Technology is eating jobs, not creating them

We have a serious problem on our hands

The Economist today had a fantastic article entitled “Technology Isn’t Working”. The thesis of the article is that technology is not following through on its promise of job creation and economic growth, instead resulting in stagnation over the last 30-40 years.

I completely agree and believe it is a primary driver for why we are seeing rampant income disparity and record low workforce participation as well as an increasingly dour outlook for the middle class. Let’s look at the sociological as well as economic reasons for this situation.

The historical assumption of economic growth regarding technology is that a new invention, especially those increasing efficiency, will create more jobs than it destroys. Think about the light bulb. It decimated the candlestick industry. But it created a massive industry of its own right. New factories, fresh marketing, and massive research opportunities. The number of jobs that it created far outnumbered the jobs that it destroyed. Furthermore, the jobs were better, higher paying jobs. Otherwise, they would never have been able to attract the workers. This is standard economics. Assets such as labor will go where their utility is maximized and since the light bulb was a superior good compared to the candle, it commanded a higher price, which led to better wages, which led to higher GDP and a better life for everyone.

This simple process can be applied to any technology. Cars replaced the horse and buggy. Telephones replaced the telegraph. Planes replaced trains.

In this way, technology has historically created jobs, growth, and a better economy and world for everyone.

However, this can also be a very bad event, and, more recently, is no longer true.

What about the manufacturers of the candles? The horse ranches? The telegraph factories? The train companies? What happened to them?

They lost massively. They felt incredible pain.

And that is exactly what we in the first world are feeling right now.

I read another article yesterday regarding the spread of viruses. It introduced the concept of acceleration of viruses called R0. R0 is the number of people that an infected individual can be expected to infect. Essentially, it’s how virulent a virus is. Measles is the highest at 18. Ebola is at 2. (However, when you take into consideration how long the diseases last, Ebola is still frighteningly infectious.) Those numbers also multiply very quickly. 2 becomes 4. 4 to 8. 8 to 16. Etc..

This same principle can be applied to technological growth in an economy. For every advance in technology, we would hope that it would create more jobs that it destroys. We’ll call this acceleration value J0. The light bulb had a J0 of greater than one. For every job it destroyed in the candle industry, it created more than one job in the new light bulb industry.

But is this true of software? Think about robots and automation along assembly lines. Robots have replaced millions of workers in factories worldwide. Do we really think that it takes millions of workers to service, program, and manufacturer these robots? Of course not, that would defeat the whole point.

But the few workers who did conceive and program the robots were paid significantly more than those factory line workers.

Let’s apply this to email. Imagine if email didn’t exist and all we had was classic snail mail. Imagine printing and sending all those letters. Imaging how many more workers the US Postal Service would need handling all that insane amount of mail. We’d all also need a lot more paper and recycling services as well. But we don’t need any of that. Instead, email at most companies is in the cloud and takes absolutely no time to administer, creating no jobs at all.

But the very few people who program and host that email make heaps of money.

Very modern technology, through software, meant that J0 went from being greater than 1 to being significantly less than 1….maybe even close to zero. The entire value of new technology was absorbed by skilled workers already at the top of the food chain in terms of income. Hence, the rich got richer and incomes for the middle class remained stagnant as job opportunities shrank. The young are smart enough to be able to shift their education as they see this coming but after your 20s, how can you actually shift your career out of the path of this speeding bullet?

Even in new technology that requires human labor, such as the iPhone, international manufacturing and outsourcing has meant that US corporations have taken their labor to the cheapest possible location instead of investing in the first world, creating that job growth elsewhere. Even the very technology that would create jobs is creating them in the wrong place. We have become the candle manufacturers!

What’s worst is that we are doing it to ourselves.

But there’s a far more frightening side to this which is the acceleration of growth of companies with a J0 less than 1.

Think about the darlings of technology today. Apple. Google. Microsoft. Oracle. Then think about the darlings of start-ups. Facebook. Twitter. Square. Airbnb. Dropbox. Every single one creates extraordinary value with extraordinarily few employees. Apple is well known as having the highest ratio of revenue to employee in the world. Square is valued at many billions of dollars with a few hundred employees.

Technology is not creating jobs. It is eating them.

I can’t get the image of the humans in the ship from Wall-E out of my head. All of the products we seem to be creating these days are all about increasing the marginal ease or quality of living. Except for a few sparse examples, we’ve stopped pushing the boundaries of human ingenuity. The internet and Google were the last great inventions and in the century before them came the plane, the telephone, the computer, electricity, nuclear power, nuclear weapons, the car, the rocket, space flight, landing on the moon, and movies.

All of these inventions spawned massive industries employing millions of people that lasted decades.

Where is the next major technology? Who is working on it?

Why aren’t we working on a dozen new technologies?

Why are we so complacent with not working on them?

These days we’re lucky if we get a new app on our phones whose home screens haven’t changed in close to a decade. I had a phone in 1996 that I could install apps on (the Nokia 9000).

What the fuck? Where has human ingenuity gone?

Software has enabled us to create companies that will be worth billions of dollars by employing a few hundred people. But that won’t help the world. In fact, it will end it. It is increasingly causing wealth to be accumulated into the hands of few select individuals, mostly equity holders, and shifts any new job creation away from the first world into emerging economies.

As a technologist myself, this is a tremendously upsetting realization. I have always wanted to help the world with my inventions. I still believe I can. But it is by pushing the boundaries of what is possible, not by endlessly feeding a mob of consumers. It is by enabling people to enable themselves. The help the inventors invent tomorrow. To make dreams into reality.

Entrepreneurs need to remember that we are supposed to live on the cliff between science fiction and science fact. Turning it into reality is our job and how we create others. We are not here to create efficiency inside the boundaries of the world that exists, but to imagine and create the world that doesn’t.