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Archive for February 2016

Will robots cause massive unemployment?

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At least a quarter of all South African men and women of working age that are willing and able to work are unable to find a job. Unemployment is the scourge of our times, depriving households from incomes that will allow them to buy the goods and services that will, by increasing their consumption of nutritious food, sending their kids to good schools, giving them access to health services, ensuring safe and secure homes for their families, and providing ample opportunities for leisure activities, improve their living standards. The psychological scars of joblessness can be severe and persistent too. Few would deny that, in an ideal world, all citizens who are able and willing to work can find a job and provide for their families.

And yet, there are deepening concerns that technological progress is stealthily eradicating the need for human labour. With the emergence of artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing in everyday applications, a very real social problem seems to be on the horizon: Will the firm of the future have any need for human workers? And given the poor quality of skills in South Africa due to Bantu Education and the failure of the post-apartheid government to improve the performance of black schools, is it not plausible to expect that South Africa’s unemployment rate will soon rise to 50%?

South Africa is not alone in confronting this immense societal challenge. The economic consequences of the Rise of the Robots – also known as the Fourth Industrial Revolution – were the main topic of discussion at the World Economic Forum at Davos in January, with great fanfare but little content. A far better analysis, instead, is provided by MIT economist David Autor in a paper published in the December issue of the Journal of Economic Perspectives. In ‘Why Are There Still So Many Jobs?’, Autor asks why automation has not wiped out most jobs over the last few decades, as it was predicted to in the 1960s.

The simple answer is that automation both substitutes and complements human labour. Yes, automation (machines, robots, algorithms) replaces labour. Walk into any car manufacturer and the dearth of technicians and labourers – especially compared to 50 years ago – are striking. But automation also complements labour, increasing productivity and earnings, which augments the demand for labour.

Think about bank ATMs. A new study by Boston University professor James Bessen shows that ATMs quadrupled in the US from 100 000 to 400 000 between 1995 and 2010. One might assume that the spread of ATMs replaced the need for bank tellers, but as Bessen shows, bank teller employment actually rose from 500 000 to 550 000. Why is this? ATMs reduced the cost of operating a bank branch (by substituting what more expensive bank tellers do). Because of this cost reduction, however, banks opened many more branches across the US, and could thus employ more bank tellers (although fewer tellers per branch). And because ATMs could now do the menial task of cash-dispensing, bank tellers were freed up to offer other types of ‘relationship banking’ services, introducing clients to new banking services like credit cards, loans and investment products.

The effect of automation on employment thus depends on whether workers’ tasks are substituted or complemented by automation, whether there are enough workers in the economy to respond to the greater demand for the complementary tasks, and what those new workers prefer to do with their incomes. Let’s use another example: Farmers are increasingly using GPS navigation equipment to automate harvesting, substituting the need to employ (experienced) tractor drivers. Can these tractor drivers adjust their skills to complement the new automation? Probably not, which means that their jobs as tractor drivers will be replaced by technicians able to install and run GPS navigation software. If there are fewer such technicians available (which there are), it is likely that their wages will be higher than what the experienced tractor drivers earned. But these technicians will in all likelihood also spend their incomes on products and services different from the tractor drivers, benefiting industries unrelated to the GPS automation (like restaurants and golf clubs) and hurting others (the local spaza shop).

The latter is often an overlooked point. Many fear that automation will replace unskilled labour for highly skilled jobs. This is indeed true in the first stage of the story: the tractor drivers losing their jobs to GPS technicians. But the higher farm productivity pushes both the incomes of the farmer and the technicians to higher levels, allowing them to spend in the rest of the economy – and often on services where automation has less of an effect. Such services often employ unskilled labour intensively, like restaurant waiters or greenskeepers. Automation could thus have a net positive impact on unskilled labour.

Robotic Steel WorkersEmpirical evidence seems to support this hypothesis. Autor reports that automation in the US and Europe seems to have had a positive impact on high-paying and low-paying jobs. But, surprisingly, it is the middle-paying occupations – like office clerks, building trade workers, machine operators – that have lost out. He calls this phenomenon the polarisation of employment.

I find it unlikely that automation will result in significantly higher unemployment in South Africa. Automation will result in higher levels of productivity, increasing the incomes for those with the skills to complement the rise of the robots. Their higher incomes will likely be spent on services where unskilled labour is intensively used. Expect the demand for occupations as disparate as cleaners, security guards, health-workers and hairdressers to increase – those jobs where automation can is complementary to human labour.

Because of the large supply of unskilled labour in South Africa though, such greater demand will reduce unemployment but is unlikely to affect wages. Unless we can open our borders to skilled migrants, inequality between the incomes of the top with its small pool of skilled workers and the large pool of employed but low-wage earners will thus increase further.

