 2008 at the height of global financial crash and in the depth of the ensuing Great Recession, just two weeks before Lehman Brother’s bank collapsed.

Blanchard is an eclectic mainstream economist extraordinaire, shuffling between neoclassical and Keynesian ideas as he sees fit – the perfect economic helmsman for the IMF as the institutional representative of international finance capital.

Blanchard says that “The crisis was a traumatic event during which we all had to question many cherished beliefs…. questioning various assumptions on the role of fiscal policy, including the size of fiscal multipliers, the use of unconventional monetary policy measures and macroprudential tools, capital flows and measures to control them, labour market policies and the role of micro and macro flexibility.“ In other words, everything has been questioned, except the causes of crises in capitalist production and accumulation.

No, that’s not fair. In the interview, Blanchard admits that it “would have been intellectually irresponsible, and politically unwise, to pretend that the crisis did not change our views about the way the economy works. Credibility would have been lost. So, rethinking, or pushing the envelope was not a choice, but a necessity.”

And what was the big rethink?  The big thing for the IMF during the Great Recession and the subsequent weak recovery was the size of what are called the ‘fiscal multipliers’, namely the degree of impact on economic growth and unemployment from imposing government spending cuts and tax increase to balance government books and reduce public debt in the middle of a major slump – the degree of ‘austerity’.  Blanchard is convinced that the fiscal multipliers are underestimated in a world of ‘zero-bound’ interest rates when monetary easing has little or no effect.  Correcting this was a great achievement of the IMF under his economic leadership.

The problem is that there is much counter-evidence that the fiscal multipliers are not much larger in recessions – in other words, the slump was not really a product of ‘too much austerity’, but of something else.  Anyway, even if Blanchard noticed that fiscal austerity made the slump worse than it might have been, did he advocate more fiscal spending by governments then?  No, he did not.  He just hinted that governments should not be so harsh.  That’s it.

The other thing that Blanchard reckoned where he ‘made a difference’ was in the Greek bailout discussions.  The IMF recognised that it had made a mistake in the first bailout in 2011 in not insisting on debt restructuring so that Greek public debt became sustainable.  They kept quiet about that.  Blanchard claims that “it made good sense to argue for debt relief first in private. We did. And when we thought our argument was not getting through, it made good sense to then go public.”  In future, the IMF would insist that private sector creditors (banks etc) also take a hit when restructuring public debt for a ‘distressed’ government wanting IMF ‘aid’.  Bit too late perhaps!

In the interview, Blanchard was also keen to emphasise that he had initiated discussions among mainstream economists about the nature, causes and remedies for the Great Recession and the Long Depression (as I call the weak recovery) afterwards.  He had launched three Rethinking Economics conferences under the auspices of the IMF.  And what did the great and good of assembled macroeconomists conclude?

Well, it was caused by naughty reckless bankers causing a financial panic (Ben Bernanke) or ‘financial shocks’ (David Romer) or it just happened (“my view is that it’s as if a cat has climbed a huge tree. It’s up there, and oh my God, we have this cat up there. The cat, of course, is this huge crisis. And everybody at the conference has been commenting about what we should do about this stupid cat and how do we get it down.”  said George Akerlof husband of current Fed chair Janet Yellen)!  At the time, Blanchard concluded that “we have a general sense of direction, but we are largely navigating by sight.”  By this, I think he really meant that economists are navigating blind, as there was no theory of what direction to take!  Indeed, Blanchard sums up: “There is no agreed vision of what the future financial architecture should look like, and by implication, no agreed vision of what the appropriate financial regulation should be.” In other words, no vision at all.

As Blanchard stated in the IMF interview: “The financial crisis raises a potentially existential crisis for macroeconomics.” Indeed!  He reckoned that mainstream economics must start to draw on old ideas from heterodox economics, namely “Hyman Minsky’s financial instability hypothesis. Kaldorian models of growth and inequality.” And even policy “that would have been considered anathema in the past are being proposed by ‘serious’’ economists: for example, monetary financing of the fiscal deficit.”  Also “some fundamental [neoclassical] assumptions are being challenged, for example the clean separation between cycles and trends” or “econometric tools, based on a vision of the world as being stationary around a trend, are being challenged.”

