One of the biggest and most pernicious myths about economic development is that capitalism or, as I prefer to call it, economic freedom, benefits the few, while impoverishing the many. The origins of this myth go back to Karl Marx, who thought that, under capitalism, competition would drive down profits, thus necessitating greater exploitation of the workers.
The mistaken theorizing of the German economist – in fact, real average global income per person rose by factor of 10 over the last 200 hundred years – was then updated by Vladimir Lenin.
The update was necessary because by Lenin’s time, the workers in the western industrialized countries were unambiguously better off than in Marx’s time. And so, in his Imperialism, the Highest Stage of Capitalism, the first dictator of the Soviet Union invented a new thesis. Contra Marx, the living standards of the western workers continued to improve because of the riches that flowed to the West from the exploited colonies. Lenin’s thesis had a profound effect on generations of African nationalists, who rejected capitalism and embraced Soviet socialism instead.
But economic freedom not only continued to improve the lives of the workers in capitalist countries, it also improved the lives of the workers under socialism. Freedom, in other words, benefits everyone – even people who don’t have it.
Here is how the Nobel Prize-winning Austrian economist Friedrich Hayek put it in his 1960 magnum opus, The Constitution of Liberty:
What is important is not what freedom I personally would like to exercise but what freedom some person may need in order to do things beneficial to society. This freedom we can assure to the unknown person only by giving it to all. The benefits of freedom are, therefore, not confined to the free-or, at least, a man does not benefit mainly from those aspects of freedom which he himself takes advantage of. There can be no doubt that in history unfree majorities have benefited from the existence of free minorities and that today unfree societies benefit from what they obtain and learn from free societies. Of course, the benefits we derive from the freedom of others become greater as the number of those who can exercise freedom increases. The argument for the freedom of some therefore applies to the freedom of all.
When Hayek wrote those words, the struggle between the communist and capitalist worlds was at its height, and the developing “third” world was caught in the middle of that contest.
Let us now look at a concrete example of what Hayek meant when he wrote that “unfree societies benefit from what they obtain and learn from free societies.”
In 2002, Stephen Van Dulken, an expert curator in the Patents Information Service of the British Library, published a well-reviewed book called Inventing the 20th Century: 100 inventions that shaped the world. The Wall Street Journal described it as “remarkable”, while the Boston Globe credited the author with assembling “a panoramic snapshot of the century”. In his book, Van Dulken identified the 100 most important inventions of the 20th century. One per year. Almost all have originated in the free countries.
Looking at the birthplace of the inventor, I counted 47 Americans, 30 Britons, 4 French citizens, 3 Canadians, 3 Germans, and 2 Swedes. Argentina, Austria, Denmark, Finland, Hungary, Ireland, Israel, Italy, Japan, Soviet Union, and Switzerland produced one inventor each.
Looking at the jurisdiction where these inventors decided to patent their inventions, the picture changes somewhat, but not too much. The United States has patented 46 inventions, Great Britain 29 and World Intellectual Property Organisation patented 11. Germany patented 5, France 2, and the European Union as a whole patented 2. Canada, Denmark, Hungary, Japan, and Switzerland patented one each.
Some readers might object that Van Dulken’s choices were, by necessity, subjective. True, but I suspect that the airplane, air conditioning, the electric washing machine, tarmac road surfacing, the vacuum cleaner, neon lighting, stainless steel, rapid freezing of food, television, traffic lights, Nylon, Radar, Teflon, bar codes, the computer, the ballpoint pen, the microwave oven, the microchip, Kevlar and so on would have made anyone’s list.
In other words, it is unlikely that, looking back at the 20th century, others would pick a dramatically different list of the most important inventions. Needless to say, Van Dulken’s innovators did not only benefit their native countries. The benefits of their inventions spread across the globe and improved the lives of all people – including many of those who live or lived under tyranny.
