Bill Gates recently proposed a tax on robots to cushion the impact of job losses and inequality caused by automation. Introducing taxes on the deployment of robots would mitigate the shortfall in government revenues from the loss of personal taxes, and slow down automation. The government could tax firms on the imputed notional income of their robots, impose a levy on expenditure on robots, increase the VAT on robots, or withdraw the tax relief available for their acquisition. The government should urgently develop a legislative definition and ethical-legal framework for robots, and introduce corporate reporting requirements on their deployment.
Sam Mitha CBE (formerly of HMRC) considers the increasing automation in the workplace and its impact on government revenues from the loss of personal taxes, and reviews the possible solutions to the problem.
The BBC website contains a handy algorithm for calculating the probability of one’s job being taken over by a robot. For chartered and certified accountants and tax experts, the likelihood is 95%.
Earlier this year, Bill Gates, the co-founder of Microsoft, proposed a tax on robots to fund government expenditure on cushioning the potential dislocation of millions of workers by the widespread introduction of robots, and to limit inequality. He said that the diffusion of robotic technology could permanently eradicate whole classes of jobs without creating a new role for workers and create mass unemployment. Taxing robots would slow the pace of automation, and reduce the number of workers being thrown out of work. It would also reduce the risk of a backlash that could result in some technologies being banned.
Mady Delvaux MEP originally proposed the idea of a tax on robots in her report for the legal affairs committee of the European Parliament. On 16 February 2017, the European Parliament voted on the recommendations made by the committee. It rejected the introduction of a statutory definition of robots, new corporate reporting requirements, and an advisory code of conduct for robotics engineers to guide the ethical design, production and use of robots. It did so on the grounds that these measures could stifle innovation. Instead, it voted for a resolution calling upon the European Commission to propose legislation for a legal and ethical framework for robots, and for a debate on ‘new employment models and on the sustainability of our tax and social security systems’.
Lawrence Summers, the former US Treasury Secretary, said that Bill Gates was right about the gravity of the problem. Summers said that the idea of a robot tax was ‘misguided’. He characterised it as ‘protectionism against progress’. He pointed out that robots were wealth creators, and that it would be illogical to single out robots as job destroyers. After all, governments didn’t tax ticket kiosks, ATMs or word processors, even though they performed functions previously undertaken by humans. He argued that society should not hinder the introduction of robots; that they would make the economy more productive; that this would increase the demand for labour; and that the use of robots would lead to the creation of new industries, bringing with them increased opportunities for workers.
Summers said that staving off progress was a poor strategy for helping less fortunate workers. Society should instead share the extra production that the superior capacity of robots helped to create by means of suitable taxes and transfers. It remains to be seen, however, whether the robotic revolution substantially increases national output. Summers advocated major reforms of education and retraining systems, consideration of targeted wage subsidies for groups that faced particularly severe problems in securing new employment, and investment in infrastructure and public employment programmes. He sidestepped the impact on public finance of the replacement of millions of taxpaying workers by robots, and how the expenditures he had advocated would be funded.
In contrast, the Nobel laureate Robert J. Shiller argued that a ‘modest’ tax on robots should be considered as part of a policy package to manage the ‘robotics revolution’, helping to manage the transition to the new era by mitigating the disruptive effects of the transformative new technology.
We appear to be at a technological ‘tipping point’ in the diffusion of robotic technology across commerce, industry, professions and households. It could spread like wildfire. This could unleash what the economist Joseph Schumpeter apocalyptically described as a ‘gale of creative destruction’ and set into motion a ‘process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one’.
Technology is one of the most important forces in shaping jobs and wages in the economy. Technological change can result in a greater volume and improved range of products and services becoming available. But some futurologists fear that the change will be so swift and transformative on this occasion that it will create structural changes in the economy that will result in prolonged unemployment. It might make workers obsolete. In 20 years, half the working population could have nothing to do, and may have no prospect of being employed again. They accuse governments and politicians of burying their heads in the sand and ignoring changes on the near horizon on a scale that would dwarf Brexit. In the UK, as elsewhere, there is some justice in their concern that the government and politicians are being complacent to the biggest challenge facing advanced economies. For example, none of the parties mentioned it in their general election manifestos.
Debates on the potentially adverse impact of technology on jobs go back to the invention of the wheel! Ancient Greece and Rome grappled with the consequences of workers being displaced by technological advances, and launched large scale public work programmes and income support schemes. During the 19th century, the introduction of new technology led to protests in the streets and machine smashing, notably by the Luddite movement. The intellectual tide followed in the reverse direction to public opinion. John Stuart Mill and Karl Marx – unlikely intellectual bedfellows – independently asserted that while technological change could damage some workers in the short run, in the longer run most workers would benefit. They predicted that the price of commodities would fall, that there would be improvements in the quality of goods, and that incomes would grow as technology paved the development of new industries.
By the 1930s, prominent intellectuals believed that economic growth would mean the real problem likely to be faced by workers was how to use their leisure. In his essay In praise of idleness, Bertrand Russell said: ‘If the ordinary wage-earner worked four hours a day, there would be enough for everybody, and no unemployment.’ Writing in the middle of the Great Depression, John Maynard Keynes attributed ‘economic pessimism’ to a ‘wildly mistaken interpretation of what is happening … We are suffering … from the growing pains of over-rapid changes, from the painfulness of readjustment between one economic period and another. The problem of technical efficiency has been taking place faster than we can deal with the problem of labour absorption.’
Keynes predicted that people would hear a great deal about technological unemployment. He thought that it was ‘due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses of labour’. He characterised it as ‘a temporary phase of maladjustment’. Once this was over, he predicted, ‘man will be faced with his real, permanent problem – how to use his freedom from pressing economic cares, how to occupy his leisure, which science and compound interest have won him, to live wisely, agreeably and well’. And to think they call economics the dismal science!
We are on the threshold of a technological revolution led by the rapid emergence of smart robots equipped with artificial intelligence (AI), with the ability to learn and rocket-fuelled by superior computing power. AI infused robots are not dependent on being fed information by users or controlled by them. They can obtain their information directly from sensing their environment, and from data in other computers. They are not merely capable of operating autonomously, but are trusted and expected to do so. That is not the only way they are different from their predecessors; they have the potential to substitute for human brains, not just their brawn.
The widespread use of a new generation of robots that think as well as do, sense as well as sift, adapt and enact offers the scope for exponential economic growth. But it also poses a fundamental challenge to the former relationship between jobs and technology. It could lead to a re-shaping of the labour market and result in a permanent and decisive reduction in the share of the national income going to workers. It could result in a significant loss of tax revenues, and political pressure for increased expenditure on supporting workers. Technological changes like robotic automation decrease the cost of supplying goods and services, and increase the profits earned at any given price of the product. Because the increase in profits would result from increased capital investment, the gains would accrue primarily to the owners of capital, not to workers. The availability of increasingly sophisticated and productive robots creates an incentive to make workers redundant.
We are in the beginning stage of The second machine age (Brynjolfsson and McAfee, 2014) or The fourth industrial revolution (Schwab, 2016). There have been three previous distinct phases of rapid technological change. The first industrial revolution started in the middle of the 18th century and saw the introduction of steam engines and labour saving devices like the spinning jenny. The second – the era of mass industrialisation – began in the middle of the 20th century. The third phase was the era of information technology, and saw the introduction and spread of personal computers, mobile telephony, smartphones and the rise of the internet and e-commerce. The fourth industrial revolution is expected to result in more drastic change: the McKinsey Global Institute predicted in 2013 that the disruption caused by AI will happen ten times faster and have roughly 3,000 times the impact of the first industrial revolution.
Smart devices have been turning on our lights and cookers, answering our phones, dispensing our cash, guarding our homes, shining our shoes, giving us directions, checking out our groceries, printing out our documents, transmitting our messages, taking our vital medical signs, and much more for some time now. The diffusion of robotics potentially threatens the loss of millions of human jobs, as firms increasingly deploy machines with built-in powerful AI. The sophistication and power of this technology is rapidly advancing. For example, remotely controlled drone aircraft are used in warfare; robotic surgeries are increasingly being performed in hospitals for some medical conditions; and robot devices are being used as a ‘second set of eyes’ in reading CT scans and MRIs to help doctors to identify lesions that might mean cancer, and to suggest treatment.
