The Final Industrial Revolution

Gabriel Casella, JHU:

The Industrial Revolution of the 18th and 19th centuries completely transformed the world’s economic, social, and urban landscape. Mechanization and innovation provoked the departure from the highly inefficient traditional cottage economy to the new factory system, yielding sustained increases in labor productivity as the time, skill and physical input required per unit of final product dramatically decreased. As a result, the world market saw an expansion in the shear volume and variety of goods. Naturally, this drove the price of previously labor-intensive goods down, leading to an increase in the standard of living for many people.

It is important to note, however, that the industrial revolution led to many inhumane employment conditions and an actual decrease in the standard of living for many of the working class (especially women and children). Laborers often worked up to 14 hours a day for low wages in dangerous conditions. Furthermore, due to the nature of the factory system, the unskilled worker had practically no job security and could be quickly replaceable. This widespread abuse of the working class led to the national prominence of labor unions in many nations that lobbied extensively for government intervention to protect the rights of workers.

Currently we are witnessing another industrial revolution. Robots and artificial intelligence have essentially replaced many human components of manufacturing. This final industrial revolution is the product of the symphony of two major factors. The primary factor is that automation of the manufacturing system comes as a logical development in a free-market system that seeks to optimize the ratio of resource inputs and product outputs. Second, the recent technological innovations such as the Internet, robotics and complex computer systems have provided the logistical means by which this change can occur.

Automated systems perform better, safer and more consistently than their human counterparts. For example, trials of driverless cars, have sparked major attraction from large players in the technology world, such as Google. Automated technology has the potential to reduce cumbersome maintenance procedures and mitigate human error. In several decades, many of today’s professions will be outsourced to machines. The sectors of the economy most vulnerable to this are mostly blue-collar jobs and some “lower” lever white-collar jobs.

Another facet of the new modernized economy is happening in many industrialized countries with the rise of the so-called  “sharing economy”, due in part to mobile applications such as Uber, AirBnB, and Lyft. Under the guise of “workplace and schedule flexibility”, the sharing economy presents the unique problem of creating special class of laborers that do not have stable employment prospects. The largest issue is that these workers have unpredictable wages, leaving them purely at the will of the market economy and demand and furthermore they do not meet the criteria for many basic worker’s rights such as worker’s compensation, minimum wage rules and unemployment insurance due to their unique employment arrangement with these companies.

In a recent AMA (Ask Me Anything) session on the social networking website Reddit, Steven Hawking praised the value of the increasing mechanization and transformation of the economy and the plethora of benefits it would bring. He however voiced concern, citing the likelihood of increased class stratification as a result of the mechanization and technological advances. Hawking went further, asserting that the majority of the market’s capital and means of production is owned by the wealthiest, and as such they would solely reap the benefits of mechanization.

Again, much like in the industrial revolution of the 1760s, society is at a fork in the road. Automation has the potential to directly increase social welfare. One interesting example of this dynamic can be found in Japan. Japan has one of the lowest birthrates of any nation and is faced with the unique problem of having a shortage of a youthful workforce. In response, the Japanese government has strongly advocated for the development of robotics in the workplace to replace human labor. Initial results show promise; manufacturing and service sectors have already seen increases in prudential safety procedures and overall productivity as well.

China is experiencing the same mechanization trend as Japan. The effects seem to be more somewhat more burdensome than beneficial. It is estimated that between 1995 and 2002, 15 percent of the Chinese manufacturing sector jobs (16 million people) were replaced by machinery. Economists have expressed concerns that China, and many industrial nations will face the emergence of a large unemployable underclass of unskilled workers if nothing is done to address “technological unemployment”.

Many solutions have been proposed to prevent the rise of such an underclass. Among them are welfare payments, basic income payments, mass reeducation of the work force, a large public works program and shorter working ours of employment across the economy. However, implementation has proven to be another issue. China has heavily invested in educating the displaced blue-collar workers. Yet the Chinese government has not succeeded in creating enough white-collar jobs to provide secure and stable employment. As a result, many workers feel overqualified for their current employment prospects.

The overall dynamic of the mechanization situation is rather complex. China’s policy reforms have proven to be ineffective, and the Chinese government will likely have to experiment with another of the aforementioned proposals. Many other countries will face similar problems in time and it is becoming increasingly clear that government intervention and the creative rethinking of the market economy are needed to successfully prevent widening unemployment and curb the ever-increasing wealth gap and subsequent class stratification.

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