Fixed Income Analyst
When Alan Turing invented the first modern computer, few people could have guessed the impact that the technology would have on today’s world, writes Alice Leedale, Fixed Income Analyst at Schroders
Alan Turing is widely known today as the father of artificial intelligence. He invented the first theoretical computing machine in 1937. His involvement in cracking the Enigma code helped shorten the Second World War.
Little could he have imagined back in the 1940s and 1950s that his pioneering work would ever be thought of as anything other than beneficial. Today, however, many experts are raising concerns about the increasing sophistication of automated systems and their ability to perform a range of tasks better than humans.
The pessimists paint a bleak picture of mass displacement of labour accompanied by increasingly wealthy robot owners. Yet the history of technological change offers a decidedly more sanguine prognosis.
We are optimistic that artificial intelligence, the legacy of Turing’s genius, will create neither widespread joblessness not rampant inequality in the long term. Even so, labour market distribution in the coming decades could be sizeable unless policymakers respond quickly and effectively. Most obviously, taxation and education need to be redesigned and updated to become “fit for purpose” in this second machine age.
An automation revolution should bring a much-needed boost to productivity growth.
Both ‘techno-pessimists’ and ‘techno-optimists’ agree that robotics and automation should boost the combined output of capital and labour. The controversy centres on how the gains are distributed. Techno-pessimists typically predict a period of intense job destruction, with the extra wealth created narrowly distributed among those who own the new technology.
There is certainly evidence to suggest that this ‘fourth industrial revolution’ will bring about significant labour market disruption. Studies by the Oxford Martin School have estimated that around a third to half of jobs in developed countries such as the UK, US and Japan could be at risk of automation.
On the face of it, an extended period of labour market disruption does seem likely. However, we are not convinced that in the long term the techno-pessimists’ vision will win out.
Over the course of the 20th century, not only did technology lead to huge productivity improvements that raised living standards for all, we would argue that it also created more jobs than it destroyed. There is room to be optimistic for other reasons too. An automation revolution should bring a much-needed boost to productivity growth.
If robotics helps to offset deteriorating demographics, it could challenge the conventional wisdom that developing countries with large, young populations have a demographic advantage over developed economies. This is particularly pertinent given developed economies are more likely to be early adopters of robotics and automation.
Furthermore, if unskilled labour does become less attractive compared with robots, then the growth aspirations of many lower income emerging economies could be called into question. Countries such as India and the Philippines may find that their ‘demographic dividend’ of cheap labour no longer provides a major advantage.
It is clear that robotics and automation will see old jobs disappear and new ones emerge. Whether this leads to a new age of prosperity or a ‘techno-dystopia’ of mass un- and under-employment, glaring inequality and widespread social upheaval is not clear at this stage. However, we would argue that, in the long term, history is firmly on the side of the optimists.
Investors will, however, need to keep a close eye on how policymakers and individual beneficiaries of automation rise to the challenge of spreading its financial benefits.
Fixed Income Analyst
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.