Bill Gates argues that because governments impose income and payroll taxes, and they should impose similar levies on machines.The Canadian Press
Donald Trump is convinced that building walls and raising tariffs will bring back factory jobs.
We know, of course, that automation is a far more significant job killer than trade. By badly misdiagnosing the problem, Mr. Trump is doomed to fail.
So let's assume automation – robots, artificial intelligence, data processing and the like – is destroying good-paying middle-class jobs, not trade.
What's the solution?
Simple: Tax robots, according Microsoft co-founder Bill Gates, who spent most of his career trying to automate people's lives. Governments impose income and payroll taxes, and they should impose similar levies on machines, Mr. Gates argued provocatively in a recent interview with Quartz, an online magazine.
"Right now, the human worker who does, say $50,000 [U.S.] worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things," he explained. "If a robot comes in to do the same thing, you'd think we'd tax the robot at a similar level."
Mr. Gates's idea is to recoup lost revenue from payroll taxes to fund vital societal needs, such as reducing school class sizes, caring for the elderly and retraining displaced workers. And he said the tax could have a positive spinoff effect – slowing down the pace of automation enough to figure out which industries and workers need help adjusting.
Other pundits have suggested going even further, even mandating that certain jobs must be done by humans. Washington Post business columnist Allan Sloan this week urged Mr. Trump to "lean on companies" to save roughly 3.5 million U.S. cashier jobs facing extinction owing to self-checkout counters. He cited the example of his home state of New Jersey, where a long-standing law outlaws self-service gas stations.
At first blush, both ideas are seductive. They could also backfire. Reversing, or even slowing, the march of the machine will almost certainly make the economy less productive, accelerating job losses.
Automation is continually reshaping the world of work, as it has for centuries. And it's creeping up the skills hierarchy. A 2015 study by management consultancy McKinsey & Co. predicted that nearly half of activities now done by humans could eventually be displaced by robots and other machines.
Examples are everywhere. Amazon.com Inc. is experimenting with cashier-less stores and delivering parcels by drone. McDonald's Canada has replaced counter staff with self-ordering kiosks inside many restaurants. A San Francisco company has developed a hamburger-flipping robot. Home-improvement retailer Lowe's Cos. Inc. is testing an inventory-checking robot. The Associated Press uses software from Automated Insights to write baseball game summaries and corporate earnings reports.
Perhaps no sector has been more depopulated than the steel industry. The industry lost 75 per cent its work force from the mid-1960s to the early 2000s. But it still produces as much steel as ever.
Ultralow interest rates from central banks may also be contributing to the automation conundrum by distorting the relative cost of labour. Cheap money creates a perverse incentive for companies to invest in machines rather than hire people. There are payroll taxes and benefits to pay. Robots just need a bit of maintenance.
Mr. Trump's dream of repatriating millions of factory jobs is a fantasy. Even his first claim of success – persuading United Technologies to keep its Carrier air-conditioner factory in Indiana rather than move to Mexico – could backfire. The company says the $16-million it's investing in the plant will pay for automation.
"What that ultimately means is there will be fewer jobs," United Technologies chief executive Greg Hayes told CNBC.
Meanwhile, the tax-reform plans being pitched by the Trump administration and Republicans in the U.S. Congress, which include sharply lower business-tax rates, risk starving the government of the revenue it needs to fund vital services – unless replaced with new taxes.
And the shift from from people to robots continues, eating into income and payroll-tax revenue.
Mr. Gates's call for a robot tax could similarly trigger unwanted consequences.
Robots have become a great equalizer for developed countries such as the United States and Canada. They eliminate the labour-cost advantage of China and others and encourage domestic manufacturers to become more productive.
Taxing that competitive advantage could exacerbate the problem of vanishing jobs. And more would move offshore, where robots aren't taxed.
But Mr. Gates is correct that governments will need to be more creative if the robotization of the economy undermines traditional revenue sources.