How the labour market will react to the widespread use of new technology like robots will depend on the interaction between the so-called ‘displacement’ and ‘compensation’ effects. They will determine how long the transition to a new steady state would last. The ‘displacement’ effect describes how robots would require less human labour to price any given output. Firms experiencing rising productivity require fewer workers. The ‘compensation’ effect describes how those who retain their jobs after the introduction of robots become more productive because of the increase in the relative level of capital employed.
Higher productivity should eventually lead to higher wages and this should lead to higher spending. This should in turn fuel the growth of other sectors of the economy. But the ‘compensation’ effect would be muted if the higher wages of the remaining workers makes it profitable for their employers to replace them with robots. If the displacement effect were dominant, there would be greater unemployment coupled with increased inequality (profits would take a larger share of the national cake) and stagnation in the living standards of the workers who are discarded.
Earlier phases of disruptive technological change resulted in a growing tree of rising skills, wages and productivity. The new technologies required new skills. They created more jobs than they destroyed, but they were also associated with a ‘hollowing out’ of the tree. Previously, displaced workers found other jobs in new industries, which were sometimes directly spawned by the technological advances that caused them to lose their old jobs. The fourth industrial revolution threatens a dramatically faster, wider and deeper ‘hollowing out’ of the labour market than those that have occurred before. Knowledge work, requiring literacy and numeracy is no longer the monopoly of human workers. Robots with AI will be able to undertake many, if not most, of the new knowledge intensive roles, which would previously have created a demand for skilled workers. The scale of disruption is likely to be greater, and many of the job losses will probably be permanent.
Andy Haldane, the chief economist of the Bank of England, told the Trades Union Congress on 12 November 2016 that, on the basis of the probabilities of automation, up to 15 million jobs could be at risk in the UK, and up to 80 million jobs in the US. A report by PWC (2017) forecast that more than ten million jobs were at a ‘high risk’ of potentially being replaced by robots. The occupations most at risk include administrative, clerical and production tasks, rather than manual roles as in the past. For example, the development of blockchain software, which links groups of computers, will remove the need for many accountants, bankers and other staff involved in the financial industry. As the CEO of Deutsche Bank recently said: ‘In our banks, we have people behaving like robots doing mechanical things, tomorrow we’re going to have robots behaving like people.’
Linked computers automatically maintain records and crosscheck them, rejecting flawed data. This will facilitate real time commerce, without the need for middlemen at every stage. If it works as envisaged, it would create total trust in the integrity of the system. It would also radically simplify tax compliance and administration. HMRC could simply plug directly into blockchain, and automatically collect tax without argument. HMRC and tax advisory firms would require far fewer staff.
PwC has forecast that women would face a lesser risk of losing jobs than men. Women tend to work in sectors like education, healthcare and social care, which require a higher level of education and social skills. Even if it is possible to create new jobs in these sectors to re-employ those displaced by robots, there is no guarantee that these jobs will offer anything like the same incomes or prospects for advancement previously available to workers.
Autonomous robots have a clear edge over human workers in many ways. For a start, they are stronger, cleverer, learn more quickly, keep going longer, don’t need pay, holidays, lunch breaks or tea breaks, and never go on strike or repeat mistakes. AI infused robotic technology offers companies increased productivity. Through ‘machine learning’, it also offers them substantial improvements to their management, design and marketing techniques, and the organisation of their business activities. The tax system provides incentives to firms that wish to automate. Expenditure on the design, development and purchase of robots qualifies for tax relief under patent box, R&D tax credits and capital allowances rules. By contrast, the government requires workers to be paid the minimum wage, auto-enrolled into pension schemes, and granted a range of employment rights and benefits; companies are also required to pay employer’s national insurance contributions on their workers’ earnings.
In the past, humans have not only retained their place in the labour market, but also managed to keep ahead of machines by acquiring new skills, and adapting to tasks for which they have a natural advantage. But the sets of human skills that machines can reproduce and undertake more productively at lower cost has deepened and widened. The crucial difference this time is that humans now have to compete with robots equipped with AI. AI uses large data sets to solve problems and learn by identifying patterns, and sifting through multiple permutations at phenomenal speed for solutions.
AI is digital; the human brain is analogue. Humans have initiative and rely on learned behaviours and instinct; AI machine learning enables robots to gather information without being programmed to so, while AI algorithms give them awesome predictive power. For example, Amazon’s Echo Look combines an in-house camera with an intelligent voice assistant called Alexa. If you take a picture with Echo Look, Alexa will offer you fashion advice using its powers of analysis.
Robots programmed with AI absorb knowledge and data at great speed. They learn from their errors, and consistently deliver the required performance. And they are becoming smarter every day. This has led the roboticist Hans Moravec to predict that robotic intelligence will surpass human intelligence by 2050. Other roboticists have rejected his prediction. They suggest that such predictions owe more to science fiction than science: there is no evidence to support them. They point to the fact that progress towards AI has repeatedly fallen short of the progress in building more advanced computers. But the fact that the development of AI and advanced computing now increasingly go hand in hand makes such predictions chilling. A dystrophic future could be upon us before we realise it.
But despite the incipient dominance by robots of tasks involving core cognitive skills, humans will maintain their comparative advantage in non-cognitive skills – imagination, negotiation, relationship building and empathy. Robots might have IQ, but they lack EQ. More poetically, human workers have spirit. The premium attaching to non-cognitive tasks that only humans can perform is likely to rise, but to capitalise on this, the educational system will need to change its pronounced cognitive slant to cultivate social rather than academic skills.
Bill Gates expressed concern about society’s ability to manage rapid automation, especially mass unemployment and inequality. Some futurologists are even more pessimistic. They fear that the advent of autonomous thinking machines might not simply devastate workers, but may make the human race itself become redundant. Employment in the UK and USA is buoyant. Many of the new jobs being created are for lesser skilled workers. As Martin Ford, the author of The rise of the robots has pointed out, robots can land planes and trade shares, but still can't clean toilets. Consequently, real wages and productivity remain stagnant. Many commentators are shifting their attention from globalisation and the growth of information technology to automation as the culprit for the persistence of these phenomena.
Economists argue that it is impossible to distinguish between labour saving and labour enhancing technology. They acknowledge that over-rapid deployment of robots might dislodge workers faster than new sectors can absorb them, but that the populace as a whole would be better off because of reduced prices. They argue it is better for governments to expand the national economic pie as much as possible, and then redistribute, if and as necessary. They point out that innovation is not simply about increasing income, but also about freedom from heavy labour, improvements to goods and services with lower prices, and safeguarding the environment, e.g. through the introduction of ‘driverless cars’. They argue that giving countries access to the new technologies is similar to the benefits from free trade.
Despite the media publicity surrounding the introduction of devices like Dyson’s 360 Eye robot vacuum cleaner, Amazon’s Echo (which replaces aspects of household help), the road testing of driverless cars (in Singapore) and even sex robots, some economists believe that fears about the imminent replacement of millions of workers by robots are overblown. They point out that firms have little incentive to invest in expensive labour saving technology when they are awash with a plentiful supply of cheap labour; in some areas, there is competition for jobs that offer only the minimum wage. There is a risk that talk about taxing robots would reduce the incentive for businesses to increase their capital investment, which is necessary for economic growth and prosperity.
The pace of automation is accelerating. In 2015, global expenditure on robotics rose to $46bn. Sales of industrial robots are growing by around 13% a year, meaning that the ‘birth rate’ of robots is practically doubling every five years. The capability of AI and robotic technology and its attractiveness to businesses is rising even more swiftly. Consider these facts, recently reported in the Financial Times:
The widespread introduction of robots could substantially reduce the government’s revenues, while simultaneously creating an increased demand for its support for displaced workers until they find alternative employment. Workers on average earnings pay over £11,000 in income tax, national insurance contributions and VAT a year. The government would lose this, as well as the relative employer’s NICs in respect of each worker replaced by a robot. Given the predicted number of job losses, the government could lose a large chunk of its revenues from personal taxation. The firms that replace workers with robots would pay more tax because of their higher profits, but the increase in the government’s yield from corporate taxes might be smaller than the decline in its revenues from personal taxation. The fall in net government revenues would occur at a time when there would be demands for increased public expenditure.