Those currently employed in back-office jobs where creativity and human interaction is not required should be warned: the robots and algorithms are coming for your job. My advice: Find a way to build or programme the robots, or analyse the data they generate. Or choose a service industry where automation will complement those very human tasks of creativity, imagination and human interaction.

*A shortened version of this first appeared in Finweek of 18 February.


Can South Africa’s empirically-minded public intellectuals please stand up?

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Much has been said about South Africa’s economic situation in recent months. Even more has been written about the underlying ills that explain everything from protests at universities to the persistent poverty in the former homelands. This piece by Raymond Suttner, a principled intellectual who paid a heavy price – seven years in jail – for his political activities during apartheid, perhaps best exemplifies the tomes of op-ed pieces trying to make sense of the situation.

And then Dan de Kadt*, an MIT student in Political Science, wrote the following on Facebook in response to the Suttner piece:

In my opinion this is the type of article we need fewer of in South Africa. Not because Raymond Suttner is fundamentally “wrong”, but because this article is a platitudinous summary of what we already know. And somehow it even gets the summary wrong, by being deeply non-empirical.

1) Pretty much everyone who is not a racist bigot (e.g. all those white folks posting on “White Genocide” groups or commenting on News24) knows that South Africa is still living through the legacies of Apartheid – political, sociological, economic, geographic, etc. The structural challenges facing people in South Africa clearly cut along race lines, and the consequences of that are deeply troubling. Egregious inequality, limited inter-generational mobility, social violence, state violence, etc, all following racial lines. It is anecdotally obvious, and empirically obvious too, if you bother to look at actual data.

But understand that the racist bigots aren’t going to change their opinions because of the nth article stating these facts, no matter how well written or persuasive it is. Trying to convince Apartheid dinosaurs is a fruitless (and actually unnecessary) enterprise.

2) While the above claims are undeniable, they are also stylized – they are generalizations and simplifications. As Suttner points out, a lot of progress has been made since 1994. But then he turns around and says things like “Black people’s life opportunities are little different from that of their parents.” On average, that’s simply false for any reasonable definition of “little different”. And it’s obviously false if you just look at the (slow, but real) emergence of the black middle class, a group that tends to be young and upwardly mobile. There’s ample census and labour force data that backs this up – for black South Africans there is better inter-generational mobility now than before, and income and wealth are slowly (far too slowly) being redistributed to the emerging urban black middle class.

The same is true of many many things in post-1994 South Africa. Electricity, water, sewerage, refuse collection access? Virtually non-existent for black South Africans in 1994, much more existent now. If you actually bother to look for it, we have the data needed to examine where the country is failing and where it is not, where Apartheid persists, and where it does not. That is what we need from our public intellectuals, rather than endless repetitive platitudes about how “things are essentially the same”.

3) The failure to recognize this subtler empirical reality means that Suttner fails to capture emergent intra-race class cleavages. There are indeed many young black South Africans whose opportunities/lives are as limited/horrifying as their parents’ were. But these are, for the most part, not students at universities (certainly not UCT). They are, for the most part, not the people participating in RMF or FMF. They are the children of some 17 million exclusively black (read almost half) South Africans who are still forced to live in, essentially, Apartheid-era Bantustans, the only parts of the country where service provision is systematically worse now than it was in 1996. They are the children who eagerly went to school in grade 1 only to find their teacher absent 3/5 days a week. They are that young man on the trash heap while Gareth and Dali walk by laughing. An entirely contrary reading of the RMF/FMF movement is that it is an expression of the emergent black middle class, and its ignoring of (not to say dislike of, or indifference to) the plight of those who remain “below” them. Free university? For whom, the 5%?

4) What this country needs is intellectuals who write articles that explain how to FIX the legacies we’ve inherited. Suttner gives us a brief paragraph about how “we could have done better” on NSFAS because “other places have”. Like where!? Tell us!? That’s valuable f*cking information! Problems in the education system limit black South Africans prospects? No sh*t! Now, please tell us how you think we should fix it, or at least start a debate about how to fix it, preferably one based on actual evidence.

There are so many brilliant minds in this country, and so many brilliant ideas worldwide about how to address the kinds of problems we face. Our problems are not unique. But all we deserve, it seems, is yet another article from a celebrated public intellectual telling us what’s wrong (and with little empirical evidence to back it up, to boot).

Diagnosing the ills of South Africa in broad strokes is, to be honest, extremely straightforward. Apartheid makes it so. What we need are bright minds and public intellectuals leading empirically grounded debates about policy and about how to fix the problems we (smart/not-bigoted people) know exist.

