The Road to a Robot Economy, nay, Robot Society !
Ganga Prasad G. Rao
Was it any wonder, mused Rob, alone
at the coffee shop with a frappe and a book, ‘Capitalism and Society’, that
capitalism, with its inexorable quest for profits, had across years and
decades, responded to the ever-increasing labor wage tab and benefits burden on
firms with an inexorable and incremental substitution of capital for labor? Back
in the early days of the Industrial Revolution, the first use of tools and instruments
enhanced the productivity of the otherwise uneducated labor force. Then came machines
- first simple, then large and complex – followed quickly by control and
automation. The blue collar work force developed an almost symbiotic
relationship with the machines as output expansion, profits growth, enhancement
of employment opportunities and higher wages provided Americans with reduced
costs, and brought about a revolution in the lifestyles of the masses with
affordable, mass-produced, durable goods, and consumption products. But the
recent wave of robots, especially the ones with artificial intelligence, had
‘reformatted’ the shop floor like never before. Endowed with brawn, movement,
memory, computing power, communications and built-in logic and optimizing
software, these ‘bots were reliable, flexible and versatile, and could be
counted on to be on the job 24x7 without much supervision. Themselves the
product of low-cost automation, and lately, artificial intelligence, they had
spawned a wave of labor ‘retirements’ and reduced several vocational
categories. In fact, the blue collared, once the pride of America, were bewildered
with the pace at which the robots replaced them, sour at the Executives for
turning a deaf ear to their demands, and disgruntled with their political
representatives for hobnobbing with the Capitalists after their loud promises
to protect the middle classes, ostensibly the heart and soul of America. The
robotization of the economy portended a future with large swathes of the poor
and the blue-collared turning unemployed and living on dole…permanently. This
was in itself a catastrophe, but as Rob realized, matters were worse. The
Social security trust fund, that served as a net for those between jobs, and
which funded post-retirement benefits, was overdawn and carried a mountain of
debt on its books. It didn’t take a cold frappe to realize that a social
crisis loomed in the near horizon.
Rob - did anyone around know he
was a policy wonk? – anticipated robotization in its various aspects. How
would the Labor unions, ex-ante, and the ex-blue collared, ex-post, influence
the political process, and to what avail? Could the lack of an acceptable
solution imperil the potentially huge gains promised by technical advances
secured with investments in hundreds of millions of R&D dollars over the
decades? What did robotization imply for career prospects of the
Generation-Next? Would they hazard large educational loans only to find
themselves bested by a robot at the interview? Rob, the personification of
modesty, did not claim to possess the caveat to these questions. He was,
however, quick to deduce that Robotization was an instance in which private
short-run marginal benefits overshadowed the marginal long-run social costs
resulting in massive short- and long-run unemployment. In other words, a
short-run profit-motivated robotization drive that did not fully account for its
social consequences under-anticipated the long-run costs of robotization, and
permitted too far a substitution of robots for the blue-collared. Perhaps he
could conceive of a system that anticipated these issues and ameliorated the
long-run social costs, eased-in the AI-enhanced robots and brought about a
next-generation manufacturing industry that was in equilibrium with the labor
markets, and which was ‘pareto-anticipated’ by students - the next generation
of employees? As he put the frappe down, and as the ‘not-yet-16’ pretty, apparently
the new temp and the in-charge at the coffee shop gave him a cold look and a shrug,
Rob wondered whether the rest of world, arguably more labor-intensive whether
by design or due decades of corruption and lower efficiency, had anticipated
the seriousness of the crisis if, much as had Capitalism and the financial
crises, the robot-revolution too came knocking on their doors. After all, wasn’t
robot-automation and the scale-economies it generated more suitable for the
populated and per-capita, subsidized economies of the third world societies? The
rain was petering out in to a drizzle, and he took the opportunity to trudge back
to work - actually a think-tank serving to enhance policy-making in the
nation. Cold it was for November,….and turning colder.