In the absence of new taxes, the government would have to rely on its other sources of revenue. It would have to increase current taxes or its borrowing (the transfer of liability to future generations) or both. Personal taxes provide the biggest source of government revenues, and they are disproportionately borne by high earners. Raising their taxes would adversely affect their incentive to work, and might cause them to depart for jurisdictions where personal taxes are lower. It would be politically unpopular to raise the income taxes paid by those on average earnings, or to raise VAT rates. The government would need to increase the level of corporate taxation directly or indirectly to reduce the shortfall in its funding.
Companies would obviously only choose to replace workers with robots if they thought that this would increase their profits. The deployment of robots would not automatically trigger additional liability, but their increased profits would be liable to corporation tax. The additional corporation tax payable on their enhanced profits may be insufficient to compensate the government for the loss of personal taxes that would have been paid by the workers replaced by robots. Some of the increased profits would be relieved from tax by losses brought forward. Any interest paid on loans to purchase the robots, and any licence fees to the developers of the AI embedded in the robots would also qualify for tax relief. In the financial year 2016/17, the government raised £56bn in corporation tax, considerably less than the yield from income tax and NICs.
Unless corporate profits were to increase very substantially indeed, it would be necessary for the government to increase the corporation tax rate by a significant amount to recoup the personal tax revenues lost through automation. Even a relatively large increase in corporate tax rates might fail to produce a commensurate increase in revenues: business confidence and foreign direct investment would collapse, and firms would race to invest abroad.
If the market were perfect, companies that introduced robots to replace workers would have to bear all the costs of doing so, including the wider individual and social costs. The market is not perfect, however. The cost of the technological disruption of the labour market would have to be borne by individuals and society. Redundant workers would bear the incalculable cost of the loss of potential, self-worth, family and marital breakdown, ill health, homelessness and despair that unemployment sometimes creates. Even if workers who are replaced by robots were (or were legally required to be) financially compensated, it would never fully compensate some people for the loss of jobs that they regarded as their ‘calling’ or as essential for defining their place in society.
The government would be justified in correcting the market failure by directly or indirectly increasing the taxes payable by the firms that replace workers with robots. This would enable it to compensate those who suffered the negative externalities created by automation that aren’t reflected in price of robots. Such taxation would also help it to correct any shortfall between the increased future yield from corporation tax and the reduced level of personal tax currently payable, and to continue funding public goods like defence, and other essential expenditures, at their current level. The imposition of taxation specifically related to the introduction of robots would have the effect of slowing down the process of automation.
The government could theoretically ban the introduction of robotic technology that displaced workers, or make it even more difficult for companies to discharge workers. However, this would probably drive investment by British companies abroad and dry up foreign direct investment. It would also make British goods increasingly uncompetitive by preventing companies from taking advantage of the opportunity to become more productive and reduce their costs. This would reduce economic growth and jeopardise business profitability and employment throughout the economy.
Alternatively, the government could seek to enhance the employability of workers vis-à-vis robots by reducing employer’s NICs, and other costs of hiring them. Reducing employer’s NICs would benefit all employers, including those that were not at imminent risk of shedding jobs through automation. The government would struggle to find alternative sources of taxation to replace the very substantial revenues it derives from employer’s NICs (which comfortably exceed corporation tax receipts). It would be politically suicidal for the government to attempt to reduce the minimum wage or other employee rights.
The government might find it more politically attractive to impose a tax on robots than to abolish or reduce employer’s NICs or employment rights. A tax on robots would help it to reduce the speed of automation and safeguard its revenues, as well as raising funding for the retraining of those who are displaced and income support for them until they found alternative employment (if ever). Automation replaces labour with capital. This would increase the share of national income that goes to capital. Capital is currently taxed at a lower rate than labour income. It would be necessary to increase the tax on capital; i.e. the profits generated by robots to maintain revenue neutrality.
Governments could use some of the revenue raised to fund income support or a ‘basic income’ for those displaced, and measures to make workers more employable. Bill Gates has suggested that the government should also increase expenditure on health, social care and education, where humans have an edge over robots, to create alternative employment opportunities for those who lose their jobs. The government can also offer wage subsidies to firms in respect of those who experience particularly severe problems in becoming re-employed, and fund investment in labour intensive infrastructure projects and public services to boost employment.
The fact that it is increasingly possible to replace workers with robots does not mean that firms will automatically choose to do so. Even if there were no tax on robots, firms would need to raise the necessary capital, and overcome legal and regulatory hurdles, organisational inertia and legacy systems. A firm’s propensity to automate would depend, among other things, on the relative cost and productivity of robots, the disruption this would create for the business, and the cost of discharging workers (including adverse publicity, customer reaction and the risk of strikes). One would expect the balance to shift to robots as they become cheaper to produce. This is bound to happen, since those who develop the AI that makes robots smart are likely to enjoy increasing returns to scale. (Economies of scale arise when the average cost of production of a product falls as the numbers produced rise.)
The fall in the price of smart robots will make them less expensive to purchase or lease relative to the cost of hiring workers, whose wages tend to be ‘sticky’. One would expect companies swiftly to substitute robots for workers, because this would increase their profits. In the absence of any tax or restriction on the installation of robots, companies would deploy them to the point where the expected net marginal revenues they derive from doing so were equal to their marginal costs. This is the point at which they would maximise their profits.
As happened when computers were initially introduced, robots are first being introduced as substitutes for human hands and minds. To realise their full productive potential, employers will begin to restructure their entire design, production and delivery processes and command structures to be dominated by robotic technology. Robots would increasingly begin allocating tasks to workers according to their availability and skill sets. Robots are not subject to the same constraints of limited flexibility, capability, consistency and availability that the deployment of human labour introduces into manufacturing processes and service industries. Robotic technology offers the scope of revolutionising the economy to an even greater extent than the information and communications technology (ICT) has done. ICT has affected every industry and service, and every function within them, by systemising and integrating separate departments and functions. The economy could become even more dependent on robotic technology than it has on computers.
The use of robots would make the firms that manufacture and use them more profitable. Labour’s share of the national cake would decline. The increase in the share of national income that would accrue to capital, namely the owners of the firms that deploy robots and the smaller number of workers who remain in employment, would exacerbate inequality. The firms that automate would pay more corporation tax, but the government would lose the revenues it derives from income tax and NICs from workers who lost their jobs. The government would also lose the VAT that the unemployed workers would have paid on their personal expenditure (many workers spend practically all their personal disposable income).
Corporate profits are taxed at a fixed rate of 19% (due to be reduced to 17%). There would have to be a very large increase indeed in corporation tax receipts to compensate the government for its loss of revenues.
The government may have a slim prospect of recovering significant corporation tax from the profits of firms that displace workers to deploy robots. The bulk of the profits could end up accruing to the Silicon Valley technological ‘superstar’ firms that are developing AI technology. It is likely that, as with internet technology, the companies developing AI will begin enjoying increasing returns over time; their initial investment costs may be high, but their incremental, marginal costs will be minimal. Once an AI company reaches scale, its product becomes a standard that companies that produce adjacent products must build around, even if they have better software. Firms that enjoy early economies of scale can use their cost advantage to undercut other firms and become monopolies or oligopolies.
Like the internet companies, the firms that develop AI robotics could begin enjoying ‘network effects’; in the same way that, for example, search engines, social networks and retail websites got better as their user bases grew. These firms would be able to make vast profits because they would own the rights to the software and AI used in robotic technology. They might be tempted to adopt international structures and arrangements to avoid or minimise the tax due on the profits from their patents and licence fees. Some of the big technology companies involved in the development of AI are not renowned for their fondness for paying tax.
