Early in his first term Barack Obama joked that he would “keep an eye on the robots in case they try anything”. He should have known resistance is futile. During Mr Obama’s presidency, IBM’s Watson has proved computers can outfox the most agile minds, drones have become America’s weapon of choice, the driverless car is now a reality and the word “app” has been detached from its origin. No longer the realm of science fiction, the rise of robots now poses the central economic dilemma of the Obama era.
With each month, the US economy becomes steadily more automated. In January the US economy added just 4,000 manufacturing jobs, and the net increase since July is zero. Yet last month, manufacturing activity rose by its fastest rate since April, according to the Institute for Supply Management. The difference boils down to robots, which pose an increasingly nagging paradox: the more there are, the better for overall growth (since they boost productivity); yet the worse things become for the middle class. US median income has fallen in each of the last five years.
Things cannot continue as they are. Yet change is speeding up. Manufacturing employment is shrinking around the world. Among other countries, China is moving even faster towards industrial robotics, an area in which German and Japanese manufacturers dominate. Last year Foxconn, the Shenzhen-based assembler for Apple, Nokia and others, said it was buying 1m robots in the next three years to substitute for workers performing repetitive manual tasks. At the other end of the spectrum, a restaurant in Harbin, northern China, last year became the first to be entirely waited on by robots. Last month, China opened the world’s first museum of 3D printing.
The potential is huge. But in the developed world, the distribution of the benefits is unsustainable. The bulk of US jobs growth since mid-2009 has been in low-skilled areas, such as food preparation and domestic aides. In the second place is jobs growth in high-end services. Middle income jobs have cratered. According to the National Employment Law Project, low wage jobs (that pay between $7.69 and $13.83 an hour) formed 22 per cent of job losses in the recession but 58 per cent of recovery jobs since then – a mirror image of the picture for middle income jobs ($13.84 to $21.18).
Unsurprisingly, people are reverting to borrowing to stay in the game. Last week, Hero Wallet, a financial advisory firm, showed that one in four US workers were dipping into their retirement funds to meet current spending needs – in spite of the penalties that accrue. This usually involves taking out loans against their retirement accounts. The median income is almost 9 per cent lower today than when Mr Obama took office. It is unclear what he can do to prevent it from falling further, even if the US returns to a higher rate of economic growth.
The effects of technology are only just beginning to be felt in education and healthcare – the two most labour-intensive areas of the US economy that both suffer from productivity stagnation. Online education is beginning to spread. It is also meeting resistance. “The reactionaries in the faculties will eventually be grandfathered out,” says Tyler Cowen, co-founder of the Marginal Revolution University, which has pioneered free online learning in economics and other subjects. “We’ll still need Harvard as a dating service,” he jokes. “But the mid-level private universities do not know what is about to hit them.”
Even in healthcare, which reliably added jobs when every other sector was shedding them, technology is starting to look labour-saving. Last week, the Food and Drug Administration issued a patent to RP-Vita, the first “human interacting autonomous robot” for hospitals. Forget downloading diagnostic apps. At some point we will be boring Watson with our symptoms. For many of us there will be big gains. The most innovative teachers will be able to outsource lessons to the internet and focus on each child’s specific problems. The best doctors will be freed from basic diagnostics to do the same.
But the spread of the robots will leave a large and growing chunk of the US labour force in the lurch. In their excellent primer, Race Against The Machine, Erik Brynjolfsson and Andrew McAfee point out that in the contest between changing technology and education, the former is winning. Too few Americans are prepared. Some, such as Mr Cowen, fear many never will be. He believes the federal government should pay a basic guaranteed income to all Americans – a despairing view that accepts there will be permanent losers.
Mr Obama is more optimistic. In his first term, he set a target that the US should graduate every American by 2020. Even if that were possible, it may not be a panacea. Incomes for those with only a college degree have also stagnated since 2000 (and fallen for men). Yet a healthy economy cannot for long be upheld by a minority of its workforce.
At some point, policy makers will be forced to grapple with what is intuitively obvious – that sustained growth is inconsistent with declining middle class incomes. In their book, Brynjolfsson and McAfee cite a meeting between Henry Ford and Walter Reuther, the union leader. Pointing at his new robots, Mr Ford says, “How will you get union dues from them?” Mr Reuther replied: “How will you get them to buy your cars?"