Once again, consider a concrete example. Between 1960, the year of African independence, and 2015, the income gap between sub-Saharan Africa (SSA) and the United States has actually widened. In 1960, average GDP per person in SSA amounted to 6.31 percent of the same in the United States. Conversely, an average GDP per person in the United States amounted to 1,586 per cent of that in SSA.
Over the next 55 years, incomes in SSA adjusted for inflation grew by 55 per cent. But, they grew by 203 per cent in America. That meant that in 2015, SSA amounted to 3.21 per cent of American income and American income amounted to 3,111 percent of SSA income. Or, to put it in terms of dollars and cents, SSA income rose from $1,075 to $1,660. American income rose from $17,037 to $51,638 (all figures are in 2010 dollars).
However, the gap in life expectancy, which is the best indicator of the overall standard of living, between the two has shrunk! In 1960, SSA life expectancy was 58 per cent that of the United States. The converse percentage is 174. Over the next 55 years, SSA life expectancy grew by 47 per cent, while American life expectancy grew by 14 per cent. So, in 2015, SSA life expectancy rose to 75 per cent that of the United States, while American life expectancy fell to 134 per cent that of SSA. To put it in terms of years, SSA life expectancy rose from 40.17 years to 59 years, while US life expectancy rose “only” from 69.77 years to 79.16 years.
Africans, in other words, did not have to become rich in order to start experiencing longer and better lives. Indeed, it would be surprising if they did get wealthier, considering that since independence, many African countries have experimented with socialism and other forms of protectionism. Some, like Zimbabwe, still do.
Instead, all of Africa benefited from the technological advances that occurred in free, which is to say, capitalist countries. The airplane, an American invention, flies life-saving medicines into the deepest Congo. Synthetic insulin, a Canadian invention, saves lives in South Africa. The photocopier, another American discovery, is making it easy for poor kids to learn how to read in Angola.
Over the last few years, signs have emerged of a small, but ominous, decline in political and economic freedom in the world. Was Francis Fukuyama wrong when he predicted the triumph of liberal democracy and capitalism in his thesis, The End of History? I certainly did not think so, when I defended it in 2014.
I am still hopeful that Fukuyama is right and that the recent negative trends will be reversed. That said, what matters most for the continued progress of humanity is, as Hayek put it, that at least a minority of people on this planet remain free. And that, I think, remains a pretty safe bet.
Jay Richards: Human Work in the Age of Artificial Intelligence
Jay Richards, a senior research fellow and center director at The Heritage foundation, joins Chelsea Follett to discuss why robots and artificial intelligence won't lead to widespread unemployment.
Human Work in the Age of Artificial Intelligence | Podcast Highlights
Chelsea Follett interviews Jay Richards about why robots and artificial intelligence won't lead to widespread unemployment.
Jay Richards —
Listen to the podcast or read the full transcript here.
Your book, The Human Advantage, is a couple of years old now, but it feels more relevant than ever with ChatGPT, DALL-E 2, and all of these new technologies. People are more afraid than ever of the threat of technological unemployment.
There’s something that economists call the lump of labor fallacy. It’s this idea that there’s a fixed amount of work that needs to be done, and if some new technology makes a third of the population’s work obsolete, then those people won’t have anything to do. Of course, if that were a good argument, it would have been a good argument at the time of the American founding, when almost everyone was living and working on farms. You move forward to, say, 1900, and maybe half the population was still on farms. Well, here we are in 2022, and less than 2 percent of us work on farms. If the lump of labor fallacy were true, we’d almost all be unemployed.
In reality, there’s no fixed amount of work to be done. There are people providing goods and services. More efficient work makes stuff less expensive, giving people more income to spend on more things, creating more work. But a lot of smart people think that advancements in high technology, especially in robotics and artificial intelligence, make our present situation different.
Is this time different?
I don’t think so.
Ultimately, the claim that machines will replace us relies on the assumption that machines and humans are relevantly alike. I do not buy that premise. These machines replace ways in which we do things, but there is no reason to think that they’re literally going to replace us.