There is urgency about the agreement of a legislative definition of a robot because their deployment at work and in homes raises a wide range of potential legal and ethical issues that will need to be resolved. It is also an essential prerequisite for the introduction of any new taxes related to the deployment of robotic technology. The world is rapidly becoming crowded with a multitude of complex cyber-physical systems: machines or mechanisms controlled by increasingly intelligent, computer-based algorithms. But there is currently no clear and agreed definition of what constitutes a robot.
The term robot conjures up mental images of mechanical men or even humanoids like the laconic Terminator, as portrayed by Arnold Schwarzenegger in films. But, in practice, it would be challenging to identify robots by sight. As David Poole has noted, ‘A robot is not a unit equal to a human. Most are not physical robots, they’re software robots. It’s no different, really, to a spreadsheet!’
In the near future, machine learning, a higher level of intelligence, will routinely be infused into commonly used software and computer programs, not just robots. It will be very difficult to distinguish between technologies that destroy jobs and those that might enhance the productivity of existing jobs without threatening them, or create the jobs of the future in the way the personal computer did in its time.
Given the range and sophistication of robots likely to come into development, the definition needs to be ‘form neutral’; i.e. it should include all autonomous robots, bots and similar smart AI machines. Any proposed definition should be tested from not just from legal perspectives, but also from economic, technological and constitutional approaches. The report from the legal affairs committee of the European Parliament included proposals for a wide ranging definition of robots as ‘physical machines, equipped with sensors and interconnected so that they can gather data’. It noted that: ‘The next generation of robots will more and more capable of learning by themselves. The most high-profile ones are self-driving cars, but they also include drones, industrial robots, care robots, entertainment robots, toys, robots in farming.’ This is a useful start.
Any legislative definition of a robot would need to be flexible enough to capture not just existing notions of what constitutes such devices, but where science is driving them. The primary legislation should ideally provide ministers with the power to expand aspects of the definition by statutory instrument to keep pace with innovation. It isn’t far-fetched to say that science fiction could be a useful guide to potential risks and remedies. For example, scientists at NASA used to consult Sir Arthur C. Clarke, whose novels popularised space travel.
It is necessary to be able to assign liability and determine insurance risks when a robot malfunctions, or where issues of personal privacy arise from the use of domestic robots, or from the deployment of totally autonomous robots. These will necessitate new rules and the adaption of existing legislation to new realities. It may, for example, be necessary to require the installation of ethical principles and respect for human rights as a default setting in all AI algorithms and software.
The European Commission responded to the European Parliament’s request that it come up with a legislative proposal on civil liability for any damage caused by robots by pointing to the Machinery Directive, the General Product Safety Directive and its proposed legislation on medical devices. It believes that its new General Data Protection Regulation will be fully applicable to any kind of processing of data, including that by robots with AI. The Commission’s response smacks of egregious complacency: technological innovation in robotics is accelerating so fast that policy makers and parliamentarians, let alone the law, will find it difficult to keep up.
It has been suggested that there is a need for a specific legal status for more advanced forms of robots. Professor Luciano Floridi, professor of philosophy and ethics of information at Oxford University has suggested that a possible approach would be to adapt ancient Roman law, and attribute legal responsibility similar to that under which the owners of slaves were responsible for any damage they caused. If, however, robots were granted electronic ‘personhood’, they would become directly responsible for making restitution for any damage they cause. This could absolve the owners of the robots, who direct their activities and appropriate all the profits generated by their mechanised slaves, of their responsibilities.
The government has a range of tax policy possible options. As the legal affairs committee of the European Parliament suggested, the implementation of specific taxes on robotics would necessitate the introduction of ‘corporate reporting requirements on the extent and proportion of the contribution of robotics and AI to the economic results of a company for the purpose of taxation and social security contributions’. There would almost certainly be a rush to automate and lay off workers while the proposal was being debated and enacted. The options include:
Taxing robots: It is impossible to tax robots directly. They are non-sentient inanimate objects with no independent status or legal identity. They don’t get a share of the profits they produce for their owners, or earn any income. ‘Taxing robots’ involves taxing the portion of a company’s capital invested in robots.
Increasing the corporation tax rate: This would not reduce the incentive for firms to replace workers with robots; it would hurt labour-intensive businesses and firms using robots alike, and discourage domestic and international investment in the UK. Raising the corporation tax rate would increase the incentive for firms to invest in robotics if the increase in the corporate tax rate was not accompanied by the withdrawal of capital allowances on robots, because it would increase the relative value of this relief for marginal investment.
Lump-sum taxes: These are the only kind of taxes that don’t create distortions in the economy. They would not impede automation, however, because they are payable at the same level by everyone. Being unrelated to income or consumption, they bear most heavily on the poor. They would add insult to the injury suffered by those whose livelihoods were disrupted by automation.
Taxing firms on the imputed notional income of their robots: It would, theoretically, be possible to impute a notional salary to robots that displaced human workers, equivalent to the wages that were or would have been paid to the workers they displace. In reality, the technology used in automation cannot easily be linked to specific job losses. It is not always possible to say that this robot replaced that worker (or, more probably, this robot replaced those workers). Abstracting from the difficulties involved in compliance, the company owning robots that displace workers could be required to account for and pay income tax and national insurance in respect of their notional salaries. (The company would obviously not be entitled to deduct the notional salaries in arriving at its taxable profits.) The wages of the displaced workers would be used as a reference point for assessing the company’s liability to this tax. These reference wages could be valorised by the growth in earnings or inflation on an annual basis to maintain the real yield of the tax over time.
Robot levy: Firms that lay off workers following the introduction of robots could be required to pay a levy calculated by reference to the reduction in their aggregate wage bill or the level of their expenditure on robotic technology. The levy could be applied on an incremental basis, to protect small companies. (It would be necessary to have anti-avoidance rules to prevent the artificial fragmentation of larger businesses to avoid the charge.) The assessment of such taxes could be modelled on the system in some American states, under which redundancies are tracked to assess the amount the former employers have to pay into unemployment insurance schemes.
Imposing a ‘payroll tax’ on computers: William Meisel has proposed the introduction of an automation tax: ‘If software is to take over so many jobs, why not have an income [sic] tax on software? We could perhaps think of it a payroll tax on computers.’ This would be based on the ratio of a company’s turnover to the number of its employees. Under such a tax, ‘the automation tax would increase … as the revenue-per-employee grows, making it more attractive to create jobs than to replace them with automation’. The advantage of basing the ratio on turnover, rather than profit, would reduce the risk of the manipulation of the figures. Anti-avoidance rules would be needed to prevent manipulation of the ratio by reference to which the tax would be assessed. For example, large companies could bundle their highly profitable technology intensive businesses with newly acquired low wage, labour intensive businesses.
Disallowing relief on the acquisition of robotic technology: According to HMRC’s Capital Allowances Manual, expenditure on computerised or computer aided machinery and robotics is treated as qualifying expenditure on plant or machinery for the purposes of capital allowances. This subsidy for investing in robotic technology could be withdrawn by denying firms capital allowances for expenditure on robots that have AI or are capable of being installed with AI.
Increasing the cost of robots: The government could also substantially increase the rate of VAT payable on the purchase of robotic technology, and deny firms that use this technology the ability to deduct such payments from the VAT they have to account for on the sale of their goods and services.
Increasing the rate of VAT payable on value added by robots: Firms would only have an incentive to invest in robots with AI if they were more productive than workers; i.e. if they added more value and were therefore more profitable. It would theoretically be possible to require firms to monitor the value added by the robots they deploy, and subject it to a higher rate of VAT on the sale of its goods and services. Alternatively, firms whose ratio of turnover to the number of employees was above a specified level could be required to charge a higher rate of VAT on their goods and services. Either approach would reduce or eliminate the cost or price competitive advantage that firms which automated would have over competitors that continued to employ workers. The first option, namely disaggregating the current single rate of VAT to impose a split rate, would not be permissible under the current system. It might be legally feasible after Brexit, however. It would be highly complex, costly and unpopular with businesses. It would also conflict with the government’s unstated objective of maintaining the continuity and congruency of the VAT regime with that in the EU.
