Yahoo Finance A tax on robots is the last thing the economy needs
Fears over new technologies destroying jobs are nothing new. In fact, it can be traced all the way back to Aristotle in Ancient Greece who raised his concerns about automation. Fast forward all the way to 1589 and the inventor William Lee found himself rebuffed by Queen Elizabeth I over his knitting machine. The Queen refused to grant him a patent as she felt it would lead to mass unemployment among her subjects.
The centuries which followed are littered with similar examples. Whether it’s the luddites during the Industrial Revolution or the doom merchants of the twentieth century who were convinced that computers would make the middle class obsolete, fears over the impact of new technologies on the labour market persist.
As such, it is hardly surprising that we are now seeing concerns raised about the impact of AI on jobs. One such example of this is the Labour Party announcing that it will levy a tax on firms which replace workers with AI. While it’s important to state that Labour has pointed out that it is not against businesses using AI, it is concerned about decreased revenue from people being out of work. While it is always important to consider how the government will finance its spending – and our tax system is in dire need of reform – a ‘Robot Tax’ is the last thing the economy needs.
First, the Government should not seek to penalise firms which invest in new equipment. Since the Great Recession, business investment has been at an historic low with little sign of increasing. Investment in new technologies leads to increased productivity. This goes some way to explaining the UK’s ‘Productivity Puzzle’ in that productivity growth has been stagnant over the past 15 years. Given that productivity is the key driver of economic growth, this is why the country has already experienced one lost decade and is on track for another.
Therefore, the Government should be doing everything it can to incentivise firms to invest more, not less. This is especially true when it comes to AI. The potential of AI to massively improve productivity – including in areas where the UK excels such as technology, finance and other professional services – means that the increased use of AI will bring a huge economic boost to the country. As such, a tax on robots is the last thing the UK economy needs.
AI will almost certainly lead to job losses, but it will create many more which will see workers get a pay boost and have a more fulfilling career
Second, the plan is based on the assumption that increased AI will lead to mass unemployment. It is true that new technologies have resulted in people losing their jobs and whole industries becoming obsolete. However, it has also created far more jobs than it has destroyed through a process of ‘creative destruction’.
Coined by Joseph Schumpeter, creative destruction simply means that while some jobs will be destroyed, the increase in economic growth means that other jobs will be created to replace them. These jobs tend to be better paid, less repetitive, and much more safe. AI is set to be revolutionary, but this is said about all new technologies. As such, there is very little evidence to suggest that it will be any different this time.
AI will almost certainly lead to job losses, but it will create many more which will see workers get a pay boost and have a more fulfilling career. What is more, it is likely to lead to job displacement in which people keep their jobs but see many of their tasks automated. These are the roles which tend to be more boring and potentially unsafe and so AI will free these workers to focus on the elements of the job which only humans can do.
Labour is right to do some serious thinking about the impact of AI on the labour market and the implications for the public finances. However, there is no evidence to suggest that AI will lead to long-term mass unemployment. AI will make firms more productive and will see their profits increase. What is more, it will create new jobs and boost wages. All of this means that the Treasury will see revenue increase and so have more money to spend, not less.
AI has the potential to be truly revolutionary and it would be wrong to dismiss fears about it out of hand. However, this revolution is likely to bring huge benefits to workers and the economy as a whole and so we have every reason to be cautiously optimistic and embrace the AI revolution.
Ben Ramanauskas is a former adviser to the UK Government and economics fellow at the University of Oxford