Rob walked in to the coffee shop
a week later – it seemed like a month. He remembered as much the cold
drizzle, as he did the cold frappe and the cold shrug from the pretty
in-charge. This time she served him a café latte. As he gripped the latte and
eased himself in to the chair by the window, Rob picked the threads from
the past week. What would be an appropriate policy, a strategy that insured
the hard-earned economic successes and social peace, if not social order of
the past, and which was equitable and acceptable to the stakeholders – the
labor unions, future generations of employees, the capitalists, and in fact,
the Government which bankrolled the social security of laid-off employees? As
he switched between his ruminations and the book, a thought struck him. If AI-enhanced
robots were indeed replacing the blue-collared, surely they would count as an
expansion of the capital stock reported in the periodic filings to the SEC? The
introduction of AI-enhanced robots amounted to incorporating ‘brain’ in to
the brawn of existing capital. Due this fact, and for the enhancements in
productivity they brought about and the human substitutions involved, Rob
deemed it defensible to permit, carte blanche, a 100% addition to the total existing
capital stock of robotized firms. He figured he just might have the policy to
anticipate and resolve what seemed inevitable - a virtual robot-takeover of
the manufacturing sector. Realizing the potential value of his ‘robotlution’,
Rob turned serious. Scribbling notes, he visualised splitting the replicated capital
tranche between the Government - in fact the Social Security Administration -
and an Administrator for the, surprise!, Robots. The SSA, the issuer of Social
Security Deficit Bonds, SSDB, to the public, and as the owner and Administrator
of the newly-christened Deficit Reduction Capital Fund, DRCF, would horde its
share of the replicated common stock and milk them for the anticipated post-robotization
rise in dividends and capital appreciation. The DRCF Administrator hoped the dividends
would contribute to a slowing in the growth of public debt, and even its
reversal at some point in the future. The Robot Capital Dividend Fund, RCDF, constituting
the other half of the replicated capital, was by Rob’s imagination, a
parallel Social security net for the robot-displaced labor, albeit with a
self-interest in expanding the market share of the Robot economy. Rob also had
the good sense to insist upon the Capitalist owners to sponsor a 20%
set-aside for an ‘EO Gratuity pot’ simultaneously with the issue of the replicated
common stock specifically for voluntary retirees in the manufacturing sector.
In Rob’s society, Robot-axed
employees had the exclusive option to continue to earn income by volunteering
to work at various RCDF-sponsored advisory-, consulting-, white and blue
collar 'human-jobs', and even community activities. The RCDF Administrator
endowed these employers with as many RCDF points as their dollar support for
any given cycle/period. These points were freely exchangeable amongst
employers who paid the robot-displaced temporary employees with individually-negotiated
bundles of wages and RCDF points. The RCDF Administrator periodically
distributed accrued dividends and capital appreciation in the fund among the
entire group of ex-employees in proportion to their credit of RCDF points. Ex-employees,
dissatisfied with their wages at their new employer could choose to be
compensated instead with RCDF points and risk an uncertain payoff in the form
of dividends and capital appreciation generated in the Robot economy. This
strategy re-introduced to the ex-employees, the risk-reward equation and let
them make their choice between earning wages the traditional way and supplementing
their income by participating in the robot economy. To the RCDF
Administrator, the points represented an unpaid credit with the ex-employees
which the RCDF could exploit it in its network to learn of opportunities to
gain upon the traditional economy. Lest the group of severed employees be
exploited by the RCDF Administrator, Rob pro-actively proposed that the DRCF
Administrator compete for the RCDF-points by offering in return stocks from
the DRCF portfolio. Thus, the severed blue collar employees could
pareto-exchange the dividends and capital appreciation embodied in the RCDF
point payoffs for promising, but out of favor robot-firm stocks. It also offered
the DRCF Administrator a means of encashing out of less-favoured robot stocks
beyond obtaining through the RCDF points, a read on the pulse of the economy
and the competitiveness of RCDF-sponsored employers. Further, and since the
capital markets were never at equilibrium, and since the mix of wage-RCDF-points
were individually negotiated, the price in RCDF points paid for DRCF common
stock varied by individual, firm stock, and period. The strategy opened the
door for the savvy among the severed blue-collared to accumulate robot-firm
stock at a discount and turn capitalists in the long run.
The EO Gratuity pot, aggregated
across firms, and sponsored by Capitalist owners, was a thinly-disguised
allurement to those aging among the blue-collared and/or wishing to cross the
street over to the Government, to bid for their parting package, and ease the
pain of severment on their brethren. Interested employees entered their bids in
the common, industry-wide, periodic reverse auctions. The Administrator of
the EO Gratuity pot evaluated the current and expected future health, productivity
and wages of bidding employees, as well as their remaining work years,
against the bids submitted by them. The reverse auction algorithm then
explicitly, or otherwise, sorted the bidders in to a roster of ascending expected
net worth to the firm/industry, and accepted voluntary retirement bids until
the funds allotted to that particular round, gross of a variable ‘EO Gratuity
bakey’ that was passed on to the Labor unions, ran out. That residual varied inversely
with participation interest and the bids in the reverse auctions. While those
unsuccessful in the reverse auctions could bid in subsequent rounds, the RCDF
Administrator excluded the successful from the roster of ex-employees. …. As
Rob checked out the weather to make his exit, a grumpy, unshaven, middle-aged
guy walked in and barked for attention. Instead, the in-charge turned around
and gave Rob a smile. Walking out in to the chill of the grey, late fall
morning, Rob hurried over the cobbled stones to the think tank. Plenty of
scribbled notes to re-decipher and transcribe.