We are living in an age of extreme turbulence caused by the simultaneous impact of globalisation, climate change and new technologies. Those who are optimistic about the impact of technology gloss over the impact of these factors, primarily economic uncertainty, unemployment (as old industries die out or relocate where labour is cheaper) and mass migration (‘globalisation made flesh’). They see the replacement of human workers by mechanised slaves as ushering in the end of wage slavery and shorter working hours for a more skilled and entrepreneurial society. They are blind to the anger and resentment of the millions who feel that they have been robbed of their jobs and former certainties by the domination of their former industries by surging foreign economies and technological changes like the growth of e-commerce. Some have flocked to the banner of populist politicians; widespread unemployment might cause others to adopt more extreme measures than electing demagogues.
For some the adoption of a benign public policy towards the development of advanced robots is tantamount to irresponsible complacency. They believe that the economic benefits from the widespread displacement of human workers by robots with superior strength and intelligence would be far outweighed by the short and longer term human and social costs of creating potential mass unemployment. They foresee the spectre of a potential dystopia where robots replace most human labour and a small elite owning all the robots and other means of production.
Modern popular perceptions of robots are based on the quirky but amiable robots R2-D2 and C-3PO featured in the Star Wars films, the relentless eponymous android in the Terminator films, or the equally murderous Hal in 2001: A space odyssey. The robots in Star Wars comply with Isaac Asimov’s famous 'three laws of robotics' but the other two don’t. These laws state that:
1. A robot may not injure a human being, or, through inaction, allow a human being to come to harm.
2. A robot must obey orders given it by human beings except where such orders would conflict with the first law.
3. A robot must protect its own existence, as long as such protection does not conflict with the first or second law.
Robot rebellion has been a recurring theme in fiction and films since the playwright Karel Capek coined the word robot (from the Czech word for forced labour) for a play in which automata, meant to make life better for mankind, rebel and wipe out humanity. The development of AI and the speed of technological change have led some to express concern not merely about economic apocalypse, but the risk of the future enslavement of the human race by robots. They are fearful that if machine intelligence were to exceed human intelligence, and if we allowed robots to self-design, human beings could lose their position as the dominant life form on earth.
Professor Stephen Hawking concedes that robotic technology with AI could help to eradicate disease and poverty and to conquer climate change. But he argues that it could also create autonomous weapons, economic disruption and machines that develop a will of their own, and enter into conflict with humanity: ‘In short, the rise of powerful AI will be either the best, or the worst thing, ever to happen to humanity. We do not yet know which.’ Elon Musk, the chief executive of Tesla, which is pioneering the development of commercially marketed driverless cars, has repeatedly argued for the close regulation of artificial intelligence before ‘it’s too late’.
Musk’s comments suggest that he is fearful of a Terminator style uprising by autonomous robots with artificial intelligence: ‘But until people see robots going down the street killing people, they don’t know how to react.’ Musk recently debated his views with Mark Zuckerberg of Facebook. Zuckerberg accused Musk of irresponsibility and fearmongering about the risks from AI. Ironically, shortly afterwards, it was reported that Facebook had been forced to pull the plug on one of its own AI systems. Its robots, which had been programmed to communicate in English, began spontaneously communicating with each other in a new language that humans couldn’t decipher.
The government should urgently develop a legislative definition and ethical-legal framework for robots. It should also take steps to introduce corporate reporting requirements on their deployment, to gather information that would facilitate remedial action like the introduction of new taxes. The government has demonstrated a palpable lack of leadership in facing up to the substantial risks posed by the rapid diffusion of robotic technologies. This is evidenced by the government’s pusillanimous response to the recommendations in the House of Commons Committee on Science and Technology’s thoughtful report on Robotics and artificial intelligence earlier this year.
The government kicked the committee’s recommendation for the creation of a ‘National Robotics and Autonomous Systems Strategy’ into the long grass. It similarly fudged the committee’s recommendation for the establishment of a standing commission on AI to examine the social, ethical and legal implications of recent and potential developments in AI.
Responsibility for monitoring these developments and taking appropriate action to counter potential risks is divided between four government departments: Business Energy and Industrial Strategy (BEIS); Education; Work and Pensions; and the Treasury. There is an urgent need for better and more visible coordination between them. The government needs to demonstrate that it has a plan for addressing the risks, and to involve interested and informed parties in formulating possible solutions. The First World War General Helmuth von Moltke said ‘no plan survives contact with the enemy’; but it would at least demonstrate that the government was aware of the risks and had thought about how to deal with them.
The Treasury should take the lead in planning and coordinating the government response. It is aware of the risk to tax revenues and public finances. It carries more clout than the other departments, and it is more likely to deliver the timely development and delivery of the necessary legislative remedies.
Bill Gates recently proposed a tax on robots to cushion the impact of job losses and inequality caused by automation. Introducing taxes on the deployment of robots would mitigate the shortfall in government revenues from the loss of personal taxes, and slow down automation. The government could tax firms on the imputed notional income of their robots, impose a levy on expenditure on robots, increase the VAT on robots, or withdraw the tax relief available for their acquisition. The government should urgently develop a legislative definition and ethical-legal framework for robots, and introduce corporate reporting requirements on their deployment.
Sam Mitha CBE (formerly of HMRC) considers the increasing automation in the workplace and its impact on government revenues from the loss of personal taxes, and reviews the possible solutions to the problem.
The BBC website contains a handy algorithm for calculating the probability of one’s job being taken over by a robot. For chartered and certified accountants and tax experts, the likelihood is 95%.
Earlier this year, Bill Gates, the co-founder of Microsoft, proposed a tax on robots to fund government expenditure on cushioning the potential dislocation of millions of workers by the widespread introduction of robots, and to limit inequality. He said that the diffusion of robotic technology could permanently eradicate whole classes of jobs without creating a new role for workers and create mass unemployment. Taxing robots would slow the pace of automation, and reduce the number of workers being thrown out of work. It would also reduce the risk of a backlash that could result in some technologies being banned.
Mady Delvaux MEP originally proposed the idea of a tax on robots in her report for the legal affairs committee of the European Parliament. On 16 February 2017, the European Parliament voted on the recommendations made by the committee. It rejected the introduction of a statutory definition of robots, new corporate reporting requirements, and an advisory code of conduct for robotics engineers to guide the ethical design, production and use of robots. It did so on the grounds that these measures could stifle innovation. Instead, it voted for a resolution calling upon the European Commission to propose legislation for a legal and ethical framework for robots, and for a debate on ‘new employment models and on the sustainability of our tax and social security systems’.
Lawrence Summers, the former US Treasury Secretary, said that Bill Gates was right about the gravity of the problem. Summers said that the idea of a robot tax was ‘misguided’. He characterised it as ‘protectionism against progress’. He pointed out that robots were wealth creators, and that it would be illogical to single out robots as job destroyers. After all, governments didn’t tax ticket kiosks, ATMs or word processors, even though they performed functions previously undertaken by humans. He argued that society should not hinder the introduction of robots; that they would make the economy more productive; that this would increase the demand for labour; and that the use of robots would lead to the creation of new industries, bringing with them increased opportunities for workers.
Summers said that staving off progress was a poor strategy for helping less fortunate workers. Society should instead share the extra production that the superior capacity of robots helped to create by means of suitable taxes and transfers. It remains to be seen, however, whether the robotic revolution substantially increases national output. Summers advocated major reforms of education and retraining systems, consideration of targeted wage subsidies for groups that faced particularly severe problems in securing new employment, and investment in infrastructure and public employment programmes. He sidestepped the impact on public finance of the replacement of millions of taxpaying workers by robots, and how the expenditures he had advocated would be funded.
In contrast, the Nobel laureate Robert J. Shiller argued that a ‘modest’ tax on robots should be considered as part of a policy package to manage the ‘robotics revolution’, helping to manage the transition to the new era by mitigating the disruptive effects of the transformative new technology.
