The World of the Future

A friend sent me a link to a blog published by a reporter (Udo Gollub) who attended the Singularity University summit recently held at Messe Berlin “scary/exciting,” specially for those of us “in mid career or are only entering the world of (non) work now.”

“Scary/exciting”? Maybe. According to Gollub, much sooner than any of us hope (or fear) we will inhabit a world with endless supplies of water, clean (solar) energy, featuring driverless cars (no clogged streets), AI lawyers and doctors, where those of us who do work do so from the relaxed venue of networked cottages in the verdant countryside. I summarize.

All of this assumes, however, that the motivating force behind production is some combination of wealth and leisure. Whenever I read such reports, I am reminded of Adam Smith’s observations over two and a quarter centuries ago which describe the 1776 version of wealth and leisure:

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labourwhich it enableshim to purchase or command.  Labour, therefore, is the real measure of the exchangeable value of all commodities (Wealth of Nations, Bk. 1, Chapter 5).

As I remind my students, this luxury of spending a week day considering the fine points of economic theory is afforded by the efficiencies that are being produced elsewhere; which is not to say that my brilliant students will not create many efficiencies over their lifetimes, but only that (1) efficiencies are not distributed equally; and (2) our leisure is evidence that we command the efficiencies produced by others.

The other passage that such forecasts bring to my mind is Adam Smith’s story about he fire engine boy:

In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve, which opened this communication, to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his play- fellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour (Bk. 1, Chapter 1).

The story is almost surely fabulous, but, quite apart from its authenticity, it displays a profound failure to grasp the truth that, four chapters later, Smith shows that he understands only too well: namely that my reason for being “in the game” so to speak is not simply to accumulate efficiencies, but to spend them. So, our fire-engine boy, who doubtless would love to play with his companions, alternately opened and shut the communication between boiler and cylinder not because he felt a special calling to perform this service, but because absent his wage he and his family would go hungry. Nor was he the beneficiary of the efficiency generated by his fabulous invention. Rather, just as A Smith would point out four chapters later, were the owner of the private fire fighting service along with its shareholders the beneficiaries of this efficiency.

A Smith’s propensity to isolate these two moments in his analysis — one devoted to invention and creativity, the other devoted to economic analysis — is far from unique. Evidently the folks at Singularity University share this propensity.

Efficiencies such as those enumerated at the Singularity University event  are generated only under the condition that they produce sufficient returns for shareholders. Absent these returns, they do not move forward. Such returns, however, are predicated on the secure transfer of efficiencies to investors. It is to this secure transfer that value is pegged. Thus, when we consider Adam Smith’s fire-engine boy, were the lower factor costs and hence the efficiencies generated by his innovation actually enjoyed by him and not by shareholders, it is certain that the innovation would never have been adopted. Value returned to shareholders dictates the rate of return and, as a consequence, draw for investors: i.e., the capital stock. Value is thus not a zero-sum game. Innovation by itself yields nothing. Yes. I may be able to purify water at next to no expense. Yet, if the return is only pure water, you will have a hard time attracting investors. Moreover, insofar as water is not unlimited, the reduced cost for its purification cannot help but significantly increase its demand until the demand for water once again drives up its price to a new equilibrium level. Indeed, were this not the case — for example, were value actually tied to some material attribute of a good or to the satisfaction of some need — we would have to scrap a century and a quarter of economic modeling, according to which the value of any specific good is relative to the opportunity costs born by investors who select that good over others. Which means that efficiencies arise only where they produce value to shareholders.

This, in fact, is the insight underlying Book 1, Chapter 5 of Smith’s Wealth of Nations. The value I enjoy is precisely not a factor of my own labor, but rather is a factor of the labor of others that I command.

Doubtless the efficiencies identified at the Singularity University event will be adopted. But it would be foolish to suppose that they will lead to the Shangri-La imagined (or in any case marketed) by its promoters. The good news is that those of us who do command the labor of others, whose efficiencies account for our relative leisure, wealth, and knowledge, will no doubt be those who further benefit from cleaner water, driverless transportation, near flawless legal defense and medical care, while those who generated the efficiencies — the fire-engine boy for example — who commands no other labor than his own (and even then not all of it) will be left to fight over the scraps thrown from our tables: less pure water, more precarious transportation, more flawed legal defense and medical care.

It would be nice if science and technological innovation offered the fail-safe key to future happiness. Unfortunately, however, this happiness is predicated not on innovation, but upon how evenly the efficiencies generated by innovation are spread socially. No doubt someone will object: but if the efficiencies are spread more evenly, then where is the incentive to innovate? Precisely my point.

 

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