A lot of us hear the term artificial intelligence and imagine what we’ve seen in science fiction. But that term is almost all marketing hype. These are sorting algorithms that run statistics. They aren’t intelligent in the sense that we are not dealing with agents with wills or self-consciousness or first-person perspective or anything like that. And there’s no reason beyond a metaphysical temptation to think that these are going to be agents. If I make a good enough tractor, it won’t become an ox. And just because I developed a computer that can run statistical algorithms well doesn’t mean it will wake up and be my girlfriend.
The economy is about buying and selling real goods and services, but it’s also about creating value. Valuable information is not just meaningless bits, it has to be meaningful. Where does meaningful information come from? Well, it comes from agents. It comes from people acting with a purpose, trying to meet their needs and the needs of others. In that way, the information economy, rather than alienating us and replacing us, is actually the economy that is most suited to our properties as human beings.
You’ve said that the real challenge of the information economy is not that workers will be replaced but that the pace of change and disruption could speed up. Could you elaborate on that?
This is a manifestation of the so-called Moore’s Law. Moore’s Law is based on the observation that engineers could roughly double the number of transistors they put on an integrated circuit every two years. Thanks to this rapid suffusion of computational power, the economy is changing much faster than in earlier periods.
Take the transition from the agrarian to the industrial economy. In 1750, or around the time of the American founding, 90 percent of the population lived and worked on farms. In 1900, it was about half that. By 1950, it halved again. Today, it’s a very small percentage of the population. That’s amazingly fast in the whole sweep of history, but it took a few hundred years, a few generations.
Well, in my lifetime alone, I listened to vinyl records, 8-track tapes, cassette tapes, CDs, and then MP3 files that you had to download. Nobody even does that today. We stream them. We moved from the world of molecules to the world of bits, from matter to information.
There were whole industries built around the 8-track tape industry, making the tapes, making the machines, and repairing them. That has completely disappeared. We don’t sit around saying, “Too bad we didn’t have a government subsidy for those 8-track tape factories,” but this is an illustration of how quickly things can change.
That’s where we need to focus our attention. There can be massive disruptions that happen quickly, where you have whole industries that employ hundreds of thousands of people disappear. You can say, “I know you just lost your job and don’t know how to pay your mortgage, but two years from now, there will be more jobs.” That could be true. It still doesn’t solve the problem. If we’re panicking about Skynet and the robots waking up, we’re not focusing on the right thing, and we’re likely to implement policies that will make things worse rather than better.
Could you talk a bit about the idea of a government provided universal basic income and how that relates to this vision of mass unemployment?
I have a whole chunk of a chapter at the end of the book critiquing this idea of universal basic income. The argument is that if technology is going to replace what everyone is doing, one, they’re not going to have a source of income, and that’s a problem. People, in general, need to work in the sense that we need to be doing something useful to be happy.
I think there are two problems with that argument. One is that it’s based on this false assumption of permanent technological unemployment that is not new. In the book, I quote a letter from a group of scientists writing to the president of the United States warning about what they call a “cybernetic revolution” and saying that these machines are going to take all the jobs and we need a massive government program to pay for it. The letter is from the 1960s, and the recipient was Lyndon Baines Johnson. This is one of the justifications for his great society programs. Well, that was a long time ago. It’s exactly the same argument. It wasn’t true then. I don’t think it’s true now.
The second point is that just giving people cash payments misses the point entirely. First, it pays people to not work. Disruption is a social problem, but the last thing you want to do is to discourage people from finding new, innovative things to do.
Entrepreneurs find new things to do, new types of work. They put their wealth at risk, and they need people that are willing to work for them. And so you want to create the conditions where they can do that. You don’t want to incentivize people not to do that.
Let’s talk a bit about digitalization. How did rival and non-rival goods relate to this idea of digitalization?