But it’s a mix for Blanchard: sticking to the mainstream and drawing on a few heterodox views about the damage caused by a debt-laden financial sector (Minsky) or rising inequality (Kaldor and, of course, now Piketty and Stiglitz).  Naturally, it goes without saying that the ideas of Marxist economics, of an irreconcilable contradiction between growth, employment and profitability under capitalist production is not part of Blanchard’s wider encompassing of ‘old ideas’.

Blanchard reckons that the experience of the Great Recession and Long Depression have led to “a clear swing of the pendulum away from markets towards government intervention” but “with much skepticism about the efficiency of government intervention”.  Well, he could have fooled me that mainstream economics and governments want more government and less markets.  And maybe the mainstream is right that government intervention won’t work anyway in restoring an economy – look at quantitative easing as an innovative monetary intervention.

As for the future, Blanchard hedges his bets.  It seems that the advance capitalist economies are going to suffer much lower growth “There is a good chance that we have entered a period of low productivity growth. There is a chance that we have entered a period of structurally weak demand, which will require very low interest rates.”  This is bad news for the strategists of capital, for which he is a leading economic consultant, as “low growth combined with increasing inequality, is not only unacceptable morally, but extremely dangerous politically”.

Blanchard offers no explanation about why market economies around the world are slowing down and delivering lower productivity growth and rising inequality.  But it is a moral dilemma, and even more worrying, ‘politically dangerous’ to capitalism.

So what does Capital do?  As Blanchard heads for his new job, he concluded that “there are no magical solutions: We have to be realistic as to what structural reforms are politically feasible, and what they can reasonably achieve.”  Great.

In my first post on Robots and AI, I dealt with the impact of these new technologies on future employment and productivity.  I raised the contradiction that develops within the capitalist mode of production between increased productivity achieved through new technology and falling profitability.

In this second part, I want to consider the impact of robots and AI seen through the prism of Marx’s law of value under capitalism.  There are two key assumptions that Marx makes in order to explain the laws of motion under capitalism: 1) that only human labour creates value and 2) over time, investment by capitalists in technology and means of production will outstrip investment in human labour power – to use Marx’s terminology, there will be a rise in the organic composition of capital over time.

There is no space here to provide the empirical evidence for the latter.  But you can find it here (crisis and the law for BOOK1-1).  Marx explained in detail in Capital that a rising organic composition of capital is one of the key features in capitalist accumulation. Investment under capitalism takes place for profit only, not to raise output or productivity as such.  If profit cannot be sufficiently raised through more labour hours (i.e. more workers and longer hours) or by intensifying efforts (speed and efficiency – time and motion), then the productivity of labour (more value per labour hour) can only be increased by better technology.  So, in Marxist terms, the organic composition of capital (the amount of machinery and plant relative to the number of workers) will rise secularly.  Workers can fight to keep as much of the new value that they have created as part of their ‘compensation’ but capitalism will only invest for growth if that wage share does not rise so much that it causes profitability to decline.  So capitalist accumulation implies a falling share to labour over time, or what Marx would call a rising rate of exploitation (or surplus value).

The ‘capital-bias’ of technology is something continually ignored by mainstream economics.  But as Branco Milanovic has pointed out, even mainstream economic theory could encompass this secular process under capitalist accumulation.  As Milanovic puts it:  “In Marx, the assumption is that more capital intensive processes are always more productive. So capitalists just tend to pile more and more capital and replace labor….. This in Marxist framework means that there are fewer and fewer workers who obviously produce less (absolute) surplus value and this smaller surplus value over an increased mass of capital means that the rate of profit goes down. …..

“The result is identical if we set this Marxist process in a  neoclassical framework and assume that the elasticity of substitution is less than 1. Then, simply, r shoots down in every successive round of capital-intensive investments until it practically reaches zero. As Marx writes, every individual capitalist has an interest to invest in more capital-intensive processes in order to undersell other capitalists, but when they all do that, the rate of profits decreases for all. They thus work ultimately to drive themselves “out of business” (more exactly they drive themselves to a zero rate of profit).

