Thursday, August 24, 2017

Is Artificial Intelligence Threatening India Inc. Jobs?

A recent news report said that in India The IT services industry alone is set to lose 6.4 lakh low-skilled positions to automation by 2021.

Is this true? Let us scrutinize.

What is Artificial Intelligence?
As Jerry Kaplan, the author of Artificial Intelligence: What Everyone Needs to Know, has said, there is no one all agreeable definition of Artificial Intelligence in the computer community today. Roughly speaking, Artificial Intelligence means, as its founding father John McCarthy said, a process “that of a making a machine behave in ways that would be called intelligent if a human were so behaving.” Artificial Intelligence is an all encompassing name given to different automation technologies that is coming in the market since last couple of decades. From the economic perspective AI is nothing but just another type of capital good (machine) that is going to make the life of humans more comfortable because it increases human labor productivity. It is a form of technology that is part of the fourth industrial technological revolution, and is nothing very different from the three technological revolutions that preceded it. It is true, as Thomas Davenport and Julia Kirby, the authors of Only Humans Need Apply, have argued that these AI technologies are not only going to complement the labor, as previous technologies have done, but they will also substitute and replace them because they can do exactly the same type of work that the human workers are doing. But we should not overly worry about this fact because by doing so they will only free up more labor force to work on fulfilling other endless wants of the people. A world without work is impossible simply because of the fact that human wants are unlimited as Milton Friedman famously observed, you could reach a point where you pay a personal psychiatrist to follow you around!

Yes, during the transition period there will be some dislocation of jobs; some workers will lose jobs but they will get new ones soon as have always happened in past. The Indian laborers will have to learn new set of skills that are going to be in demand in the coming automation AI economy. As Geoff Colvin, the author of Humans are Underrated, has argued, in the age of machines consumers and thus employers are demanding more human like skills from the employees. Deep down in our nature we humans are social animals and ultimately we prefer to interact with other humans rather than with robots. He lists down some of these social skills as follows: 1) Empathy 2) Team work 3) Storytelling 4) Innovation and creativity etc. Thomas Davenport and Julia Kirby also have presented an alternative strategy both for the human workers and their employers for tackling the machine age changes. Their suggestion is to augment instead of automate. The meaning of augmentation is that instead of simply replacing a human worker with machine, it is better to augment the productivity of that worker by allowing him to work with an automation technology i.e., laborers working in partnership with the machines. They also present five other pathways of career for humans to adapt to the changes that are coming in the labor market, and they are: 1) Step up 2) Step aside 3) Step in 4) Step narrowly, and 5) Step forward. Briefly, step up means you step up to the cognitively higher ground where the rational decision making work is not yet conquered by the computers.  Stepping aside means moving to a type of non-decision-oriented work that computers aren’t good at, such as selling, motivating people, or describing in straightforward terms the decisions that computers have made. Stepping in means engaging with the computer system’s automated decisions to understand, monitor, and improve them. Stepping narrowly means finding a specialty area within your profession that is so narrow that no one is attempting to automate it-and it might never be economically to do so. And, stepping forward means developing new systems and technology that support intelligent decisions and actions in a particular domain i.e., inventing new AI technologies.

Once workers make these adjustments and learn how to work with the machines, jobs will no longer pose a problem.

How The Indian Government Is Destroying Jobs?
The AI technologies are not really threatening the India Inc. jobs. The entity that actually threatens jobs of India Inc. is the welfare-warfare Indian nation state (aka government) itself. By interfering in the workings of the freely functioning market, especially the labor market, the Indian government either directly destroys jobs or hinders job growth. To understand this I will work with an example. We all know about Government’s minimum wage laws and how they are deployed to benefit the poor unskilled workers, who mostly work in the unorganized sector, whose wages are low. Although everyone knows that minimum wage laws are suppose to help poor unskilled workers by raising their wages, but the actual impact of these laws is to make these very same poor unskilled workers unemployed! We now see how minimum wage laws destroy jobs. It is a well known economic fact that no private sector company can survive in the business without making profit. Profit is calculated by subtracting total cost out of total revenue. Now, total revenue is determined in the market by the marginal revenue product of every individual labor i.e., the marginal contribution of every laborer in company’s revenues via their marginal productivity. Every individual laborer receives his wages according to this marginal contribution in company’s revenues. And labor wage bill forms the significant part of any company’s total cost. Suppose before the passage of the minimum wage law, a company is employing 100 laborers and paying each laborer 1000 rupees per month wage then their monthly wage bill will be 100,000 rupees. If non-wage bill of that company is 50,000 rupees then their total cost is 150,000 rupees. On the other side if their total revenue per month is 200,000 rupees then their total profit is 50,000 rupees. Now the government imposes a minimum wage law on them and forces them to pay 1600 rupees to their laborers. In this case now their total cost will go up to 210,000 (160,000 wage bill plus 50,000 non-wage bill) rupees while the revenue remaining the same because revenue will not increase automatically after the imposition of minimum wage law. We can now see that the profit of this company has disappeared and it is actually making 10,000 rupees losses. This situation cannot go on for long for this firm, and to survive in the market it will have to fire some workers to lower its wage-bill and total cost. If it cannot fire workers because of the provisions in the law then in the situation of continuously mounting losses it will be forced to shut down in the long run unemploying its whole labor force! In both conditions the end result of imposition of the minimum wage law is unemployment for the workers. This unemployment is structural one in-built in the design of the system because minimum wage laws are here to stay for a long period of time, and so they cause very long term permanent unemployment.

Like minimum wage laws myriad of other laws of the government like work condition laws, labor union laws, payroll tax laws, anti-hawking laws, license raj laws, job security laws, unemployment insurance laws, equal pay laws etc., etc., causes long term unemployment. Also, government’s direct and indirect taxes siphon off the productive saving resources from the private sector, where they can be used to start new businesses or expand old businesses and generate new employment opportunities, and divert them to wasteful unproductive consumption activities of the government and their welfare schemes. Government’s central bank RBI also generated business cycles in the economy which also destroys jobs.

Conclusion
So India Inc. jobs are under threat not from the AI technologies, which are only making our lives better, but from the very Indian government which promises to secure these jobs! It is better for the Indians to stop worrying too much about the artificial intelligence machines and start worrying about their big intrusive government which wants to control everything. If India Inc. wants to save jobs of people then they must pressurize the government to remove their regulations and controls and free the economy for market competition, which will not only generate more jobs but also improve everyone’s standard of living too.

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