On Theories of Automation
Seligman, Ben B.
A Polemic Against Daniel Bell and Others That the machine does in fact displace workers had been directly experienced during the Industrial Revolution by hand loom weaver and Luddite. Yet...
...it helps us meet the challenge of foreign competition...
...There is no doubt of the latter, if the analysis is viewed solely in terms of percentages...
...Perhaps these relationships changed as they did because much of the investment has been of the capital-saving variety...
...Proceed ings, May, 1957...
...8 R. A. Beaumont and R. B. Helfgott, Management, Automation and People, New York, 1964...
...Yet it is dubious that the promotion of growth by the economic orthodoxy of neo-Keynesianism can eliminate the entire residue of human and economic problems engendered by technology...
...Where automation has developed slowly, as in steel and textiles, the reason may be attributed to the cautious and conservative attitudes of management...
...After all, why worry—the data show only relatively modest growth over the long haul...
...In one situation, direct production workers dropped from 78 per cent of the work force to 52 per cent, while maintenance and technical employees increased from 22 to 48 per cent...
...These ought to be the elements of the present debate...
...Moreover, this is apt to be accompanied by a decline in the transferability of skills...
...Agriculture, which has enjoyed a productivity gain in recent years of about 6 per cent per annum, provided about 4 per cent of GNP...
...But this did not create a full complement of new jobs for those fresh in the labor force: it took heated skirmishes in Vietnam plus a variety of special federal programs, such as the Neighborhood Youth Corps, to jack up GNP in the first three quarters of 1965 by over $20 billion in real dollars and to create 800,000 jobs for persons drawn back into the labor force or in it for the first time.* What this suggests is that in the absence of war, fiscal policy, though a necessary condition for a viable economy, will nevertheless not be a sufficient one...
...This could be done only under the high pressure of "defense" expenditures...
...It is unlikely that these sums will be inadequate to provide the scientific basis for further technological advance...
...The underlying assumption is that any technological innovation must yield a present gain or benefit in excess of its cost...
...If automation reduces the labor coefficient, that is, the quantity of labor input, then by inspection W must rise...
...Moreover, if population keeps growing, expansion of production must be even greater simply to absorb the new bodies entering the labor force...
...Indeed, if resource use and other factor endowments were as fixed as the theory says, one would be hard put to explain the diffusion of technology at all...
...in which mass reaction and mass behavior is a reality...
...James Bright of Harvard has said that even in 1958 when he reviewed the advances made in 13 factories whose methods he had studied but three years earlier, he was startled to discover the older technology overtaken and surpassed...
...There has been no lack of bromides...
...Subsequent appropriations merely sustained the Defense Department's spending rate...
...Indeed, the relevant theory for an analysis of the economic feasibility of automation would be one based on a straightforward benefitcost study...
...Thus, real wages must keep pace with productivity if a market for goods is to be maintained and capital accumulation is to continue to provide capacity for growth...
...Thus, if the unemployed would accept jobs at a low enough wage they could effectively inhibit mechanization by the simple expedient of outbidding the machine...
...Keynes himself once remarked: "It is, it seems, politically impossible for a capitalist democracy to organize expenditure on the scale necessary to...
...Simon also wishes to prove that whatever the character of the technical change, labor as a whole is bound to benefit to the detriment of capital...
...Technology indeed moves quickly...
...Granted that innovation depends on the use and disuse of older equipment, mistakes, luck, available capital and labor, and the like, the fact is that invention and innovation today spread more quickly than ever...
...This indeed has been the situation in manufacturing: productivity in that sector has been rising faster than output...
...Today's technology also imposes severe burdens—on young people without skills, on Negroes, on those displaced by the machine...
...For them there have never been any real difficulties, any genuine hardships stemming from technical change...
...in which technology so alters the organization of business as to raise critical questions of control...
...However, the evidence is ample, as revealed in James Reston's column in the New York Times (Jan...
...automation will develop slowly because it requires longrange planning, massive investment, and the skilled personnel that we do not yet have...
...And whereas war may be an "easy" solution, it is hardly one that commands our appeal...
...Of course, if investment were to grow and the real wage along with it, then the economy might achieve a state of Nirvana...
...As Paul Douglas stated the case back in 1930: "At the same time that men are being squeezed out of [one] business, purchasing power formerly expended upon the products of this industry is transferred to other industries and builds up added opportunities to work there...
...Maintaining the same rate of investment will not create more employment...
...For technology is central to contemporary existence and traditional economic theory's incapacity or unwillingness to deal with the machine merely reveals its purveyors to be victims of a whole generation of evasive economic thought...
...Certainly not during peacetime—as evidenced by the experience of the early 1940's, the 1950's, and the present...
...Unfortunately, the "elasticity of substitution" in the study cited by Brozen was defined as the ratio of labor input to value added...
...Since there are elements of futurity in investment (returns will flow to the firm over a number of years) , a compound interest component will enter into the businessman's deliberations...
...There were a number of variations on the theme: if the quantity demanded increased proportionately to the fall in costs stemming from * There are some who doubt that the war in Vietnam has had any serious impact on the present situation...
...Steel's Fairless Works as an illustration of pure economic behavior relating costs to output in a manner reminiscent of the curves in an elementary text book...
...For example may be no proof," as Bell quips, but one looks with wonder and awe at the auto industry's output in 1964—almost 8 million vehicles produced with a sixth fewer workers than used for a similar output in 1955...
...When a new technique entailed alterations in the production function—the relationship of inputs to outputs—it necessarily established new marginal productivities...
...In describing Simon's position Bell says: "Technically, the decision to use any new technology depends on its comparative price—of labor and capital...
...So comforting was this theory that it found its way quite readily into neoclassical doctrine...
...Moreover, the excess cashflow from 1959 to 1963 exceeded actual investments in new plant and equipment by $8.7 billion...