We appear to be at a technological ‘tipping point’ in the diffusion of robotic technology across commerce, industry, professions and households. It could spread like wildfire. This could unleash what the economist Joseph Schumpeter apocalyptically described as a ‘gale of creative destruction’ and set into motion a ‘process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one’.
Technology is one of the most important forces in shaping jobs and wages in the economy. Technological change can result in a greater volume and improved range of products and services becoming available. But some futurologists fear that the change will be so swift and transformative on this occasion that it will create structural changes in the economy that will result in prolonged unemployment. It might make workers obsolete. In 20 years, half the working population could have nothing to do, and may have no prospect of being employed again. They accuse governments and politicians of burying their heads in the sand and ignoring changes on the near horizon on a scale that would dwarf Brexit. In the UK, as elsewhere, there is some justice in their concern that the government and politicians are being complacent to the biggest challenge facing advanced economies. For example, none of the parties mentioned it in their general election manifestos.
Debates on the potentially adverse impact of technology on jobs go back to the invention of the wheel! Ancient Greece and Rome grappled with the consequences of workers being displaced by technological advances, and launched large scale public work programmes and income support schemes. During the 19th century, the introduction of new technology led to protests in the streets and machine smashing, notably by the Luddite movement. The intellectual tide followed in the reverse direction to public opinion. John Stuart Mill and Karl Marx – unlikely intellectual bedfellows – independently asserted that while technological change could damage some workers in the short run, in the longer run most workers would benefit. They predicted that the price of commodities would fall, that there would be improvements in the quality of goods, and that incomes would grow as technology paved the development of new industries.
By the 1930s, prominent intellectuals believed that economic growth would mean the real problem likely to be faced by workers was how to use their leisure. In his essay In praise of idleness, Bertrand Russell said: ‘If the ordinary wage-earner worked four hours a day, there would be enough for everybody, and no unemployment.’ Writing in the middle of the Great Depression, John Maynard Keynes attributed ‘economic pessimism’ to a ‘wildly mistaken interpretation of what is happening … We are suffering … from the growing pains of over-rapid changes, from the painfulness of readjustment between one economic period and another. The problem of technical efficiency has been taking place faster than we can deal with the problem of labour absorption.’
Keynes predicted that people would hear a great deal about technological unemployment. He thought that it was ‘due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses of labour’. He characterised it as ‘a temporary phase of maladjustment’. Once this was over, he predicted, ‘man will be faced with his real, permanent problem – how to use his freedom from pressing economic cares, how to occupy his leisure, which science and compound interest have won him, to live wisely, agreeably and well’. And to think they call economics the dismal science!
We are on the threshold of a technological revolution led by the rapid emergence of smart robots equipped with artificial intelligence (AI), with the ability to learn and rocket-fuelled by superior computing power. AI infused robots are not dependent on being fed information by users or controlled by them. They can obtain their information directly from sensing their environment, and from data in other computers. They are not merely capable of operating autonomously, but are trusted and expected to do so. That is not the only way they are different from their predecessors; they have the potential to substitute for human brains, not just their brawn.
The widespread use of a new generation of robots that think as well as do, sense as well as sift, adapt and enact offers the scope for exponential economic growth. But it also poses a fundamental challenge to the former relationship between jobs and technology. It could lead to a re-shaping of the labour market and result in a permanent and decisive reduction in the share of the national income going to workers. It could result in a significant loss of tax revenues, and political pressure for increased expenditure on supporting workers. Technological changes like robotic automation decrease the cost of supplying goods and services, and increase the profits earned at any given price of the product. Because the increase in profits would result from increased capital investment, the gains would accrue primarily to the owners of capital, not to workers. The availability of increasingly sophisticated and productive robots creates an incentive to make workers redundant.
We are in the beginning stage of The second machine age (Brynjolfsson and McAfee, 2014) or The fourth industrial revolution (Schwab, 2016). There have been three previous distinct phases of rapid technological change. The first industrial revolution started in the middle of the 18th century and saw the introduction of steam engines and labour saving devices like the spinning jenny. The second – the era of mass industrialisation – began in the middle of the 20th century. The third phase was the era of information technology, and saw the introduction and spread of personal computers, mobile telephony, smartphones and the rise of the internet and e-commerce. The fourth industrial revolution is expected to result in more drastic change: the McKinsey Global Institute predicted in 2013 that the disruption caused by AI will happen ten times faster and have roughly 3,000 times the impact of the first industrial revolution.
Smart devices have been turning on our lights and cookers, answering our phones, dispensing our cash, guarding our homes, shining our shoes, giving us directions, checking out our groceries, printing out our documents, transmitting our messages, taking our vital medical signs, and much more for some time now. The diffusion of robotics potentially threatens the loss of millions of human jobs, as firms increasingly deploy machines with built-in powerful AI. The sophistication and power of this technology is rapidly advancing. For example, remotely controlled drone aircraft are used in warfare; robotic surgeries are increasingly being performed in hospitals for some medical conditions; and robot devices are being used as a ‘second set of eyes’ in reading CT scans and MRIs to help doctors to identify lesions that might mean cancer, and to suggest treatment.
How the labour market will react to the widespread use of new technology like robots will depend on the interaction between the so-called ‘displacement’ and ‘compensation’ effects. They will determine how long the transition to a new steady state would last. The ‘displacement’ effect describes how robots would require less human labour to price any given output. Firms experiencing rising productivity require fewer workers. The ‘compensation’ effect describes how those who retain their jobs after the introduction of robots become more productive because of the increase in the relative level of capital employed.
Higher productivity should eventually lead to higher wages and this should lead to higher spending. This should in turn fuel the growth of other sectors of the economy. But the ‘compensation’ effect would be muted if the higher wages of the remaining workers makes it profitable for their employers to replace them with robots. If the displacement effect were dominant, there would be greater unemployment coupled with increased inequality (profits would take a larger share of the national cake) and stagnation in the living standards of the workers who are discarded.
Earlier phases of disruptive technological change resulted in a growing tree of rising skills, wages and productivity. The new technologies required new skills. They created more jobs than they destroyed, but they were also associated with a ‘hollowing out’ of the tree. Previously, displaced workers found other jobs in new industries, which were sometimes directly spawned by the technological advances that caused them to lose their old jobs. The fourth industrial revolution threatens a dramatically faster, wider and deeper ‘hollowing out’ of the labour market than those that have occurred before. Knowledge work, requiring literacy and numeracy is no longer the monopoly of human workers. Robots with AI will be able to undertake many, if not most, of the new knowledge intensive roles, which would previously have created a demand for skilled workers. The scale of disruption is likely to be greater, and many of the job losses will probably be permanent.
Andy Haldane, the chief economist of the Bank of England, told the Trades Union Congress on 12 November 2016 that, on the basis of the probabilities of automation, up to 15 million jobs could be at risk in the UK, and up to 80 million jobs in the US. A report by PWC (2017) forecast that more than ten million jobs were at a ‘high risk’ of potentially being replaced by robots. The occupations most at risk include administrative, clerical and production tasks, rather than manual roles as in the past. For example, the development of blockchain software, which links groups of computers, will remove the need for many accountants, bankers and other staff involved in the financial industry. As the CEO of Deutsche Bank recently said: ‘In our banks, we have people behaving like robots doing mechanical things, tomorrow we’re going to have robots behaving like people.’
Linked computers automatically maintain records and crosscheck them, rejecting flawed data. This will facilitate real time commerce, without the need for middlemen at every stage. If it works as envisaged, it would create total trust in the integrity of the system. It would also radically simplify tax compliance and administration. HMRC could simply plug directly into blockchain, and automatically collect tax without argument. HMRC and tax advisory firms would require far fewer staff.
PwC has forecast that women would face a lesser risk of losing jobs than men. Women tend to work in sectors like education, healthcare and social care, which require a higher level of education and social skills. Even if it is possible to create new jobs in these sectors to re-employ those displaced by robots, there is no guarantee that these jobs will offer anything like the same incomes or prospects for advancement previously available to workers.