In his brightly lit think-tank office, Rob fleshed
out his proposal in more detail. He turned his attention next to the
Labor Unions, who, united in their opposition to involuntary termination of
the blue-collared, were offered, as part of a two-pronged strategy, both a
‘bakey’ from the EO Gratuity pot (an ‘Auerbach Signing bonus bakey Jew Group
Executive 2 bakey’, if you will) and a matching, pan-University ‘Endowment
Bakey’ as an inducement to accept the robotization of the manufacturing
facilities. Post the rounds of reverse auction for voluntary separation, and come
axe-time during recessions, the Labor unions simultaneously redeemed both
bakeys and some of their own bond holdings in the opposite of the fall in
RCDF assets. The Union Administrator distributed the largesse amongst members,
and endowed the more worthy among them with scholarships for graduate
studies. This strategy offered an escape hatch to the more worthy among the blue-collared
workers and further dulled the eventual axe the rest of the union members
faced. The Administrators of the pan-University Endowment Fund and the
Education Loan Bond Fund, both invested in long bonds, found it convenient to
time their moves in an approximate ZS with the moves of the Union
Administrator whose bond holdings were of shorter term. In times of impending
recessions, when the Union Administrator redeemed bond holdings, their
countervailing moves were predicated upon labor market developments. When blue
collar wages fell relative to white collar salaries and held back the pace of
robotization, the Bond market rewarded the Education Loan Bonds, whose prices
increased relative to the bonds the pan-University Endowment fund was
invested in. In such instances, the Endowment Administrator redeemed funds to
support ‘would-be’ executives currently at school. If, however, wages were
‘sticky’ and did not yield to the realities of robotization and recession, forcing
the Capitalists to wield the axe upon the blue-collared, the prospects for future
employment among the current generation of students would grow less rosy due incremental
robotization, and the consequent higher probability of loan default reflect
in a relative fall in bond prices covering education loans issued the
students. In such instances, the Administrator of the Endowment Fund held on
to gains in value and postponed awards to even worthy students at
universities, signalling tough times ahead. The activities of the Endowment
Fund, the Union Administrator and the Education Loan Bond Fund afforded the
extant blue-collared workforce and college students the opportunity to
leverage information embodied in bond market volatility and resolve their
future consistent with current realities and incentives from the future.
The Sun was out that Friday
morning, and Rob was in an expansive mood at the coffee shop. His thoughts
wandered again to the Robot resolution he had outlined. Though, Rob had
provided for the RCDF-sponsored alternate social security net for
robot-displaced employees, he realized there could be times when the RCDF
Administrator would be constrained from issuing distributions from the fund. Prudently,
he deemed it necessary that the robot-displaced blue-collared be further permitted
to leverage and enrich themselves from the expanded capital base due the
introduction of robots in manufacturing. To this end, he offered such households
the facility to borrow firm-specific stocks from the DRCF Administrator, and arbitrage
them two ways - against an aggregate RCDF stock ‘Hedge Derivative’ instrument,
and against SSD bonds from various tranches issued by the SSA – in structured
trading. (The former hedged the risk arising from holding the entirety of
RCDF assets in dollar denomination. It was essentially a derivative instrument
of value equal the worth of RCDF assets that the Administrator bought in the
currencies of major foreign competitor nations. The foreign currency
derivatives provided an opposite hedge to movements in the dollar, and
protected the value of the RCDF assets in times of dollar weakness or
volatility). The aggregate RCDF hedge instrument revealed the prospective
competitivity of the US Robot economy relative to potential foreign competitors.
Though the stocks borrowed from the DRCF did not cost any, the Administrator
restrained exploitation of the facility by forcing household borrowers to share
with the fund a larger fraction of their gains with incremental borrowing. The
two-way trading revealed, on one hand, the fortunes of individual firms
relative to the aggregate robot economy, and on the other, the sustainability
of such firms relative to the default-risk embodied in the SSD Bonds. Between the liquid
position of the RCDF hedge instrument, the short horizon of the DRCF, and the
long-dynamics of the SSA bond market, the ex-blue-collared speculators played
their 'firm-specific bets' on prices and volatilities of their borrowed stock
with expressly-tailored financial instruments.
