Monday, 15 August 2022, Bhatye

Any Technological Revolution is biased (helps or treats favorably) towards unskilled or less skilled workers. Whenever this revolution happens it increases productivity per worker and it also simplifies the process, rendering the Craftsman, Specialists, Experts irrelevant. At a first glance this might seem counterintuitive.. but it is not. I will comes back to this point later in the article.

Today everyone is in trying their best to become the Best, Top 1% of 1%.. the fewest of the few who can do any particular job. That's why everyone is trying to be Specialist..Expert Engineer/Craftsman. It is an unending race to superiority and there is nothing bad about being or trying to be the best. But the problem lies in the question, Whether the efforts put in would or can give required return? Now if someone is trying to be the ultimate expert just for the sake of it would not face this problem, but those who are putting efforts in the hope that they would reap the benefit at a later stage/time would definitely face this question, if they haven't already.

Nowadays the employee working in a financial institution like bank can at least carry on his/her work without having a deep understanding of the core concepts like asset-liability duration matching, debt structure or what interest to charge based on the riskiness of borrower and tenure of the loan. We do this under the name of Equality but in reality we do this because we can't train enough people required for the job with level of expertise required to do it. Neither we can pay them for their expertise nor do we have enough number of well-equipped institutions to do this. For short time, this system works flawlessly. But in long time periods it gives birth to bigger problems in small increments.These smaller packets of problem sometimes stay harmless for longer duration giving an illusory impression to participants that they found the ultimate system. Then once in a while these smaller problem pieces locks in such a way that a catastrophic problem arises. The reality is non-linear in this fashion, hence predicting the occurrence of such events is futile. Only thing we can do is acknowledge the existence of such catastrophes and prepare for them by creating appropriate buffers.

And all this is happening in our world. The work is disappearing. We are again observing the high level of unemployment. Day by day more skill demanding work will be out of reach of most of the people. Daniel Susskind in his book A World without Work call this Frictional Technological Unemployment. So why we are not seeing this lack of work? That's because in absence of highly skilled workforce we are settling for less skilled one. For a manufacturing industry this might not be a big problem where void due to lack of high skilled workers in the workforce can be filled with focused training (or if required additional up-skilling after any upgrade in the facility). But in case of Teaching, Research etc this might pose a grave danger for future generations. We are already observing the side-effects of this around us. We neither have highly qualified teachers with deep understanding of the subject, nor we have educational infrastructure in our schools, colleges etc to give a hands-on experience to our students. But instead of aiming for that we are settling for mediocre teaching staff and bare minimum infrastructure (actually it wouldn't be correct to call it even bare minimum). The mediocre people who got the job but know deep down that they lack the skill required would collude and thwart any future attempt to bring stringent performance measures. This would start a chain of degradation of quality of education.

Now after reading about above example one might think that the problem of mediocrity is observed only at lower levels or with poor people. But this is not the case. It is just that mediocre people who are rich, at high rank positions or graduates of elite schools are better at hiding the gaps in their knowledge. This whataboutery (or whataboutism) skill which low level employees or poor lack is exactly what others weaponize.

Now one might ask if the situation is as terrible as you are saying, then why hasn't the World's System collapsed or stopped functioning? To answer this let me give you an example..

One of my friend who is in Merchant Navy believes that there is some higher entity or being who prevents world from falling apart (I'm paraphrasing here). In his words ships can't survive the Sea or couldn't be run just with knowledge & skill of people on the ship and it is able to cross high sea because of some higher entity like god. Generalizing his idea to World Engine e.g. Economy, it would mean that end of the world as we know it was avoided because this invisible force didn't want it to be destroyed. I neither believe in his idea nor in the existence of any higher being.

Also it would be being ignorant if we say that world has never experienced such Catastrophic Scenarios. We have survived those scenarios because we pay the costs (usually invisible or hidden from most of us) and also in the example of Ocean Navigating Ships, we receive assistance from advanced technology, the contribution of which towards safer voyages goes unnoticed and hence unappreciated. Also the survivor of near death scenarios rather thank god instead of their rescuer or whatever other thing that actually saved them. This is probably because most people are religious. So again coming back to the point: We have already faced such situations and paid the prize for it. Let me give couple of examples, First in 2008, the world economy came to brink of total collapse but we survived not because of some higher being wanted to save us but because we had paid the toll. Many governments across the world bailed out the Too Big to Fail companies & averted the further crisis by dolling out multi-billion dollar bail out packages.Others like India remain unaffected due to stringent Economic Policies of their Central Banks. But since the crisis was averted before becoming worse, it goes unnoticed. It is the bomb that didn't go off. The danger no one knew was real. [Tenet] Second, in World War II, again humanity as a whole was on the verge of destruction, from which recovery would be difficult if not impossible. But then Pearl Harbor happened. US directly took direct part in the WW2. They used nuclear bombs as a deterrent and Japan surrendered. This saved millions of lives but we paid the prize. So we always pay it. Sometimes these sacrifices go unnoticed. Also sometimes the few really smart people who are still part of the system, take responsibility in difficult times and carry the system into safe waters. Then afterwards they relinquish the control. They are like Cincinnatus in this regard. Without them the brash, overconfident MBAs, Politicians and Ultra Rich, who all are desperate to add one more Zero to their Wealth might have ruined everything.