...In such a market entrepreneurs cannot affect price but merely respond to it, so that cost as well as relative price is also an element in "relative use...
...With the latter, conditions are bound to develop such that marketability of goods and capital accumulation would both grind to a halt...
...Department of Commerce reports reveal that corporate profits, after taxes, in the first quarter of 1964 were over $30 billion at annual rates-42 per cent higher than in 1961...
...In short, it is important to have some grasp of what the modern computer can do and will do...
...and in which a proper social response would really make automation the blessing it has yet to become...
...About a fifth of manufacturing concerns experienced annual increases of 3 to 5 per cent...
...Some optimistic economists offer the bromide that the trend to automate will slow down in the future because outlays for research and development in the 1960's and 1970's will be half the rate of the previous decade...
...Such an effect was observed almost three-quarters of a century ago by Knut Wicksell, the famous Swedish economist, who had remarked that expansion must take into account increased real wages...
...Over the years, proponents of this comfortable doctrine have pointed to the increase in the employed work force as incontrovertible support of the proposition that the production of goods itself generates a demand for goods: moreover, to increase the quantity of any one good creates an increase—however small or large—in the demand for all other goods...
...Furthermore, one must take into account the level of effective demand—a lesson driven home by John Maynard Keynes 30 years ago...
...Brozen concedes that automation causes displacement, but that...
...And to assume, as Brozen does, that it would take $2 trillion to automate American industry is to suggest that it can't be done...
...Fiscal policy, the generalized solution of the Keynesians, has been used in recent years with some reward: the tax cut in 1964 generated about $20 billion in real GNP, accompanied by a fall in the unemployment rate to 5 per cent of the work force, or by 400,000...
...the lack of a sufficiently rapid economic growth in the Eisenhower years intensified the effects of the new technology...
...Even more miraculously, the creation of jobs in such other industries would exactly balance the losses suffered elsewhere in the economy...
...They shift with alterations in the underlying technology and do affect the ratio of capital to labor...
...Industrial inventories revealed the same trend...
...Standard neo-Keynesianism focuses mainly on GNP and depreciates any other policy...
...If the worker is unattached he has no income...
...All this sounds quite technical, but it underscores the palpable fact that a decision to employ a piece of equipment depends on the length of life of the machine, its initial and maintenance cost, the rate of interest, and the net returns for the duration of its use...
...Given the effect on capital-output ratios that the new technology appears to be exerting, it is entirely possible for productivity to increase with less than a proportionate change in output...
...As Robert Heilbroner has said, they reveal the failure of economic and social theory to deal in meaningful ways with the problem of technology...
...Yet economists have always persisted in consoling workers with the optimistic notion that in the long run new techniques increase output sufficiently to create jobs for the displaced...
...Basing their arguments on the ineffable harmonies of Jean-Baptiste Say, a French disciple of Adam Smith, they have argued that production expands indefinitely and thus creates its own effective demand...
...For the report which I believe he cited had nothing to do with the specific application of the computer in the 36 industries reviewed but with probable technological trends in the broadest sense of the " term...
...9 For so long as earnings are sustained by growth or shifts to new techniques there should be no objection by entrepreneurs to improved standards...
...If prices were sticky and wages flexible, the situation would be even worse, since both demand and investment would stagnate...
...But in the second half, about 50 per cent of the strategic inventions were adopted within a decade or less: in the first quarter of the 20th century about 60 per cent became viable innovations within a decade...
...Let us state once and for all: a high degree of demand is a sine qua non for a viable economy and an essential base for solving the persistent problems of the time...
...We cannot assume that resources and manpower would be readily available under ordinary circumstances to fulfill the needs of rapid expansion...
...There would have had to be a rise of productivity in agriculture of 15 to 20 per cent before one could assert with confidence that the pace for the entire private economy was affected markedly by agriculture's 6 per cent rise...
...each entrepreneur individually gains from low real wages in terms of his own product, but all suffer from the limited market for commodities which a low real wage rate entails...
...First, it is derived from the theory of a perfectly competitive market in static equilibrium under conditions of full employment, and has little relevance for our own monopolistic economy...
...But the artfulness goes further: productivity in manufacturing, say Bell and Solow, was really only 2.5 per cent per annum, although the Automation Commission, of which both were members, admits that it is really 3 per cent and that for production and maintenance workers in the last five years the pace had stepped up to 3.4 per cent a year...
...And we must again stress that the process today is sustained by vast accumulations of capital and heavy expenditures for research and development counterbalanced only by an artificial layer of effective demand stemming from the exigencies of defense...
...We ought to have a theory of technology in which monopolistic competition is the framework of corporate behavior...
...3 J. R. Bright, Research Development and Technological Innovation, Homewood, Ill., 1964, P. 2. 4 New York Times, March 22, 1964...
...At this point the reader will forgive some mathematical notation: it is essential in dealing with Simon's case, since his argument is based on a pair of specious formulas...
...A further assumption was constancy in cost...
...The extrapolation to the entire economy of the indexes for a handful of the over 400 industries that comprise the manufacturing sector alone is hardly a foolproof measure of what goes on in the "total private economy...
...Even Bell's modest percentages have a compound effect...
...Further, the depletion of old sources of raw materials required U.S...
...The growth of the computer [had] exceeded all but the wildest expectations...
...in other words, no advantages could accrue from mass production...
...Automation does not require the relatively heavy investment that was necessary for industrialization in the 19th and 20th centuries, and it can therefore proceed at a fairly rapid rate, as indeed it has...
...The crux of the situation, consequently, is that real wages must move in consonance with productivity to provide enough demand to absorb the larger output stemming from the investment of capital...
...Steel to set up facilities at an Eastern post to make it easier to obtain ore supplies from overseas at minimum cost...
