Julian Wood

By Julian Wood - 24/04/2017

Julian Wood

By Julian Wood -

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Tax the robots?

We’re now quite used to dire predictions concerning the future of work, job stability, and automation. As far back as 2013, experts began telling us that 47 percent of all jobs were high risk of automation. And it’s not just manufacturing jobs, full time, well paid jobs in many industries are predicted to go the way of the dodo. Even Bill Gates joined the discussion recently by arguing that we should tax robots to help those who can no longer work. Unfortunately, taxing robots is a tremendously bad idea.

We’re naturally concerned about the number of jobs that are disappearing, but the overall number of jobs or people employed in New Zealand is like the water level in a bath. The level can go up or down over time with new jobs being created and some jobs becoming obsolete. Most of the dire predictions around automation highlight the increasing pace at which the water is leaving the bath.

It is equally important to understand what “turns off the tap” of new jobs, stifling the development of new jobs to replace our old work.

The water entering the bath (new jobs) comes from new ideas. These new ideas become new products and then sold. The start of this process requires research and development, and this innovation then requires entrepreneurial risk taking to turn the idea into a viable product. Anything that slows down research and development, innovation, or entrepreneurial risk taking, slows down the inflow of water to the bath.

Taxing robots (or algorithims, or software) lowers the returns to innovation, lowers our relative competitiveness against other producers without those taxes, lowers productivity, and in the end lowers economic growth. This all means fewer people willing to take risks on new ideas and products and therefore, fewer new jobs.

Allowing change to create new products and jobs also means that automation is not the end of employment or even the end of good employment. Rather, different people will be affected by automation and technological change in different ways. Key to managing this change will be enabling people to prepare and adjust rapidly within an ever-changing future.

If past change is anything to go by, some will do very well if their job complements or leads automation. Some will keep their jobs, but find some of their tasks will be done automatically, and have to retrain on the job. Some will be worse off initially and lose their jobs and be forced to find a new job. Many of these people might well find themselves doing a job that doesn’t even exist yet. If we really want to help displaced workers the last thing we should do is slow down the economy’s ability to create.

If Bill Gates is right, the road may well be bumpy, as we all face the uncertainty of a rapidly innovating world. However, slowing down innovation by taxing robots or by lowering incentives to take entrepreneurial risks isn’t a sustainable answer.

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Julian Wood

By Julian Wood -

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