Now let me tell you about mediocrity prevalent at higher rungs of society/workplace and at places which regarded as reliable source of information. These often goes unnoticed because people with lower income or from working class of society rarely dare to question them. Here is an incident which a famous Finance Professor told in his class. While discussing about adjusted beta (a number quantifying the correlation between Stock/Unit's Return and Market Portfolio's Return over a period) that is available on Bloomberg Terminal, he told about a conversation he had with Bloomberg Employee. Here is how he tells the story. I may be paraphrasing to make it concise.

That was about Bloomberg. A service which costs you around $24000 per year per terminal (excluding live data access fees). On its website it says, Sitting on the desks of 325,000 of the world’s most influential decision makers, the Bloomberg Terminal is a modern icon of financial markets.

And this can be the story of how things might go at any institution which is well regarded and trusted by the public. This level of mediocrity and ignorance to detail is prevalent is many govt offices or in many corporations. We just never look too closely nor we would be given access to do that. It is that either general public lack the confidence to question these people directly or these people are smart enough to hide their lack of knowledge or lack commitment to the position they hold or job they do.

Now coming back to the first paragraph of this post/essay. You might have wondered, How any Technological Revolution is biased (helps or treats favorably) towards unskilled or less skilled workers? Technology not only simplifies the nature of work but also renders expertise useless. The invention like Flying Shuttle patented by John Kay in 1733 reduced the weaver labour force into half. Then there comes Spinning Jenny invented by James Hargreaves in 1764/65. It immediately increased the productivity of worker by Eight times. This later grew to 120 times as technology advanced.

Secondly consider the above given example of bank Employee who can at least carry on his/her work without having a deep understanding of the core concepts. How does he do that? Of course with help of Computers with pre-written Programs and Spreadsheets. In Dec 2020, me and my father visited local branch of our bank to complete some paperwork. After that the bank employee insisted to just hear about their new exciting scheme. I already knew about their ULIP & annuity schemes, but since number of Covid-19 cases were low, I agreed. I decided to listen and to annoy him if he tries to sale anything BS to me (I recently started doing this, instead of saying outright NO, listen to them & if it is a bullshit scheme then I annoy these sales people). So I asked how much return (IRR) this scheme generates, he didn't right away knew the answer, so he called someone who works below his rank to calculate that or may be just to lookup the IRR Value. That person replied in a minute or two. How? Well it was a scheme with cash payments for multiple years and annuity payments after 7 years or so and in addition to that somehow it was linked to market performance of insurance company (in the middle of pandemic, so you can guess the level of bullshit scheme they were selling). Considering this complexity of payment structure one can not instantly calculate this IRR number. But they had that number with them. All thanks to computer and pre-written programs to give key details about these schemes taking into account all payment options & flexibility given to the buyer.

The crux is that with help of technology need for expertise was reduced and productivity is was increased manyfold. So now same output can be achieved with lesser number of people. Now there was no need of expert weaver or employee at desk with knowledge of how to calculate IRR or any other parameter. Anyone with basic skills required for that job, viz. willingness to work for hours in front of machine in case of weaver in textile industry and communication skills, basic knowledge of Computer and English was enough for that bank job.

Nobel laureate Meade predicted that in his book Future of Work that in the future more and more work will be Lower Skill Work. The work opportunity or work will be of the type which would make the people earning higher income, feel good about their lives. e.g. Delivery Boys/Girls (think of Amazon/Swiggy/Zomato Delivery Personnel), Cleaners, Taxi Drivers, Baby Sitters etc. In short the so-called Gig Economy that government is so cheerful about for some reason. I see no reason in celebrating this kind of Gig Economy Work. There is big possibility of exploitation of these workers by their employer who is a contractor who supplies labour to companies. We are already seeing the side-effects of this with either wages/salaries dropping below some level or not keeping up with the inflation.

Due to Frictional Technological Unemployment worker will face 3 types of problems:
1) Skill Problem - Not having skills required for the new jobs
2) Identity Problem - Feeling that new jobs are unsatisfactory, not up to their standard or qualifications or that working condition is worse
3) Location Problem - Worker might not be living in the same area as that of job opportunity and moving is not an option

In future, there will be High Skill, High Paying Jobs but these will form a very small fraction of total number of jobs available. Then there will be Low Skill, Low Paying Jobs (Gig Economy Jobs or Serve/Please the Rich Jobs), most of the jobs will be of this type. But the most crucial ramification will be low availability or non-availability of Mid Level Jobs i.e. jobs which require mid level skills and pay mid level salary. Then the profile of employment opportunity based on Skill would look like this..

In addition to this there is something called as Sturctural Technological Unemployent. But that's a topic for another Post.

Update: Some of these effects of employment reductions due to technology are visible in banking sector in India.

References -

1) History of Technology - http://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=1233&HistoryID=ab11&gtrack=pthc#ixzz4ZpkXsrFG
2) A World without Work - Daniel Susskind