...What Bell and Simon refer to, of course, is the principle of comparative advantage which was employed by Ricardo, Mill and other classicists to explain the flow of trade among nations...
...The point is that once again economic analysis is insufficient: one must have recourse to other bits of information such as the study of innovations, diffusion and the like...
...A Polemic Against Daniel Bell and Others That the machine does in fact displace workers had been directly experienced during the Industrial Revolution by hand loom weaver and Luddite...
...In other words the structure of employment will shift in proportion to the man-machine productivity ratios...
...Donald Michael, one of those who responded to Bell, inquired at the Department of Labor and they couldn't say which report it was that Bell was referring to...
...It is doubtful that Senator Douglas now subscribes to these views...
...It is just big enough to catch the high school dropout...
...Yet unemployment was not absent even then...
...idem., Automation: The Impact of Technological Change, Wash., 1963...
...If the change is labor saving, then the wage rate will rise...
...Of course, the rate of interest is hardly stable, as witness recent Federal Reserve Board action...
...He points to a study of conditions in Michigan in which it had been argued that a one per cent increase in relative wages led to a two per cent decline in employment...
...For the more mechanized an industry, the more fixed the specific labor skills required per unit of capital or per unit of output...
...In the 19th century the attitude of the industrialists was extraordinarily callous...
...improved technique, then the same number of workers as were previously employed would still be required to produce the additional output...
...The indexes of wholesale prices for such items as industrial chemicals, iron and steel, metal working machinery and automobiles have exhibited a remarkable stability since 1957, suggesting that the cost savings stemming from automation have been absorbed by higher profits...
...In essence, underconsumption, so long depreciated in standard economic theory, is an ever-present ghost at the banquet table...
...John Diebold cites the case of a chemical company which estimated that for every dollar of labor savings, it also saved three dollars by operating more efficiently and with less waste through automation...
...Central to Bell's argument is the contention that technology manifests no accelerated development...
...This all-important ratio, of profit to capital accumulation, may be maintained by resorting to capital-saving investment: in fact, this is often preferable since such a process makes the application of accumulation to investment more extensive, thereby yielding an even greater volume of profit...
...In any case, it is clear from the evidence that the pace of productivity increase for the total private economy was higher in the post-war period than in the previous four decades-3 per cent a year from 1947 to 1963 as compared with about 2 per cent a year from 1909-1947...
...Consequently, they understandably cast about for alternative methods of alleviating unemployment...
...This, at least, was the experience of the 19th century in the U.S...
...Such swift change is not merely a matter of degree as some writers contend...
...Brozen goes even further: the blessings of automation have been inhibited by the increase in real wages...
...We cannot assume that obsolescent skills, geographic distortions in the distribution of the labor force, or inadequate data on labor market requirements are of little significance...
...But that would require another article...
...28, 1966), and in the President's Economic Message...
...Now, before we begin with our analysis, let me offer several observations to avoid misunderstanding...
...As the mathematicians are wont to say, this approach is much more elegant and direct...
...Further, one ought to add some non-economic elements to the Bell-Simon law of comparative advantage...
...Yet what of the wage rate...
...Ure visualized manufacturing as an "automaton" that would undermine the position of the "cunning workman...
...In manufacturing, the average annual increase in capital from 1945 to 1956 was over 6 per cent...
...Thus, for every unit increase in the latter, we obtain less employment than in earlier times, a phenomenon noted by the Labor Department's productivity expert, Leon Greenberg, last October...
...What are the indirect impacts of automation, i.e., how does automation in one sector of the economy spill over into others...
...Somewhat longer intervals appear to have characterized the first half of the 19th century: perhaps more time was needed for digestion...
...The latter admitted that some $9 billion of GNP could be traced to the war, which had by now become "an important new force in the economy...
...In that situation, the effective demand cure was required...
...In the language of calculus, one must look for the second derivative as we move up the curve, at changes in the rate of change...
...But what if demand were inelastic...
...The more sophisticated optimist will argue that the effects of automation on employment are nothing new, that these problems can be solved if the correct policies are utilized, and that as we achieve the latter, automation will prove to be a blessing...
...As we rush down the highway, the road can get rougher: to shift the image, bottlenecks tend to develop and we discover that the economy, even with its "normal" government programs, cannot employ the untutored, the unskilled, the displaced...
...However, in 31 cases of automation studied by R. A. Beaumont and R. B. Helfgott,8 employment declined in 20, remained the same in 4, and increased somewhat in 7. The average drop in the two-thirds of the instances where employment declined ranged from 20 to 25 per cent...
...In the long run, as Norbert Wiener once said, the only competition for the machine is a virtually costless human slave...
...1 Paul Douglas, "Technological Unemployment," American Federationist, August, 1930...
...in 1962 they were over $9 billion...
...Of course, this too has happened: but technical shifts of considerable magnitude can cut into wage income...
...Generally, it would require a more than proportionate increase in productivity to counter balance the depressive effect of labor cutbacks on the wage rate itself...
...And to deny, as Bell does, that discrete production can be converted into a continuous flow and thus subjected to computer control simply reveals a lack of knowledge or understanding, or both, of what is now occurring in the factory...
...Yet it is being done...
...But also meaningful was the desire of the company to move closer to its consumers, an action that involved the abandonment of the basing point system for the F.O.B...
...The proof of this lies in our history: a technological society has always offered more work, better income, superior goods, and greater leisure time...
...But the initial cost of automating a plant is not so great as generally supposed...
...The law of comparative advantage, as interpreted by Bell-Simon, would suggest that the computer would do only the bookkeeper's work...
...Or will we have to break the traditional work nexus of our society by providing incomes as a matter of right equal to the "wages" of the machine which displaces the human being in production...
...The Automation Commission thought that it was worthwhile to investigate these aspects, but Bell, a member of the Commission, simply ignores the reports submitted to that group...