Milanovic then considers the robot technology: “Net income, in Marxist equilibrium, will be low because only labor produces “new value” and since very few workers will be employed, “new value” will be low (regardless of how high capitalists try to drive the rate of surplus value). To visualize Marxist equilibrium, imagine thousands of robots working in a big factory with only one worker checking them out, and with the useful life of robots being one year so that you keep on replacing robots continuously and thus run enormous depreciation and reinvestment costs every year.  The composition of GDP would be very interesting. If total GDP is 100, we could have consumption=5, net investment=5 and depreciation=90. You would live in a country with GDP per capita of $500,000 but $450,000 of that would be depreciation.”

This poses the key contradiction of capitalist production: rising productivity leads to falling profitability, which periodically stops production and productivity growth.  But what does this all mean if we enter the extreme (science fiction?) future where robotic technology and AI leads to robots making robots AND robots extracting raw materials and making everything AND carrying out all personal and public services so that human labour is no longer required for ANY task of production at all?

Let’s imagine a totally automated process where no human existed in the production. Surely, value has been added by the conversion of raw materials into goods without humans? Surely, that refutes Marx’s claim that only human labour can create value?

But this confuses the dual nature of value under capitalism: use value and exchange value.  There is use value (things and services that people need); and exchange value (the value measured in labour time and appropriated from human labour by the owners of capital and realised by sale on the market).  In every commodity under the capitalist mode of production, there is both use value and exchange value.  You can’t have one without the other under capitalism.  But the latter rules the capitalist investment and production process, not the former.

Value (as defined) is specific to capitalism.  Sure, living labour can create things and do services (use values).  But value is the substance of the capitalist mode of producing things.  Capital (the owners) controls the means of production created by labour and will only put them to use in order to appropriate value created by labour.  Capital does not create value itself.

But in our hypothetical all-encompassing robot/AI world, productivity (of use values) would tend to infinity while profitability (surplus value to capital value) would tend to zero.  Human labour would no longer be employed and exploited by Capital (owners).  Instead, robots would do all.  This is no longer capitalism.  I think the analogy is more with a slave economy as in ancient Rome.

In ancient Rome, over hundreds of years, the formerly predominantly small-holding peasant economy was replaced by slaves in mining, farming and all sorts of other tasks.  This happened because the booty of the successful wars that the Roman republic and empire conducted included a mass supply of slave labour.  The cost to the slave owners of these slaves was incredibly cheap (to begin with) compared with employing free labour.  The slave owners drove the farmers off their land through of a combination of debt demands, requisition in wars and sheer violence.  The former peasants and their families were forced into slavery themselves or into the cities, where they scraped a living with menial tasks and skills or begged.  The class struggle did not end.  The struggle was between the slave-owning aristocrats and the slaves and between the aristocrats and the atomised plebs in the cities.

A modern science fiction can be found the recent Elysium movie.  In this movie, the owners of the robots and modern technology have built themselves a complete space planet separate from the earth.  There they live a life of luxury off the things and services provided by robots and defend their separated lives with their robot armies.  The rest of the human race lives on earth in a dire state of poverty, disease and misery – an immiseration of the working class who no longer work for a living.

In the Elysium world, the question would remain: who owns the means of production? In the completely automated planet, how would the goods and services produced by the robots be distributed in order to be consumed? That would depend on who owns the robots, the means of production. Suppose there are 100 lucky guys on the robot-run planet. One of them may own the best robots and so appropriate the whole product. Why should he share it with the other 99? They will be sent back to the Earth. Or they might not like it and will fight for the appropriation of some of the robots.  And so, as Marx put it once, the whole shit begins again, but with a difference.

The question often posed at this point is: who are the owners of the robots and their products and services going to sell to make a profit?  If workers are not working and receiving no income, then surely there is massive overproduction and underconsumption?  So, in the last analysis, it is the underconsumption of the masses that brings capitalism down?