Autonomous robots have a clear edge over human workers in many ways. For a start, they are stronger, cleverer, learn more quickly, keep going longer, don’t need pay, holidays, lunch breaks or tea breaks, and never go on strike or repeat mistakes. AI infused robotic technology offers companies increased productivity. Through ‘machine learning’, it also offers them substantial improvements to their management, design and marketing techniques, and the organisation of their business activities. The tax system provides incentives to firms that wish to automate. Expenditure on the design, development and purchase of robots qualifies for tax relief under patent box, R&D tax credits and capital allowances rules. By contrast, the government requires workers to be paid the minimum wage, auto-enrolled into pension schemes, and granted a range of employment rights and benefits; companies are also required to pay employer’s national insurance contributions on their workers’ earnings.
In the past, humans have not only retained their place in the labour market, but also managed to keep ahead of machines by acquiring new skills, and adapting to tasks for which they have a natural advantage. But the sets of human skills that machines can reproduce and undertake more productively at lower cost has deepened and widened. The crucial difference this time is that humans now have to compete with robots equipped with AI. AI uses large data sets to solve problems and learn by identifying patterns, and sifting through multiple permutations at phenomenal speed for solutions.
AI is digital; the human brain is analogue. Humans have initiative and rely on learned behaviours and instinct; AI machine learning enables robots to gather information without being programmed to so, while AI algorithms give them awesome predictive power. For example, Amazon’s Echo Look combines an in-house camera with an intelligent voice assistant called Alexa. If you take a picture with Echo Look, Alexa will offer you fashion advice using its powers of analysis.
Robots programmed with AI absorb knowledge and data at great speed. They learn from their errors, and consistently deliver the required performance. And they are becoming smarter every day. This has led the roboticist Hans Moravec to predict that robotic intelligence will surpass human intelligence by 2050. Other roboticists have rejected his prediction. They suggest that such predictions owe more to science fiction than science: there is no evidence to support them. They point to the fact that progress towards AI has repeatedly fallen short of the progress in building more advanced computers. But the fact that the development of AI and advanced computing now increasingly go hand in hand makes such predictions chilling. A dystrophic future could be upon us before we realise it.
But despite the incipient dominance by robots of tasks involving core cognitive skills, humans will maintain their comparative advantage in non-cognitive skills – imagination, negotiation, relationship building and empathy. Robots might have IQ, but they lack EQ. More poetically, human workers have spirit. The premium attaching to non-cognitive tasks that only humans can perform is likely to rise, but to capitalise on this, the educational system will need to change its pronounced cognitive slant to cultivate social rather than academic skills.
Bill Gates expressed concern about society’s ability to manage rapid automation, especially mass unemployment and inequality. Some futurologists are even more pessimistic. They fear that the advent of autonomous thinking machines might not simply devastate workers, but may make the human race itself become redundant. Employment in the UK and USA is buoyant. Many of the new jobs being created are for lesser skilled workers. As Martin Ford, the author of The rise of the robots has pointed out, robots can land planes and trade shares, but still can't clean toilets. Consequently, real wages and productivity remain stagnant. Many commentators are shifting their attention from globalisation and the growth of information technology to automation as the culprit for the persistence of these phenomena.
Economists argue that it is impossible to distinguish between labour saving and labour enhancing technology. They acknowledge that over-rapid deployment of robots might dislodge workers faster than new sectors can absorb them, but that the populace as a whole would be better off because of reduced prices. They argue it is better for governments to expand the national economic pie as much as possible, and then redistribute, if and as necessary. They point out that innovation is not simply about increasing income, but also about freedom from heavy labour, improvements to goods and services with lower prices, and safeguarding the environment, e.g. through the introduction of ‘driverless cars’. They argue that giving countries access to the new technologies is similar to the benefits from free trade.
Despite the media publicity surrounding the introduction of devices like Dyson’s 360 Eye robot vacuum cleaner, Amazon’s Echo (which replaces aspects of household help), the road testing of driverless cars (in Singapore) and even sex robots, some economists believe that fears about the imminent replacement of millions of workers by robots are overblown. They point out that firms have little incentive to invest in expensive labour saving technology when they are awash with a plentiful supply of cheap labour; in some areas, there is competition for jobs that offer only the minimum wage. There is a risk that talk about taxing robots would reduce the incentive for businesses to increase their capital investment, which is necessary for economic growth and prosperity.
The pace of automation is accelerating. In 2015, global expenditure on robotics rose to $46bn. Sales of industrial robots are growing by around 13% a year, meaning that the ‘birth rate’ of robots is practically doubling every five years. The capability of AI and robotic technology and its attractiveness to businesses is rising even more swiftly. Consider these facts, recently reported in the Financial Times:
The widespread introduction of robots could substantially reduce the government’s revenues, while simultaneously creating an increased demand for its support for displaced workers until they find alternative employment. Workers on average earnings pay over £11,000 in income tax, national insurance contributions and VAT a year. The government would lose this, as well as the relative employer’s NICs in respect of each worker replaced by a robot. Given the predicted number of job losses, the government could lose a large chunk of its revenues from personal taxation. The firms that replace workers with robots would pay more tax because of their higher profits, but the increase in the government’s yield from corporate taxes might be smaller than the decline in its revenues from personal taxation. The fall in net government revenues would occur at a time when there would be demands for increased public expenditure.
In the absence of new taxes, the government would have to rely on its other sources of revenue. It would have to increase current taxes or its borrowing (the transfer of liability to future generations) or both. Personal taxes provide the biggest source of government revenues, and they are disproportionately borne by high earners. Raising their taxes would adversely affect their incentive to work, and might cause them to depart for jurisdictions where personal taxes are lower. It would be politically unpopular to raise the income taxes paid by those on average earnings, or to raise VAT rates. The government would need to increase the level of corporate taxation directly or indirectly to reduce the shortfall in its funding.
Companies would obviously only choose to replace workers with robots if they thought that this would increase their profits. The deployment of robots would not automatically trigger additional liability, but their increased profits would be liable to corporation tax. The additional corporation tax payable on their enhanced profits may be insufficient to compensate the government for the loss of personal taxes that would have been paid by the workers replaced by robots. Some of the increased profits would be relieved from tax by losses brought forward. Any interest paid on loans to purchase the robots, and any licence fees to the developers of the AI embedded in the robots would also qualify for tax relief. In the financial year 2016/17, the government raised £56bn in corporation tax, considerably less than the yield from income tax and NICs.
Unless corporate profits were to increase very substantially indeed, it would be necessary for the government to increase the corporation tax rate by a significant amount to recoup the personal tax revenues lost through automation. Even a relatively large increase in corporate tax rates might fail to produce a commensurate increase in revenues: business confidence and foreign direct investment would collapse, and firms would race to invest abroad.
If the market were perfect, companies that introduced robots to replace workers would have to bear all the costs of doing so, including the wider individual and social costs. The market is not perfect, however. The cost of the technological disruption of the labour market would have to be borne by individuals and society. Redundant workers would bear the incalculable cost of the loss of potential, self-worth, family and marital breakdown, ill health, homelessness and despair that unemployment sometimes creates. Even if workers who are replaced by robots were (or were legally required to be) financially compensated, it would never fully compensate some people for the loss of jobs that they regarded as their ‘calling’ or as essential for defining their place in society.
The government would be justified in correcting the market failure by directly or indirectly increasing the taxes payable by the firms that replace workers with robots. This would enable it to compensate those who suffered the negative externalities created by automation that aren’t reflected in price of robots. Such taxation would also help it to correct any shortfall between the increased future yield from corporation tax and the reduced level of personal tax currently payable, and to continue funding public goods like defence, and other essential expenditures, at their current level. The imposition of taxation specifically related to the introduction of robots would have the effect of slowing down the process of automation.
The government could theoretically ban the introduction of robotic technology that displaced workers, or make it even more difficult for companies to discharge workers. However, this would probably drive investment by British companies abroad and dry up foreign direct investment. It would also make British goods increasingly uncompetitive by preventing companies from taking advantage of the opportunity to become more productive and reduce their costs. This would reduce economic growth and jeopardise business profitability and employment throughout the economy.