Yes, yes, and yes! First, this is why South Africa’s best and brightest students should study fields (and equip themselves with tools) that will allow them to address these serious questions. Second, we need to expect more of our public intellectuals. A research paper or policy document or even an op-ed cannot simply be a few bundled ideas and theories without empirical proof. Third, there is way too much emphasis in South Africa on who says something, rather than what is being said. Science should be anonymous. Regardless of the nationality, gender or religion of the scientists, if results are falsifiable and repeatable, then they are all that matters. This is not entirely the case in the social sciences, because the real world is not a laboratory. But empirically-grounded research where social scientists analyse large data sets of household earnings, voter behaviour or race relations, for example, depend less on who is doing the research and more on what is being done. To use one example: we don’t care about the nationality, gender or religious orientation of the researcher who showed that less than 9% of South Africans use state-sponsored public transport (trains and buses) to get to work. Instead, we care about what this finding tells us about the inefficient transport system in South Africa, and the policies that could best fix it. I accept that not all research is quantitative, and that not everything can be reflected in numbers. (I’m an economic historian; sometimes numbers just don’t exist.) But what we should be cautious of is opinion (i.e. arguments not grounded in empirics). The ease of publication these days means that opinion often gets more attention than it deserves.

Dan’s last sentence is therefore indeed very important, so let me repeat it: What we need are bright minds and public intellectuals leading empirically grounded debates about policy and about how to fix the problems we know exist.

Can South Africa’s empirically-minded public intellectuals please stand up?

*I asked Dan’s permission to quote him. I tried to cut, but it was all just very good, and very valid. Thanks Dan.

Breaking in new shoes

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On Sunday, Helanya and I flew back to Utrecht after a wonderful few weeks in South Africa. I had time to catch up with friends and colleagues, meet with students, organise the final ERSA Economic History workshop in Cape Town, and even play a two-day game of cricket. And, of course, do some shopping for the wintery months ahead, including four bottles of blatjang and new hiking shoes to break in during the next three months for a Camino walk I plan to do in May.

I must admit, I was skeptical of the sentiment I would encounter on my return to South Africa. The end of 2015 was not a great time for the country, most directly (for those of us residing in foreign countries, at least) reflected in the rapidly-depreciating currency. The president’s expulsion of Finance Minister Nene, the prolonged protests at universities, and even the poor performance of the Proteas proliferated the pessimism. And the start of 2016, characterised by vitriolic social media slurs, seemed to not augur much hope that 2016 would be any better.

And then we returned and fell in love with our own people all over again. The food, the sun, the languages, the opportunities. Bright students with bright ideas. A we-are-the-change-we-want-to-see-in-this-world attitude. When I was a student, apathy in student affairs was the main issue of the day. Not anymore.

That is not to say that all is well. Even through our over-nostalgic senses, we could feel the disappointment in the status quo, the hunger for a better South Africa. Race is at the forefront of national debates again. As I wrote last year, the narrow focus on race distorts the ‘remarkable story of courage, determination, perseverance and triumph-against-all-odds’ that black South Africans have written since the end of apartheid. By focusing on race, whites are made a co-author of a story that is not theirs to tell. And this remarkable story of self-empowerment continues, although some would argue for more abbreviated chapters.

More can be done, of course, to increase opportunities for all South Africans. It would help if the patronage politics that have become so endemic are tempered – how, I don’t know. It would help if we can encourage South Africans to start businesses that can sell to an outside world now eager to buy cheap South African products. It would help if we can provide quality education to kids that are currently excluded. But we should not dismiss the incredible achievements we have made too easily.

Yesterday I attended a workshop in Amsterdam. Some of the participants were from Sweden and Finland, two countries I have long admired for their open and innovative policies, and over lunch we discussed the immigrant situation across Europe. I knew, of course, about the rise in anti-immigrant sentiment, and the increase in right-wing activity, but I was surprised to hear about their own experiences: large anti-immigrant demonstrations that have strong racist undertones; academics receiving threats when they take a pro-immigrant stance; militias in the streets exercising mob justice.

It is easy to get pessimistic about South Africa when the State of the Nation is as fresh as a forgotten yogurt in a college dorm room. We have serious issues that need to be addressed fast. But we are not alone. Issues of exclusion, discrimination and repression exist in some of the world’s most enlightened (and educated) countries, issues that are unlikely to be resolved soon and may spill over into even worse forms of exclusion and violence.

Our walk to freedom and social justice may be long and winding, but at least our shoes are already broken in.

Written by Johan Fourie

February 13, 2016 at 11:29