...the market is infinitely expandable and that alone will create the additional demand...
...The strongest attack on this comfortable theory was mounted by Marx, in whose system technology appeared as a fundamental disruptive force...
...In effect, there is a tendency for all labor to be converted into fixed overhead the utilization of which would depend only on capacity...
...And, of course, it appears that such is the case at the moment, given the sort of business we now have in Asia...
...such difficulties as do arise are a small price for progress...
...First, improved productivity reduces costs...
...Several factors appear to be responsible: the failure to grasp a clearcut distinction between ordinary industrialization and automation (or cybernation) which has led many to assume falsely that it is all of a single piece...
...In fact, Solo says, "No general statistical evidence has been adduced in support of the alleged importance of automation as a component of technological progress in industry . . ." 6 Its effect, he continues, is essentially minor, and there is no instance where computer-based methods in production are of more than trivial significance...
...But to the purveyors of orthodox wisdom it is all quite passive and purely economic...
...in which innovation is a guided and directed and government-supported process...
...it is a completely normal evolution in which progress is being made in all fields of industry by the application of advanced...
...Suppose the original formula is recast as WL --I-- RC = Y where the latter represents the level of output...
...Secondly, the model is timeless, allowing for no adjustment...
...Surely this must be an advantage of the new technology: at least, television sets cost less than they did five or six years ago, as do washing machines, vacuum cleaners, radios and refrigerators...
...Hence the economic impact of war orders was much greater than Pentagon bookkeeping figures would suggest...
...But the problem was more complicated than any statistical measure could reveal, for as Daniel Fusfeld has demonstrated, the economic situation in Michigan was conditioned by other factors—the decentralization of auto assembly, a sharp drop in defense contracts, and the self-reinforcing nature of the automation process itself...
...Stated this way, the equation appears rather banal...
...new industries will provide ample jobs for those displaced or just entering the labor force...
...All too many companies have installed the new equipment because an IBM salesman told them a rival had just put in a computer...
...the sharpest rise was in precisely those industries feeding the war machine—aircraft, machinery, ordinance...
...But the limitation of factor endowment which seems so reasonable a restraint in a simple model of international trade does not hold for the new technology...
...The economy may still exhibit manifestations of exhilaration, even if real wages are lagging, but the truth is that trouble would be in the making...
...How do geographic shifts stemming from automation affect people, industries, regional economies...
...In transportation, communication, and utilities the secular movement was from an average of about 12 (a dollar of output for $12 of capital) in the 1880's, to 6.5 at the turn of the century, to 3.5 in the 1920's, to 1.7 in 1950...
...Real wages for factory workers increased by about 3 per cent per annum between 1947 and 1956...
...How trivial the computer is in production is revealed in the petrochemical industry, in the new steel plants, in machine tool operations and in the materials handling devices linked to sensory apparatuses, to say nothing of dataprocessing...
...And what if the rate of increase in productivity rises faster than 3 per cent, as it has in manufacturing in the last five years...
...As Fortune pointed out (Feb...
...Orthodox theory was then rescued by the marginalists, who restated equilibrium in a way that seemed difficult to refute...
...But there are other arguments, perhaps best typified by the statements of Yale Brozen, an economics professor at the University of Chicago...
...The assumption here was that changes in the organic composition of capital stemmed only from labor-saving equipment: however, had Marx accepted capital-saving as a real possibility, he might have acknowledged other sorts of technological effects...
...In an effort to demonstrate that automation is not really "biting in," Bell resorts to a Department of Labor report which purportedly analyzed the effects of the computer in 36 different industries...
...Now, few economists will deny the last proposition, but some have been concerned that high aggregate demand often is not available—in peace time...
...VI One can deal with such farragos only by a review of the facts...
...6 New York Review of Books, August 26, 1965...
...The document had been quickly prepared at the request of a Presidential Committee that was holding hasty one-day briefing sessions a few years ago and the compilers had to rush to meet a deadline without any really intensive check of their data...
...IV We are not done with this group of thinkers...
...In any case, we have always had optimists who see no real issues at hand...
...and in the second quarter the ratio rose to 70 per cent...
...Considering the fact that the computer is a general-purpose machine, the rationality of these calculations can be applied to a simultaneous replacement of bookkeepers and clerks...
...Even if a consumer does not respond to reduced prices for particular commodities, his additional real income would in any case be available for purchasing other goods...
...V Another argument against the impact of automation is that it reduces prices...
...we should rejoice in the opportunity for the leisure that automation affords...
...But this is to insist that the tail wags the dog...
...That is, wages and the cost of capital equals output, which Simon sets at unity in order to study shifts in the proportions...
...This may be illustrative only—Bell calls it argument by "for example"—but it does suggest the magnitude and direction of the trend...
...idem, Lectures on Political Economy, Vol...
...These results, of course, were said to stem from the inordinate power of the unions, inevitably resulting in a substitution of capital for labor...
...Otherwise, genuine viability is impossible...
...The conservatism of the American corporate oligarch was dissipated once the Germans, Swedes and Japanese had demonstrated that their methods were superior...
...2 Some have argued that the high cost of the new technology inhibits any thrust toward its rapid development...
...the time between initial technical discovery and recognition of its commercial potential had declined from about 30 years before the first World War to 16 years between the wars and 9 years for the post-World War II period...
...And to compound the difficulty, additional investment may not contribute much to maintaining the requisite balance because capitalsaving is now a significant feature of newly installed equipment...
...In the absence of the latter, the official rate of unemployment hovered about the 5 per cent mark: the unofficial figure may have been closer to 9 per cent...
...7 Y. Brozen, "The Economics of Automation," American Economic Ass'n...
...If an alteration in capital use impels the selection of an alternative method in production, there is apt to be a shift in labor utilization as well, a point that Brozen does not always specify...