So, a banana is a rival good. If I eat a banana, you can’t have it. In fact, I can’t have it anymore. I’ve eaten it, and now it’s gone. Lots of digital goods aren’t like this at all. Think of that mp3 file. If I download a song for $1.29 on iTunes, I haven’t depleted the stock by one. The song is simply copied onto my computer. That’s how information, in general, is. If I teach you a skill, I haven’t lost the skill; it was non-rival. More and more of our economy is dealing in these non-rival spaces. It’s exciting because rather than dealing in a world of scarcity, we’re dealing in a world of abundance.
It also means that the person who gets their first can get fabulously wealthy because of network effects. For instance, it’s really hard to replicate Facebook because once you get a few billion people on a network, the fact that billions of people are on that network becomes the most relevant fact about it. There’s a winner-take-all element to it. But, in a sense, that’s fine. Facebook is not like the robber baron who takes all the shoreline property, leaving none for anyone else. It’s not like that in the digital world. There are always going to be opportunities for other people to produce new things that were not there before.
And then there’s hyper-connectivity. You’ve said that this is something you don’t think gets enough attention; for the first time, a growing share—soon all of humanity probably—will be connected at roughly the speed of light to the internet. Can you elaborate on that?
Yeah, this is absolutely amazing.
Half of Adam Smith’s argument was about the division of labor and comparative advantage. When people specialize, the whole becomes greater than the sum of its parts. In the global market, we can produce everything from a pencil to an iPhone, even though no one person or even one hundred people in the network knows how. Together, following price signals, we can produce things that none of us could do on our own. Now, imagine that everyone is able to connect more or less in real time. There will be lots of cooperative things that we can do together, of course, that we could not do otherwise.
A lot of people imagine that everybody’s going to have to be a computer engineer or a coder or something like that, but in a hyper-connected world, interpersonal skills are going to end up fetching a higher premium. In fact, I think some of the work that coders are doing is more likely to be replaced.
Do you worry about creative work, like writing, being taken over by AI?
Algorithms can already produce, say, stock market news. But the reality is that stock market news is easily systematized and submitted to algorithms. That kind of low-level writing is going to be replaced just as certain kinds of low-level, repetitive labor were replaced. On the other hand, highly complex labor, such as artisanal craft work, is not only going to be hard to automate, but it’s also something we don’t necessarily want to automate. I might value having hand-made shoes, even if I could get cheaper machine-made shoes.
To sum up, how do you think people can best react to mass automation and advances in AI?
I think the best way to adapt to this is to develop broad human skills, so a genuine liberal arts education is still a really good thing. Become literate, numerate, and logical, and then develop technical skills on the side, such as social media management or coding. The reality is that, unlike their parents and grandparents, who may have just done one or two jobs, young people today are likely to do five or six different things in their adult careers. They need to develop skills that allow them to adapt quickly. Sure, pick one or two specialized skills as a side gig, but don’t assume that that’s what you’re going to do forever. But if you know how to read, if you know how to write, if you are numerate and punctual, you’re still going to be really competitive in the 21st century economy.
Get Jay Richards’s book, The Human Advantage: The Future of American Work in an Age of Smart Machines,here.
“In its warehouses, Asda uses a system from Swiss automation firm Swisslog and Norway’s AutoStore. In the US, Walmart has been automating parts of its supply chain using robotics from an American company called Symbotic.
Back in Luton, Ocado has taken its automation process to a higher level.
The robots which zoom around the grid, now bring items to robotic arms, which reach out and grab what they need for the customer’s shop.
Bags of rice, boxes of tea, packets of crumpets are all grabbed by the arms using a suction cup on the end.”
“Quitting time has been shifting earlier throughout the week, and it’s especially early on Friday, according to an analysis of sign-off times from some 75,000 workers at 816 companies by the workplace analytics firm ActivTrak.
Friday sign-off times have moved up from around 5 p.m. at the start of 2021 to around 4 p.m. now. Monday-Thursday sign-offs have also shifted earlier, to around 5 p.m. on average.”
