It is becoming increasingly apparent to business owners that human labour is too expensive, and they’re taking measures to alleviate that – for example, Uber’s efforts to replace their drivers with self-driving cars before their Silicon Valley war chest runs out. Amazon is increasingly automating processes throughout the business, from warehouses to delivery. And it’s not just unskilled jobs that are disappearing – machine learning and artificial intelligence will quash opportunities for plenty of STEM and finance graduates too.
You don’t have to be an IMF bigwig to know that unemployment is bad for the economy. And unemployment isn’t the only factor – long hours, low wages, and stressful conditions all have an impact on the economic activity of workers, who don’t so much consume as survive.
“The countries that have been able to grow for the last two or three centuries are countries that have been able to create large middle-classes who have been able to consume and save,” Bailador CEO David Kirk told Investor Daily.
“If you have a situation where people are unable to save money because they don’t have the income to save money, than there’s no money available for investment – and if there’s not enough money for investment then businesses are not able to invest and grow.”
The global economy rests on a bedrock of workers that must be able to move up into the middle class. When the middle class disappears – when even the working class disappears, automated out of existence – then we have the makings of a global financial crisis the likes of which have never been seen before.
So what’s to be done?
A radical redistribution
One way to alleviate the effects of automation is a wealth tax. French economist Thomas Piketty addressed the problem of wealth inequality in his book Capital in the Twenty-First Century. In Capital, Piketty advocates for the creation of a global wealth tax that would see some billionaires taxed more than 90 per cent of their earnings. While Piketty acknowledges that such an idea is “politically impossible”, he believes that it’s the only way to ensure the stability of the global economy.
Of course, such a tax would have to be created in such a way that it doesn’t stifle growth. That would be counterproductive, and disincentivise entrepreneurship and innovation. It would also have to take into account people who are rich on paper but short on cash. Piketty’s wealth tax would see billionaires disappear, but not have much of an effect on those with fortunes worth tens or hundreds of millions.
Some think the idea of taking money away from people who are supposed to have earned is unfair. But the question of whether wealth redistribution is unfair rests on the assumption that the current system is fair.
“Neoclassical economics or liberal economics would tell us that people rising to the top is generally based on their level of skill, their talent, their ability, maybe their level of education,” Tim Di Muzio, author of The 1% and the Rest of Us.
“That has something to do with it, no doubt. But what we don’t talk about is corruption, violence, privilege.”
A growing number of billionaires are born into their wealth – most notably the Walton family, heirs to the Walmart empire. The argument for these billionaires having earned their wealth is extremely dubiously justified. Add in the fact that billionaires like the Waltons wrap their wealth up in a complex network of Jackie O Trusts and offshore bank accounts to stop the taxman from getting it and you have an even stronger case for wealth redistribution.
What are the downsides?
Of course, the funds available from wealth redistribution policies are available to the agenda setters, not the general public. The government can do whatever it wants with confiscated millions, and that won’t always be to the advantage of the common man.
They could also have progressively smaller returns – billionaires will disappear, and those who aren’t already billionaires will take action to ensure that they don’t become billionaires, meaning that a global wealth tax might only provide a one-time injection of funds. If it’s not spent in the right places, the advantages of a wealth tax might be short-lived.
Looking ahead
Something has to change for the current world order to persist. Rising wealth inequality and automation pose the greatest threats to the global economy since the GFC. And while some point to automation as a sign of progress, it’s important to remember that even progress has winners and losers.