...That is, surplus savings unmatched by investment or consumption can develop and upset the delicate balance of the equations...
...In effect, labor competed against machines...
...The data suggest he is right...
...Similarly in manufacturing the ratio dropped from 1929 to 1957 by almost a third...
...11 R. L. Heilbroner, "The Impact of Technology: The Historic Debate," in J. T. Dunlop, ed., Automation and Technological Change, Englewood Cliffs, 1962, p. 22...
...But suppose peace should really break out...
...Moreover, since much of the new equipment is capital saving, there should be little fear that trends in capital formation would be inadequate...
...To be sure, economists use the numbers, but they know they must handle them gingerly: only when they are ready to propagandize for the establishment does caution suddenly disappear...
...In order to maintain a predetermined ratio of profit to capital accumulation it would be necessary for the "capitalist" to mechanize and automate even further, which in turn would make some of the skilled redundant...
...and a 3 per cent rate in 23 years...
...It is rather difficult to see, therefore, how wages have been drawing off the benefits of greater productivity, especially when payroll costs per unit of output were 7 per cent less in 1963 than in 1958...
...Indeed, this cannot be the situation in an economy in which decisions on savings and investment are made by different persons...
...Some prices for "automated" goods have gone up—gasoline and fuels increased about 25 per cent between 1957 and 1964 (at wholesale) and certain types of machinery went up 16 per cent during the same period...
...natural economic forces will carry through the necessary adjustments less painfully than we expect...
...If the interval between an invention and its adoption is a measure of acceleration, then surely technology has developed more rapidly in our own time...
...Census Bureau in 1963 after operating continously for but twelve years because it was now much too slow and too small...
...These are not quibbles, since a jump from 3.0 per cent to 3.4 per cent is one-seventh and from 2.5 to 3.0 one-fifth...
...and almost a fourth showed advances of over 9 per cent...
...Meanwhile, the Wicksell effect, operating through the real wage, tends over the long run to absorb a portion of capital accumulation in that sector of the economy employing the usable work force...
...It therefore seems evident, both from the standpoint of theory and fact, that automation requires a high level of real wages rather than a low one...
...Skills, as once defined, would not be utilized, and in the absence of use, they would deteriorate, creating a continuing barrier between the displaced and the employed...
...The machine was frequently described as a weapon to subdue the worker by promising to displace him unless he accepted the terms offered by the businessman...
...III It is interesting to note that Daniel Bell—whose writings on work and technology have up to now been very sensible—has fallen in with the camp of the complacents...
...if productivity is enhanced while output remains intact, jobs will tend to drop...
...In the context of sticky prices and wages (at low levels of equilibrium) it is possible, as Joan Robinson has said, that...
...Conceivably, the pool of unskilled would become stagnant, untapped by society because it would have no function—it would become a conglomeration of economically and socially useless persons...
...Simon "proves" that wages will rise but he commits a serious error by confusing wage earnings and wage rates...
...Yet Bell takes at face value the gabble about "modest productivity growth in the private domestic economy...
...The market price, which determines relative use, will be proportional to the marginal productivity of each factor...
...Patently, automation has done little to alter the oligopolistic behavior of the major industries in America...
...9 K. Wicksell, Value, Capital and Rent (1893), reprinted, London, 1954...
...Again, the cure worked in the decade of the 40's because we went to war...
...But Bell looks magisterially at the data and concludes that the rise in productivity in the private economy has been quite modest...
...Moreover, the production function changes in complicated ways: the decrease in production workers is never fully counterbalanced by increases in maintenance employees, who in any case are apt to be cut back after an automated installation begins to work efficiently...
...While the American economy expanded during the post-war years, each recession left a residue of hard core unemployed that could be reduced only when we had gone to war...
...For example, Brozen cites the construction of U.S...
...The implication is that there was no cause for concern in the recent past: aggregate demand will sop up any unemployment...
...therefore, under conditions of a competitive market, lower prices necessarily ensue...
...The situation is worsened during a downturn in economic activity, even a slight one, for technological achievement is irreversible...
...But Bell seems unaware of the conceptual morass that passes for productivity measurement...
...These notions later became the object of Keynes' scorn and he demolished them, presumably for all time, with a powerful demonstration that low-level equilibrium could exist together with high unemployment...
...Had Simon formulated his model to allow for output levels, other interesting possibilities might have emerged...
...The historic process has been such that real wages must rise as the economy shifts to new techniques...
...in which affluence seldom spills over into the realm of public services...
...If the speed at which we can cross the earth's surface is a reflection of the rate of invention and innovation, then clearly the pace has been intensified...
...Yet the implication that automation restores flexibility to prices is unwarranted, for those industries in which automated methods are becoming predominant have shown little price movement in recent years—steel and chemicals are cases in point...
...So far, so good, although we must caution that this is only a statement describing the distribution of the product: it says nothing about the level of output...
...To quote from an early Commission draft...
...Are we so cocksure about the kind of fiscal policies we can make politically palatable to rely solely on neo-Keynesian devices...
...Aside from depreciating the urgency of technological displacement, pure Keynesians insist that demand is the crucial factor: when demand expands as fast as the output we could produce, then automation, they say, would indeed result in more jobs...
...Nevertheless, the total number of employees declined almost 30 per cent...
...a 2 per cent rate in 36 years...
...At $16.4 billion total R and D outlays had more than tripled in 1962-63 as compared to a decade earlier...
...And in the service sectors—such as retailing, which employs over 8 million people—there are no official productivity indexes at all...
...It took the crowned heads of Europe about three days to get to London for the funeral of Edward VII in 1910...
...Can output keep pace with population...
...While the reduction of L means a larger value of the fraction on the right side of the equation, L is also smaller by virtue of the technical change...