Again, I think this is a misunderstanding.  Such a robot economy is not capitalist any more; it is more like a slave economy.  The owners of the means of production (robots) now have a super-abundant economy of things and services at zero cost (robots making robots making robots).  The owners can just consume.  They don’t need to make ‘a profit’, just as the aristocrat slave owners in Rome just consumed and did not run businesses to make a profit.  This does not deliver an overproduction crisis in the capitalist sense (relative to profit) nor ‘underconsumption’ (lack of purchasing power or effective demand for goods on a market), except in the physical sense of poverty.

Mainstream economics continues to see the rise of the robots under capitalism as creating a crisis of underconsumption.  As Jeffrey Sachs put it: “Where I see the problem on a generalised level for society as a whole is if humans are made redundant on an industrial scale (47% quoted in US) then where’s the market for the goods?”  Or as Martin Ford puts it: “there is no way to envision how the private sector can solve this problem.  There is simply no real alternative except for the government to provide some type of income mechanism for consumers” .Ford does not propose socialism, of course, but merely a mechanism to redirect lost wages back to ‘consumers’, but such a scheme would threaten private property and profit.

A robotic economy could mean a super-abundant world for all (post-capitalism as Paul Mason suggests); or it could mean Elysium. FT columnist, Martin Wolf put it this way: “The rise of intelligent machines is a moment in history. It will change many things, including our economy. But their potential is clear: they will make it possible for human beings to live far better lives. Whether they end up doing so depends on how the gains are produced and distributed. It is possible that the ultimate result will be a tiny minority of huge winners and a vast number of losers. But such an outcome would be a choice not a destiny. A form of techno-feudalism is unnecessary. Above all, technology itself does not dictate the outcomes. Economic and political institutions do. If the ones we have do not give the results we want, we must change them”.  It’s a social ‘choice’ or more accurately, it depends of the outcome of the class struggle under capitalism.

John Lanchester is much more to the point:  “It’s also worth noting what isn’t being said about this robotified future. The scenario we’re given – the one being made to feel inevitable – is of a hyper-capitalist dystopia. There’s capital, doing better than ever; the robots, doing all the work; and the great mass of humanity, doing not much, but having fun playing with its gadgets…There is a possible alternative, however, in which ownership and control of robots is disconnected from capital in its current form. The robots liberate most of humanity from work, and everybody benefits from the proceeds: we don’t have to work in factories or go down mines or clean toilets or drive long-distance lorries, but we can choreograph and weave and garden and tell stories and invent things and set about creating a new universe of wants. This would be the world of unlimited wants described by economics, but with a distinction between the wants satisfied by humans and the work done by our machines. It seems to me that the only way that world would work is with alternative forms of ownership. The reason, the only reason, for thinking this better world is possible is that the dystopian future of capitalism-plus-robots may prove just too grim to be politically viable. This alternative future would be the kind of world dreamed of by William Morris, full of humans engaged in meaningful and sanely remunerated labour. Except with added robots. It says a lot about the current moment that as we stand facing a future which might resemble either a hyper-capitalist dystopia or a socialist paradise, the second option doesn’t get a mention.”

But let’s come back to the here and now.  If the whole world of technology, consumer products and services could reproduce itself without living labour going to work and could do so through robots, then things and services would be produced, but the creation of value (in particular, profit or surplus value) would not.  As Martin Ford puts it: the more machines begin to run themselves, the value that the average worker adds begins to decline.” So accumulation under capitalism would cease well before robots took over fully, because profitability would disappear under the weight of ‘capital-bias’.

The most important law of motion under capitalism, as Marx called it, would be in operation, namely the tendency for the rate of profit to fall.  As ‘capital-biased’ technology increases, the organic composition of capital would also rise and thus labour would eventually create insufficient value to sustain profitability (i.e. surplus value relative to all costs of capital).  We would never get to a robotic society; we would never get to a workless society – not under capitalism.  Crises and social explosions would intervene well before that.

And that is the key point. Not so fast on the robot economy.  In the next and final post on the issue, I shall consider the reality of the robot/AI future under capitalism.