Rob even went so far as to imagine the development of ‘Android Apps’ that permitted
speculators to automatically square off positions and skim away the daily profits
net of the RCDF Administrator's 'take'. This trading strategy, in the
context of volatility in bond markets and international currency markets, permitted
the robot-displaced to get away with intra-day trading gains that added
modestly to their wallet. Thus, Rob managed to add another stream of
uncertain income to the robot-displaced while revealing the opportunities and
threats as they pertained to individual firms, the aggregate robot sector,
and the bond market. The blue-collared now had the opportunity to choose
between temp positions that paid variable wages and RCDF-points, and trading
RCDF firm stocks for volatility gains – a choice determined by the home
equity, spouse’s income, family circumstances, and lifestyle desires, among
others. Their income options too had increased and now spanned social
security, temp wages, RCDF-points that were either ‘variably’ paid-off by the
RCDF Administrator or exchangeable for common stock through the DRCF
Administrator, and the 2-way structured trading gains. If Carol noticed a
change in his countenance that bright and cold day in December, it was
understandable. Rob looked discernibly more relaxed with, huh!, merely a
decaf!
Back at his office, Rob looked
out the window. Flurries, just as predicted, and more to follow! He pushed
himself harder to ‘close’ his proposal before taking off for Christmas. ….The
DRCF Administrator, realizing many migrating and laid-off blue-collared might
seek a future in the service sector, (and, in any case, eager to stop the
growth of social security claimants) shrewdly supported a move to enhance
service benchmarks and standards in the higher echelons of commerce, business
and government. The consequent increase in the number of advisorial,
consultant and customer-oriented supervisorial positions stimulated a move up
the service career pyramid, a wave that opened new positions for the
retrenched blue-collared, if at the bottom of the ladder. Not to be
outdone, the RCDF Administrator supported both, a group of issue experts from
the academe and think-tanks, and special-interest lobbyists. These experts
and lobbyists opined on, and canvassed for policy and regulatory issues of
concern or interest to the robot-dominated manufacturing sector. The strategy
secured RCDF assets, opened up new opportunities that furthered the Robot
revolution. In yet another pro-active move to anticipate and internalize the
impacts of robotization, Rob pictured the RCDF Administrator applying the
post-dividend hike in capital appreciation to support a risk cover for
commercial and industrial bankruptcies among new and recent start-ups, albeit
on a reverse auction basis until funds ran out. This move provided a probabilistic
bankruptcy-cover for entrepreneurs willing to take risks and invest in their
ideas. The promotion of risk-taking and the entry of new businesses and
technologies brought about higher returns in the risk-favoring equity
markets.
|
It was barely 3 in the afternoon,
but it was also the Friday before Christmas. Rob checked off the essentials in
his proposal and recounted the various ways in which his proposal made sense. It
provided for a planned penetration of efficiency-enhancing robots in to the
world of manufacturing. The Robot revolution would reduce costs in
manufacturing and expand exports in to the far corners of the world. The
consequent increase in corporate profits and government tax revenue would help
the nation close the debt owed to overseas and domestic creditors. And though
no amount of dole could supplant a secure blue-collar job, the strategy he had
proposed was a half-step forward toward a comprehensive package that permitted
worker migration, retirement, as well as post-lay-off income options. In fact,
it went one better, and offered the blue-collared a half-chance at amassing
sufficient capital in dividend-paying ‘robot stocks’. Why it even sponsored a
mid-life opportunity to earn an academic degree for those so inclined among the
laid-off, and underwrote an implicit capital risk-cover for the more
entrepreneurial among them. In working through the financial markets, the
strategy leveraged the financial markets to anticipate impacts years down the
road. In particular, Rob was enamoured of the Endowment Fund - Labor Union EO
Fund - Education Loan Bond Fund ‘triangular strategy’ that transmitted
information from the workplace and the labor market through the bond markets to
students at universities years ahead, and afforded them the opportunity to re-orient
and re-align their educational and career strategies, thus mitigating the
impacts of robotization significantly. In fact, and to sum up, Rob could
justifiably claim his proposal was a quasi-efficient, quasi-sustainable, quasi-pareto
strategy to respond to robotization-induced changes already underway, and which
would, if left unanticipated, almost certainly create, beyond social chaos, a
lost super-cycle of robot profits.
The flurries were thickening….and
Rob took off with the draft of his proposal tucked inside his coat. On way, he
dropped in at the Coffee shop, and found, to his surprise, Carol, reading a
magazine at his favourite table. Why, she even invited him, and Rob, for once,
didn’t mind the company…or the weather. Talking of the weather, it was just
right for the cinnamon tea she served him. And the moment the talk drifted from
the weather to the proposal, Rob turned excited, animated, and almost pedantic
in the exposition of its virtues. After what seemed like a long ‘sermon’, Rob
wound down, leaving Carol overwhelmed by his sincerity, passion and genius ….
…..and wondering whether it’d be a White
Christmas afterall !