...What we lack, says Heilbroner, ". . . is a conception of the technological process sufficiently broad to comprehend its long range and its short range impacts, alive to its secular re-arrangements of society as well as its mixed creative and disruptive effects...
...Thus, the loom and the lathe were to be used as instruments for discipline, as advocated by Andrew Ure, England's "philosopher" of the factory...
...in more recent years the average annual increase was 1.6 per cent...
...Good—but what happens to the income of those now separated from the economic process...
...The issue is really not so difficult if one expresses unemployment as the difference between the total labor force and those employed...
...When this happens, assuming no alteration in hours, labor displacement can be the only consequence...
...Curiously, in both his original article and subsequent response to his correspondents, Bell refused to identify the report on which he had relied...
...In a severely restricted model, real wage increases might limit depreciation reserves so that replacement costs would be inadequate, but only in a model...
...Obviously, the so-called "structural" treatment implied by such questions would not be successful in a great depression such as that in the 1930's...
...What is important is acceleration in the rate of growth of productivity...
...One cannot simply dip into the pool since the relevant labor force must have certain skills and education...
...it represents progress and should be welcomed...
...Nor does Bell see clearly the relationships that hold between gross national product, productivity and employment, despite the apparent ease with which he describes these terms...
...Even if one relies solely on productivity data, a questionable business at best, the analysis should provide more refined calculations than Bell or Solow have hitherto offered...
...Is there some optimum rate of innovation which would cause neither disruption nor technical stagnation...
...2 J. Diebold, Automation: Its Impact on Business and Labor, Washington, 1959, p. 24...
...With the major motivation stemming from a desire to reduce labor costs, automation frequently brings about unexpected savings...
...that its pace is not accelerating...
...Thus the requisite demand is bound to be created as a result of the unimpeded circular flow of income...
...The price of making a plant fully automatic varies from one industry to the next, but the average for all industries, according to Wassily Leontief, is only about 6 per cent of total plant cost, hardly an insuperable barrier...
...Investment without any absorption at all by wages of at least a portion of the capital accumulation can occur only when the saver and investor are identical—as in a command economy with strict central planning...
...Meanwhile the ratio of man-hours worked to output fell 45 per cent...
...However, the ratio of labor to value added, conceivably might have been used as an index of labor requirements and if it falls, it merely demonstrates the point that Brozen wishes to deny—technical change does reduce the number of workers...
...An accumulation of "for examples" may indeed suggest a trend...
...Here is the model: to examine changes in the composition of the national product stemming from technology, Simon begins with an equation in which the total product is distributed between capital and labor...
...While a third of 1965's growth in GNP stemmed from price increases, the balance clearly came from spending...
...Theoretically, the availability of surplus labor ought to have exerted some restraining influences on such substitutions, for when labor competes for jobs, especially in a fluid labor market, the "capitalist" presumably would have less impetus to mechanize...
...In real life, such a contingency is of no consequence...
...A recent illustration is a Carling's brewery utilizing a new continuous process for making beer that was not only more productive but required just three-fourths of the capital investment of a conventional plant...
...In fact, most discussions of this question— the relation of real wages to capital accumulation—assume perfect competition and what is known as a homogeneous production function (no joint products, no complex processes) ; under conditions of monopolistic or imperfect competition, the relationship poses even less of a problem...
...No doubt many of the effects of technical change may be overcome by a high rate of economic growth...
...But what all this suggests is that the "coefficients" implicit in the production function are not invariable...
...From 1946 to 1955 the average annual net capital formation was about $8 billion a year...
...Historically, capital was substituted for labor because of a relative scarcity of the latter...
...prove my case— except in war conditions...
...Disturbances were inevitable because constant capital in the producers' goods sector rose faster than the output of consumers' goods...
...the cost of computers is coming within reach of even small companies...
...It is of course interesting to note this flirtation with archaic classical economic doctrine, but in any case the statement is a mish-mash...
...There is no necessary correlation between advances in GNP and productivity, as Bell seems to believe...
...Furthermore, if some prices are "sticky" and do not fall, the higher profits garnered by capitalists will impel them either to consume more on their own behalf or to expand investment...
...Since this is the reciprocal of just one possible measure of productivity— value added divided by labor input—the relationship was bound to be negative...
...Gardner Ackley recently commented that in the last few years...
...As if to avoid the consequences of such simple arithmetic, Bell— as well as other writers, among them Herbert Simon of Carnegie Tech and Robert Solow of MIT—offers the disingenuous comment that agriculture accounted for most of the recent gains anyway...
...However, the "law" assumed, in addition to equilibrium and full employment conditions, fixed proportions between capital and labor: as a basis for analyzing the spread of technology within one country this has little relevance...
...Clearly, the problem is considerably more complicated than the proponents of automatic adjustment suggest...
...in the meantime, the displaced have had to get along as best they could...
...it does not create unemployment in the sense that a larger number are unemployed than would have been if no automation had occurred.7 This assertion suggests that automation is a way of solving " unemployment: it might be described as the job-creating argument with a reverse twist...
...Since each of the terms comprises an input coefficient and a rate, we may state the equation as: WL + RC = I This says that the wage rate x labor input plus the rate of interest x capital input equals the total product...
...A more intensive accumulation of capital, said the new theorists, would overcome breaks that threatened the income cycle...
...overall employment has been increasing...
...Symposia and professional associations eagerly pass the gospel along, and no less an authority than George Sarton declared as far back as 1936 that scientific progress was being accomplished in shorter and shorter periods...
...Vill Why the present failure of imagination and perception...
...1I The conventional wisdom seeks to convince us that the present is analogous to the past...
...In the 18th century adoption followed invention for almost all the important machines within a decade or less...
...The numerically controlled machine tool, for example, was far more useful than most of us had believed...
...Evidently, the modest rise in real wages in recent years has not exerted any inhibitory effects on capital accumulation...
