Almost everybody who talks about about AI, a very exciting technology thinks of it as an automation technology, but in fact area is a platform. You can use AI to do thousands of things, to increase human's productivity, and to enable humans in real-time adapt to data, making the education more individualized, making healthcare more individualized and making the production process have a much more seamless interaction between precision tools and and workers. But the problem is that the business models of the most dominant companies today and the way that the ecosystem of technology supports the technological change is very much geared towards automation.
There's a lot of concern about what automation and robots are going to do to work and to workers. I think there are reasons to be concerned. Because the way that new technologies have been developed over the last two-and-a-half three decades really is going very much down the path of automation, industrial robots being one example. But before then numerically controlled and computerized control machinery and now AI and automation increases productivity by saving on expensive labor. But it displaces labor and therefore it has negative effects on the labor share of national income and it might have negative effects on wages and employment.
I think one of the confusing things about studying automation is that we see various different facets of automation but they often come bundled with other things and it's very difficult to unbundle them and understand what they're doing. Take for example the period of mechanization of Agriculture in the U.S. that's a very major process of automation , 50% of workers used to work in agriculture and over the course of about 80 years that went down tremendously and agriculture became much more machine intensive . If that was the only thing that happened, it would have been a tremendous negative shock to employment and wages. But fortunately during the same process the U.S. economy generated lots of new jobs also new tasks in services in manufacturing with clerical occupations, with new industries and new types of technologies that were very high productivity and in fact managed to raise employment andwages.
So looking at that period people then say “oh you know we weathered that particular storm very well why should we be concerned “ But what we are seeing in the U.S. today is that because technological focus has been so much on automation, we are seeing the automation part of it but we're not seeing the countervailing technology. So when you ask about the implications of automation today, you know I think they are summarized very well by industrial robots so they increase productivity you see in the autoindustry and the electronics industry there is higher productivity today. But workers don't benefit, especially the share of production workers falls tremendously and many of the areas where the significant fraction of the workforce was working in these industries as production workers end up suffering as a result. So again that goes back to the same set of ideas that automation has tremendous potential but only when combined with other uses of technology.
So that we lift workers and we create new jobs and new tasks and for a variety of reasons over the last three decades, the singular focus has been on automation, therefore labor market implications formost workers especially for middle skilled low skilled workers has been very bad.
When you think about the effects of automation. There are two important countervailing effects that help workers and I never understand them and understand what the extent to which they we can utilize them. One is that automationis being adopted by firms because it's actually profitable it's increases their productivity. That productivity effect helps workers but the extent to which workers benefit from the productivity effect is somewhat limited and the reason for that is if you think about where does the productivity benefits of automation come from. It's not that it's making workers more productive it's that it's enabling employers to substitute cheaper capital for workers.
So if we only have to rely on productivity effect in order to counterbalance the displacement created by automation, that would be imperfect and we wouldn't be creating the sort of the tide that lifts all boats. So wereally have to at the same time use new technologies in order to create new tasks, new occupations, new industries and new ways of organizing productions, so that we reinstate workers into new jobs in which they can have high productivity and that's again what we have witnessed in the past and I very much believe that we have that potential to do the same thing today.
Take for example Tesla, I think it's a representative of how many very creative entrepreneurs are thinking about. The problem is that you know you want to get out, you wanna get the fallible human factor out of the production equation, but also Tesla proved that it doesn'twork said that well. Because you know humans have unique skills that machine's are not going to be able to replicate for perhaps 100 perhaps 200 perhaps even longer. So we really need the human, but we need the human to work with the better technology and that's what we've been failing it. A lot of this is taking place in developed economies.
Most middle-income countries are not therefore they have a lot of time to learn from what's going on in the U.S. in Germany and Japan and adapt to it. But I think that's the wrong perspective, because what's going on in the developed economies today is immediately affecting the developing countries and the reason for that is because in the past a very successful development strategy which was exploited by South Korea, China is to start from the labor-intensive tasks in the global value chain learn from them build and upskill your workforce and increase this the value-added. They did go up the value-added chain. That's gonna become very hard when many of these labor-intensive tasks now can be performed by robots or by other automation technology. Therefore, developing countries and developed countries are in this boat together manufacturing is going to continue to be important. Many of the good that we like and consume need to be manufactured, but obviously high skill services and high-value other services are going to be very important too. But in both of them I think we have to find ways of better using humans and at the same time we also have to find ways of training and educating humans, so that they can more productively work in a more modern labor market. So if you think of the emphasis that I've placed so far on new tasks, those new tasks also require new skills. So if you educate men for example to be putting emphasis on physical skills manipulating things and not having the flexibility to transform what they're doing not having the adapt ability not having the numeracy skills and the social skills to work in a new environment. Then those are the skills that would have been fine in the 60s and the 70s , but they're not going to work very well with the new tasks that we're required to create. So we really need to push on both levers at the same time encourage technology to go in the direction of helping labor but also make labor more ready to work with that technology.
I think there are so many interesting areas of economics and part of this excitement in my opinion comes from the fact that economists are being more and more engaged with broader social questions. I think thinking about social norms is one of the areas. That is really very exciting and we need to do more on that more traditional economics, think of the implications of rising rents market power and markets structure. I don't think that everything that we're seeing is related to market structure, but when there are a few companies that are playing such a dominant role in their sector and then in the economy you really have to think about monopoly power. But that monopoly power is not gonna play out in the same way that the power of the Carnegie Corporation or the Standard Oil or even the ATT played out in the past. So it's a new way of thinking about it and then finally I think the way that technology impacts work and creates winners and losers. I holistic thinking.