I did a recent post on Paul Mason’s new book, Postcapitalism, which argued that the internet, automation, robots and artificial intelligence were creating a new economy which could not be controlled by capitalism. According to Mason, new forces are at work that were replacing the old class struggle between capital and the proletariat, as Marx saw it, with a network of communities.  Technology and the network would lead to a post-capitalist (socialist?) world that could not be stopped

I disagreed that the new technology would replace the ‘old forms’ of class struggle or for that matter regular and recurrent economic crises under capitalism would dissipate towards a high productivity, low working day as capitalism ‘withered away’.

But this debate has encouraged me to do something that I have been wanting to deal with in more detail for some time.  Namely, what are the implications of these new technologies for capitalism?  In particular, are robots and artificial intelligence set to take over the world of work and thus the economy in the next generation and what does this mean for jobs and living standards for people?  Will it mean socialist utopia in our time (the end of human toil and a superabundant harmonious society) or capitalist dystopia (more intense crises and class conflict)?

It’s a big subject.  So let me first make a few definitions.  By robots, I mean machines that can replace human labour through the use of computer programmes that direct the movement of machine parts to carry out tasks, both simple and increasingly complex.

The International Federation of Robotics (IFR) considers a machine as an industrial robot if it can be programmed to perform physical, production-related tasks without the need of a human controller. Industrial robots dramatically increase the scope for replacing human labour compared to older types of machines, since they reduce the need for human intervention in automated processes.   Typical applications of industrial robots include assembling, dispensing, handling, processing (for instance, cutting), and welding – all of which are prevalent in manufacturing industries – as well as harvesting (in agriculture) and inspecting of equipment and structures (common in power plants).

Industrial robotics has the potential to change manufacturing by increasing precision and productivity without incurring higher costs. 3D printing could generate a new ecosystem of companies providing printable designs on the web, making everyday products endlessly customizable. The so-called ‘Internet of Things’ offers the possibility to connect machines and equipment to each other and to common networks, allowing for manufacturing facilities to be fully monitored and operated remotely. In health care and life sciences, data driven decision-making, which allows the collection and analysis of large datasets, is already changing R&D, clinical care, forecasting and marketing. The use of big data in health care has led to highly personalized treatments and medi­cines. The infrastructure sector, which had no gain in labour productivity in the last 20 years, could be greatly enhanced by, for example: the creation of Intelligent Transportation Systems, which could massively increase asset utilization; the introduction of smart grids, which could help save on power infrastructure costs and reduce the likelihood of costly outages; and efficient demand management, which could dramatically lower per-capita energy use.

Which of these emerging technologies have the greatest potential to drive improvements in productivity? McKinsey Global Institute (MGI) (2013) reckon that ‘technologies that matter’ are technologies that have the greatest potential to deliver substantial economic impact and disruption in the next decade. Those that make their list are rapidly advancing (e.g. gene-sequencing technology); have a broad reach (e.g. mobile internet); have the potential to create an economic impact (e.g. advanced robotics) and have the potential to change the status quo (e.g. energy storage technology). MGI estimates that the economic impact of these technologies – derived from falls in their prices and their diffusion and improved efficiency – to be between $14 and $33 trillion per year in 2025, led by mobile internet, the automation of knowledge work, the internet of things and cloud technology.

John Lanchester in a brilliant essay summed this up (Lanchester): “Computers have got dramatically more powerful and become so cheap that they are effectively ubiquitous. So have the sensors they use to monitor the physical world. The software they run has improved dramatically too. We are, Brynjolfsson and McAfee argue, on the verge of a new industrial revolution, one which will have as much impact on the world as the first one. Whole categories of work will be transformed by the power of computing, and in particular by the impact of robots.”

By artificial intelligence (AI), is meant machines that do not just carry out pre-programmed instructions but learn more new programmes and instruction by experience and by new situations.  AI means in effect robots who learn and increase their intelligence.  This could happen to the point where robots can make more robots with increasing intelligence.  Indeed, some argue that AI will soon surpass the intelligence of human beings.  This is called the ‘singularity’ – the moment when human beings are no longer the most intelligent things on the planet.  Moreover, robots could even develop the senses and form of human beings, thus being ‘sentient’.