...One searches in vain for evidence of universal job increases stemming from automation per se: surely if this were the case, there would be no hesitation in presenting the data to the public...
...A good many writers on automation agree with E. W. Leaver, an electronics specialist, and Robert Solo, an economist, who argue that automation does not result in job displacement, since it has been developing rather slowly...
...the income pie will become larger, so that everyone will enjoy a larger slice...
...And it was to be expected that the latest technology would be employed in a new plant, constructed afresh from the ground up...
...He added: "This is a poor man's war...
...It is rather difficult to deal with such statements, deeply rooted as they are in ignorance of current technology...
...Now, the total annual gain in GNP due to productivity advances approximates $18 billion...
...Automation it is said, helps fill the cupboards, gives us new foods, provides home conveniences, and gives lots of time to "do-it-yourself" around the house...
...and an inordinate infatuation with the impersonal mechanisms of standard Keynesianism, so indifferent to specifics, has impelled many to accept the belief that monetary and fiscal policy is quite sufficient to correct all ills...
...Accumulation, said Marx, involved changes in the organic composition of capital, or an increase in the ratio of constant capital to labor input...
...Provision necessarily must be made for a larger amount of "subsistence" goods, i.e., for real wages, unless the entire added accumulation is to be applied exclusively to capital purposes...
...I say this because the "model" derived from the formulas is insufficiently general in character to allow for the "irrefutable" predictions that Simon makes...
...If the ability to kill large masses of people in war is a rough index of rapid technological change, then surely there has been exponential growth between a 15th century cannon and the hydrogen bomb...
...At present such inventory accumulation is at the rate of over 15 per cent a year...
...All Bell can do is to repeat arguments heard at Automation Commission sessions—that the new technology is just more of the kind of change we've had since the Industrial Revolution...
...By this Silberman had in mind the adoption of process control computers, but he failed to tell his readers that the 300 such installations in 1965 had grown from a handful a decade prior and were expected by industry sources to reach 4000 by 1970...
...In fact, when unemployment did occur, they argued, it was simply because wages were inflexible, a condition resulting from labor union resistance or other institutional barriers...
...Most of these propositions founder on the hard bedrock of empirical fact...
...With an advanced technology, however, such competition can occur only between machines and usable labor...
...25, 1965...
...for as Norbert Wiener once remarked, the difference between a large fatal dose of strychnine and a medicinal one is also a question of degree...
...a fifth had gains of 7 to 9 per cent...
...For almost a third of production workers there are no data for physical quantities, making any index pure guesswork...
...Through a simple algebraic transformation the first equation is transposed into 1 — RC W= L This demonstrates that whatever the nature of the technical change, W, the wage rate, will increase...
...That Bell now apparently rejects the irony of a solution dependent on war production suggests another kind of conventional wisdom...
...A proper analysis would acknowledge that increases in real wages, given our rules of the economic game, are occasioned by the competition of growing industries for resources...
...10 J. Robinson, The Accumulation of Capital, London, 1956, p. 78...
...and that we need a higher level of aggregate demand to ease whatever strains it causes...
...To these effects, one must add a long run tendency to create in a non-war economy a stagnant pool of surplus labor...
...Furthermore, it is argued, there are certain limits to automation...
...Reston remarked: "The war in Vietnam has not produced the economic boom but has kept it going...
...The net stock of capital has grown from about $2100 per worker in the 1870's to about $5400 in 1955, faster than the growth in population: there does not appear to be a great dearth of capital accumulation...
...Will capital accumulation be employed in ways that will insure a balance between savings and investment, between capacity and demand...
...There is no turning back to simpler modes of production...
...When one looks at IBM, Rand, RCA and all the others in the business of selling computers for data processing and process control, one wonders what Bell means...
...1966), the second half of 1965 saw defense contracts increase by a fourth over the previous year...
...Finally the establishment tells us that automation is no problem because it is just more of the same...
...In the 18th century, England's Industrial Revolution did foreshadow a long upward spiral, and there was some unskilled work for the displaced to move into—usually at lower wages...
...That is, economic rationality involved more than the cost of the moment...
...the death of President Kennedy brought dignitaries to Washington from the six continents in under 24 hours...
...Thus, under conditions of perfect competition, the easy adjustment of wage rates to shifts in demand would assure everyone of a job regardless of the dynamism of technology or the gyrations of the business cycle...
...While output per man-hour in the private sector of the economy rose by almost 25 per cent between 1956 and 1963, real income, in terms of hourly compensation for employees, increased by about 18 per cent...
...Unfortunately, they failed to add that the process might take decades...
...Univac I, the world's first data processing computer, was retired to a museum by the U.S...
...Casting about for further ammunition in his arsenal, Bell then calls attention to Herbert A. Simon's recent book, The Shape of Automation (1965) , in which the latter resorts to some simplistic formulations drawn from international trade theory purportedly proving that technological innovation is severely limited in its power to spread...
...Can demand keep pace with output...
...We are then asked to believe that agriculture's under $2 billion productivity advance explains the $18 billion figure...
...As the Automation Commission acknowledged, a one per cent rate of increase doubles productivity in 72 years...
...This emphasizes that the choice of a technique is frequently a matter of responding to a number of conditioning elements which affect the utilization of both capital and labor...
...By 1960, said Bright, it was evident that a "technological ferment was burgeoning...
...For every man laid off, a new job has been created somewhere...
...and in 1962, it was 4.5 per cent...
...Now, it can be shown from the formula on page 251 that output is a function of the labor coefficient, productivity and hours worked, i.e., Y = L (PH) . Substituting the latter into Simon's formulas, we wind up with L (PH) — RCW= L Thus, a technical change of the labor saving variety alters both numerator and denominator: output may be reduced as well as labor (of course, productivity takes care of that contingency) so that the wage rate may not be so happily enhanced as Simon anticipates...
