Businesses are investing more and more in what I will call smart automation. That is, automation that is easily programmable to do a variety of tasks that formerly were done by a person. For example, the self-checkout bots that grocery and big box department stores are using would be termed smart automation. Similarly, a law firm using an artificial intelligence’s search algorithms to sift through legal documents rather than hiring a clerk to do it would also be considered smart automation. Self driving semi-truck delivery would be another example.
The effects of smart automation on business finance:
As companies invest in these new technologies, there are considerable savings. For example, the upkeep on self-checkout machines in grocery stores is far less than the salaries and benefits that would be paid to the workers they replaced. In our current business model, these savings largely flow to the top of the corporate pyramid, and we see top executive salaries soaring into uncharted reaches. I believe this to be the primary reason for the recent rising disparity in executive vs. worker salaries that have been upsetting activists and political leaders for the last few years rather than corporate greed or other such accusations that have been made. It’s simply a consequence of an old business model in a new environment.
Even though it is not due to malicious greed and probably not even recognized by the executives themselves, the long term consequences on our economy could be dire. As more individuals are replaced by smart automation (like tax accountants being replaced by turbo-tax), less of the business profits will flow to the working class. This will seriously limit the ability of the large customer base to consume goods and services. This may lead to economic upheaval, or even serious political upheaval. If unaddressed, it could easily lead to depression conditions like we have never experienced in this country’s history.
What needs to happen:
The structure of employment and pay needs to change. Companies need to hire workers at higher salaries and lower hours, and pay them using the savings they realize using smart automation. That savings needs to not just flow to the top, but benefit workers throughout the company. Workers need to understand that their hours may need to be cut, but their hourly pay will increase. The paradigm needs to be centered around benefitting a large number of employees rather than benefitting the top executives.
Corporate tax codes could be written that incentivize hiring high numbers of full time employees (those with health and retirement benefits) to encourage businesses to adopt this new paradigm. If businesses are to survive, there must be a customer base to consume the goods and services.
The problem isn’t that things were wrong in the past. It’s just that technology keeps advancing and is disrupting business in a way nobody anticipated. We need to take action now and make adjustments to the market before a more serious disruption to force dynamic change occurs (like a super-recession or a highly damaging revolution).