thenextwave

1964: James Meade and the automation problem

Posted in Uncategorized by thenextwavefutures on 19 November, 2013

A good post by Stuart White at Open Kingdom looks back at the work of the left-centre economist James Meade, who was concerned in 1964 that automation would cause a crisis of work.

Meade’s book, Efficiency, Equality and the Ownership of Property, “was motivated immediately by a concern about future technological and economic development. The scenario he contemplated was one in which automation of production reduces the demand for labour”, writes White.

Meade’s hypothesis:

‘This could happen if, in spite of the net accumulation of capital equipment, the new labour required with the new automated machines was actually less than the growth of the labour force plus the labour made redundant by the scrapping of physically worn-out old machinery’ (Meade 1964, pp.25-26).

So, notes White: “Even if wage rates are not depressed in absolute terms, the automation process could lead at least to a shift in labour’s and capital’s shares of output, a higher share going to capital.”

Of course this view is all but mainstream now, at least in some places – and hence this blog. What’s interesting about Meade’s book is that it has scenarios in it about how a society could respond if this happened.

White’s article describes it like this:

Meade’s 1964 book considers four possible responses: ‘the trade union state’; ‘the welfare state’; ‘property-owning democracy’; and ‘the socialist state’.

Under the first heading, Meade means any action, whether through collective bargaining or legislation, to maintain a ‘minimum real wage’. He is sceptical of this approach on the grounds that it will come at the expense of jobs.

Under the second heading, Meade has in mind tax-transfers which shift resources from the capital-holding rich to the wage-earning poor. Again, he is sceptical that this approach can go far by itself. The tax rates necessary, he thinks, could undermine economic incentives.

It is the latter two responses that Meade advocates. If the return to capital is rising relative to labour, then the way to prevent this leading to growing inequality of income is to democratise claims over wealth – over returns to capital. [My emphasis] This can be done in two ways.

First, the state can enact policies to encourage a wider dispersion of privately-held wealth. This is what Meade means by ‘property-owning democracy’. Meade himself puts a lot of emphasis on designing an inheritance or accessions tax in a way that will break down large concentrations of wealth and encourage people to give wealth to those who have yet to receive much from this source. One can readily imagine other, complementary policies to help with this goal. In one interesting response to Paul Krugman’s article on the ‘rise of the robots’, Noah Smith argues along Meade-type lines, suggesting the idea of a universal capital endowment as a right of citizenship. (Back to the Child Trust Fund?)

Second, the state can itself build up a stake in national wealth and distribute this as income to citizens. For much of his career Meade was an advocate of what he termed ‘Topsy Turvy Nationalization’. He was not supportive, in general, of the state buying up private sector firms and then trying to manage them. But he did strongly support the creation of a state investment fund. The state would own a portfolio of assets across the economy. The return on these assets could then be returned to the citizenry, e.g., as a uniform social dividend or basic income. One might call this a Citizens’ Trust. …

In his ideal scenario, he envisaged the community owning 50% of national assets as a Citizens’ Trust and using the return to provide a social dividend for all. In Meade’s utopia – or what he himself called his ‘agathatopia’ (a good, if not perfect, place) – a downward shift in the return to labour, e.g., due to automation, has a more limited impact on the overall distribution of incomes. If there is a change in the relative reward of labour and capital, then while one source of an individual’s income (wages) falls in relative terms, other sources of their income (the returns on more widely held private and shared public assets) will correspondingly rise.

One place where such a Citizen’s Trust has been created is Alaska, oddly, where a community fund was created which channels a modest citizens’ income from oil royalties. (Karl Widerquist, Open Democracy, 24 April 2013). Arguably (my note, not White’s) is that Norway’s Sovereign Wealth Fund works in a similar way, although disburses public benefits and public assets rather than a citizens’ income. Scottish politicians have been talking about a similar model, post-independence. (Angela Cumminem Open Democracy, 6 November 2013).

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