...Yet by Ackley's own admission, we would have needed several million new jobs during 1964 and 1965 to get the unemployment rate under 4 per cent of the work force...
...Between 1953 and 1963 after-tax profits plus depreciation reserves—corporate cash flow— rose from $32.2 billion to $59.5 billion, a jump of 90 per cent...
...a developing labor shortage means that we must have more and more automation...
...6 He quotes approvingly the arguments of Charles Silberman of Fortune that automation is no problem since no major industry is at present fully automated...
...mill pricing system...
...If it is indeed the study I have in mind, then Bell can be charged with an artfulness that he has never revealed before...
...5 R. Solo, "Automation: Technique, Mystique, Critique," Journal of Business, April, 1963...
...Much of the work was handed out to contractors on emergency letters of intent in anticipation of Congressional approval...
...It is necessary, however, to "decompose" the latter into a more subtle expression—employment equals the Gross National Product divided by the product of productivity and available man-hours per year, in a simple formula: GNP E=L PxH The objective of policy would then be to increase the value of the last expression in order to reduce the gap between it and the total labor force...
...labor productivity increased solidly at a rate above the postwar average...
...such unemployment as we now have must have been caused by factors prior to the advent of the new methods...
...Again, it is a necessary but not a sufficient condition...
...The most recent experience has been the enjoyment of a fastmoving economy, which nevertheless has in normal times left behind large blocs of the populace...
...IBM was supposed to have made a study showing substantial employment increases due to automation, but the report presumably is a confidential one, although one is hard put to understand why...
...and with interchangeable programming, computer manufacturers are impelled to compete on price...
...In 1958 the profits per sale dollar of American manufacturers was 4.1 per cent: in 1961, the ratio was 4.3 per cent...
...This is a knotty problem...
...Hence there are three elements involved—changes in GNP, productivity, and man-hours...
...As a sociologist, one might have expected Bell to pay attention to another law— "Keeping Up With Jones...
...Recognition of these difficulties in classical trade theory generated a rather furious debate over the years, one that has pretty well undermined the text book version on which Bell relies...
...But a more important consideration is that the authors of the report have conceded its extreme unreliability...
...Furthermore, the flexibility of consumer durable prices responds to pressures other than the method of making the product—discount merchandising and fluctuations in the prices of raw materials...
...These are the productivity figures, said to be the measure of technological change...
...In his interpretation of the "data," it appears that the computer's applicability is limited...
...10 If prices and wages are flexible, a condition that " ordinary theory deems to be desirable, and if population increases more rapidly than investment, then all that will have been achieved is a pool of unemployed, while the real wage may at best remain unchanged...
...Despite these problems, most economists continue to assert that "automation is not an industrial revolution...
...Quick obsolescence has become a datum of industrial endeavor...
...However, the meaningful figures would seem to be the absolute dollar amounts: R and D expenditures by the federal government may have been a mere three-fourths of a billion dollars in 1940...
...and automation is the only way to beat the Russians...
...While automation may destroy certain jobs, says Gardner Ackley, chairman of the Council of Economic Advisers, we must consider the job-creating ability of the economy as a whole...
...Now, argues Simon, (by this time Bell has become silent,) because the rate of interest is constant, any gains stemming from technological advance can only benefit labor: if the technical change is capital saving, the proportions shift in labor's favor...
...Here conventional wisdom came to the rescue, for, it was argued, invested savings would supply jobs...
...management's conscience will not allow hardships to develop...
...techniques," and that Say's Law or some variant of it will take care of the dispossessed...
...technological change, if it has anything, has a time dimension and this too is a factor in "relative use...
...VII Innovation is a dynamic, active process involving numerous complex non-economic as well as economic considerations...
...This is essential if jobs are to be provided under conditions of innovation...
...Nevertheless, once the Europeans and the smaller American firms had demonstrated the technical and economic feasibility of continuous casting, oxygen furnaces and computer controlled processes, the others hastened their pace...
...What concerns us here is the problem of automation in the perspective of long-term change...
...It seems to be an article of faith these days that the easiest way to assuage the concern of those who wonder what the new technology —automation or cybernation or whatever one calls it—will do to our society is to offer some simple numbers...
...the troubled times of the 1830's and 1840's brought virtual starvation to many workers...
...These are the forces to which conventionality is blind...
...Between 1829 and the present, the automobile, the railroad and the jet airplane have added more to man's ability to move than in all the eons that went before...
...Its capacity now is so large and its speed so quick that even though it may be less efficient in handling a clerk's work than a bookkeeper's, it will still do the work of both because it is faster than both...
...Further, there is always the prospect of banging up against ceilings— the old question of inflation...
...This seems to be the crux of the problem: the surplus labor pool which accumulates is less and less usable for the existing techniques and cannot really compete with machines...
...1, (1901) reprinted, New York, 1934...
...Furthermore, business outlays for new plant and equipment went up 22 per cent from 1956 to 1963 and by 1964 promised to be 85 per cent higher than in the base year...
...Therefore the present value of a computer or other automation device needs to be related to expected future returns and the rate of interest at compound rates...
...The rate may rise, but that doesn't mean that earnings of the entire group will rise also...
...Indeed, acceleration in technology feeds upon itself, devouring earlier techniques and machines in great gulps...
...Moreover, the gap between the two series has grown over the years...
...Supporting these trends has been the decline in capital-output ratios, indicating a tendency toward larger output per unit of capital...
...and if demand responded more than in proportion to cost changes, more workers would be employed...
...but in any case, the possibility of a bleaker prospect cannot be denied...
...It has been said that price reductions are necessary if automated factories are to operate full time, as they must, to be economically practicable...
...Would not unemployment result...
Vol. 13 • May 1966 • No. 3