But before we get into science (or science fiction?), let us consider first things first.  If robots and AI are fast on their way, will this mean a huge of loss of jobs or alternatively new sectors for employment and the need to work fewer hours?

In recent work, Graetz and Michaels looked at 14 industries (mainly manufacturing industries, but also agriculture and utilities) in 17 developed countries (including European countries, Australia, South Korea, and the US)  They found that industrial robots increase labour productivity, total factor productivity, and wages.  At the same time, while industrial robots had no significant effect on total hours worked, there is some evidence that they reduced the employment of low skilled workers, and, to a lesser extent, also middle skilled workers. Full paper here .

So in essence, robots did not reduce toil (hours of work) for those who had work, on the contrary.  But they did lead to a loss of jobs for the unskilled and even those with some skills.  So more toil, not less hours; and more unemployment.

Two Oxford economists, Carl Benedikt Frey and Michael Osborne, looked at the likely impact of technological change on a sweeping range of 702 occupations, from podiatrists to tour guides, animal trainers to personal finance advisers and floor sanders.  Their conclusions were frightening: “According to our estimates, about 47 percent of total US employment is at risk. We further provide evidence that wages and educational attainment exhibit a strong negative relationship with an occupation’s probability of computerisation…. Rather than reducing the demand for middle-income occupations, which has been the pattern over the past decades, our model predicts that computerisation will mainly substitute for low-skill and low-wage jobs in the near future. By contrast, high-skill and high-wage occupations are the least susceptible to computer capital.’  Lanchester summed up their conclusions: “So the poor will be hurt, the middle will do slightly better than it has been doing, and the rich – surprise! – will be fine.”

Lanchester makes the point in his essay that the robotic world could lead, not to a ‘post-capitalist’ utopia but instead to a ‘Pikettyworld’ “in which capital is increasingly triumphant over labour.”  And he quotes the huge profits that the large techno companies are making.  “In 1960, the most profitable company in the world’s biggest economy was General Motors. In today’s money, GM made $7.6 billion that year. It also employed 600,000 people. Today’s most profitable company employs 92,600. So where 600,000 workers would once generate $7.6 billion in profit, now 92,600 generate $89.9 billion, an improvement in profitability per worker of 76.65 times. Remember, this is pure profit for the company’s owners, after all workers have been paid. Capital isn’t just winning against labour: there’s no contest. If it were a boxing match, the referee would stop the fight.”

But looking at the profits of companies that have seized the value created by labour in the new sectors is not necessarily a guide to the health of capital as a whole.  Is capitalism as a whole having a new lease of life as a result?  After all, overall investment growth is very low in the current long depression and productivity growth as a result also.  See my posts on productivity and investment.

Robots do not do away with the contradictions within capitalist accumulation.   The essence of capitalist accumulation is that to increase profits and accumulate more capital, capitalists want to introduce machines that can boost the productivity of each employee and reduce costs compared to competitors.  This is the great revolutionary role of capitalism in developing the productive forces available to society.

But there is a contradiction.  In trying to raise the productivity of labour with the introduction of technology, there is process of labour shedding.  New technology replaces labour.  Yes, increased productivity might lead to increased production and open up new sectors for employment to compensate.  But over time, a capital-bias or labour shedding means less new value is created (as labour is the only form of value) relative to the cost of invested capital.  There is a tendency for profitability to fall as productivity rises.  In turn, that leads eventually to a crisis in production that halts or even reverses the gain in production from the new technology.  This is solely because investment and production depend on the profitability of capital in our modern mode of production.

So an economy increasingly dominated by the internet of things and robots under capitalism will mean more intense crises and greater inequality rather than super-abundance and prosperity.  In my next post on this subject, I’ll consider whether the world of robots making robots with ever-increasing intelligence  – and perhaps eventually no human labour employed – would end the law of value and recurrent crises under capitalism.