Alternatively, the government could seek to enhance the employability of workers vis-à-vis robots by reducing employer’s NICs, and other costs of hiring them. Reducing employer’s NICs would benefit all employers, including those that were not at imminent risk of shedding jobs through automation. The government would struggle to find alternative sources of taxation to replace the very substantial revenues it derives from employer’s NICs (which comfortably exceed corporation tax receipts). It would be politically suicidal for the government to attempt to reduce the minimum wage or other employee rights.
The government might find it more politically attractive to impose a tax on robots than to abolish or reduce employer’s NICs or employment rights. A tax on robots would help it to reduce the speed of automation and safeguard its revenues, as well as raising funding for the retraining of those who are displaced and income support for them until they found alternative employment (if ever). Automation replaces labour with capital. This would increase the share of national income that goes to capital. Capital is currently taxed at a lower rate than labour income. It would be necessary to increase the tax on capital; i.e. the profits generated by robots to maintain revenue neutrality.
Governments could use some of the revenue raised to fund income support or a ‘basic income’ for those displaced, and measures to make workers more employable. Bill Gates has suggested that the government should also increase expenditure on health, social care and education, where humans have an edge over robots, to create alternative employment opportunities for those who lose their jobs. The government can also offer wage subsidies to firms in respect of those who experience particularly severe problems in becoming re-employed, and fund investment in labour intensive infrastructure projects and public services to boost employment.
The fact that it is increasingly possible to replace workers with robots does not mean that firms will automatically choose to do so. Even if there were no tax on robots, firms would need to raise the necessary capital, and overcome legal and regulatory hurdles, organisational inertia and legacy systems. A firm’s propensity to automate would depend, among other things, on the relative cost and productivity of robots, the disruption this would create for the business, and the cost of discharging workers (including adverse publicity, customer reaction and the risk of strikes). One would expect the balance to shift to robots as they become cheaper to produce. This is bound to happen, since those who develop the AI that makes robots smart are likely to enjoy increasing returns to scale. (Economies of scale arise when the average cost of production of a product falls as the numbers produced rise.)
The fall in the price of smart robots will make them less expensive to purchase or lease relative to the cost of hiring workers, whose wages tend to be ‘sticky’. One would expect companies swiftly to substitute robots for workers, because this would increase their profits. In the absence of any tax or restriction on the installation of robots, companies would deploy them to the point where the expected net marginal revenues they derive from doing so were equal to their marginal costs. This is the point at which they would maximise their profits.
As happened when computers were initially introduced, robots are first being introduced as substitutes for human hands and minds. To realise their full productive potential, employers will begin to restructure their entire design, production and delivery processes and command structures to be dominated by robotic technology. Robots would increasingly begin allocating tasks to workers according to their availability and skill sets. Robots are not subject to the same constraints of limited flexibility, capability, consistency and availability that the deployment of human labour introduces into manufacturing processes and service industries. Robotic technology offers the scope of revolutionising the economy to an even greater extent than the information and communications technology (ICT) has done. ICT has affected every industry and service, and every function within them, by systemising and integrating separate departments and functions. The economy could become even more dependent on robotic technology than it has on computers.
The use of robots would make the firms that manufacture and use them more profitable. Labour’s share of the national cake would decline. The increase in the share of national income that would accrue to capital, namely the owners of the firms that deploy robots and the smaller number of workers who remain in employment, would exacerbate inequality. The firms that automate would pay more corporation tax, but the government would lose the revenues it derives from income tax and NICs from workers who lost their jobs. The government would also lose the VAT that the unemployed workers would have paid on their personal expenditure (many workers spend practically all their personal disposable income).
Corporate profits are taxed at a fixed rate of 19% (due to be reduced to 17%). There would have to be a very large increase indeed in corporation tax receipts to compensate the government for its loss of revenues.
The government may have a slim prospect of recovering significant corporation tax from the profits of firms that displace workers to deploy robots. The bulk of the profits could end up accruing to the Silicon Valley technological ‘superstar’ firms that are developing AI technology. It is likely that, as with internet technology, the companies developing AI will begin enjoying increasing returns over time; their initial investment costs may be high, but their incremental, marginal costs will be minimal. Once an AI company reaches scale, its product becomes a standard that companies that produce adjacent products must build around, even if they have better software. Firms that enjoy early economies of scale can use their cost advantage to undercut other firms and become monopolies or oligopolies.
Like the internet companies, the firms that develop AI robotics could begin enjoying ‘network effects’; in the same way that, for example, search engines, social networks and retail websites got better as their user bases grew. These firms would be able to make vast profits because they would own the rights to the software and AI used in robotic technology. They might be tempted to adopt international structures and arrangements to avoid or minimise the tax due on the profits from their patents and licence fees. Some of the big technology companies involved in the development of AI are not renowned for their fondness for paying tax.
There is urgency about the agreement of a legislative definition of a robot because their deployment at work and in homes raises a wide range of potential legal and ethical issues that will need to be resolved. It is also an essential prerequisite for the introduction of any new taxes related to the deployment of robotic technology. The world is rapidly becoming crowded with a multitude of complex cyber-physical systems: machines or mechanisms controlled by increasingly intelligent, computer-based algorithms. But there is currently no clear and agreed definition of what constitutes a robot.
The term robot conjures up mental images of mechanical men or even humanoids like the laconic Terminator, as portrayed by Arnold Schwarzenegger in films. But, in practice, it would be challenging to identify robots by sight. As David Poole has noted, ‘A robot is not a unit equal to a human. Most are not physical robots, they’re software robots. It’s no different, really, to a spreadsheet!’
In the near future, machine learning, a higher level of intelligence, will routinely be infused into commonly used software and computer programs, not just robots. It will be very difficult to distinguish between technologies that destroy jobs and those that might enhance the productivity of existing jobs without threatening them, or create the jobs of the future in the way the personal computer did in its time.
Given the range and sophistication of robots likely to come into development, the definition needs to be ‘form neutral’; i.e. it should include all autonomous robots, bots and similar smart AI machines. Any proposed definition should be tested from not just from legal perspectives, but also from economic, technological and constitutional approaches. The report from the legal affairs committee of the European Parliament included proposals for a wide ranging definition of robots as ‘physical machines, equipped with sensors and interconnected so that they can gather data’. It noted that: ‘The next generation of robots will more and more capable of learning by themselves. The most high-profile ones are self-driving cars, but they also include drones, industrial robots, care robots, entertainment robots, toys, robots in farming.’ This is a useful start.
Any legislative definition of a robot would need to be flexible enough to capture not just existing notions of what constitutes such devices, but where science is driving them. The primary legislation should ideally provide ministers with the power to expand aspects of the definition by statutory instrument to keep pace with innovation. It isn’t far-fetched to say that science fiction could be a useful guide to potential risks and remedies. For example, scientists at NASA used to consult Sir Arthur C. Clarke, whose novels popularised space travel.
It is necessary to be able to assign liability and determine insurance risks when a robot malfunctions, or where issues of personal privacy arise from the use of domestic robots, or from the deployment of totally autonomous robots. These will necessitate new rules and the adaption of existing legislation to new realities. It may, for example, be necessary to require the installation of ethical principles and respect for human rights as a default setting in all AI algorithms and software.
The European Commission responded to the European Parliament’s request that it come up with a legislative proposal on civil liability for any damage caused by robots by pointing to the Machinery Directive, the General Product Safety Directive and its proposed legislation on medical devices. It believes that its new General Data Protection Regulation will be fully applicable to any kind of processing of data, including that by robots with AI. The Commission’s response smacks of egregious complacency: technological innovation in robotics is accelerating so fast that policy makers and parliamentarians, let alone the law, will find it difficult to keep up.
It has been suggested that there is a need for a specific legal status for more advanced forms of robots. Professor Luciano Floridi, professor of philosophy and ethics of information at Oxford University has suggested that a possible approach would be to adapt ancient Roman law, and attribute legal responsibility similar to that under which the owners of slaves were responsible for any damage they caused. If, however, robots were granted electronic ‘personhood’, they would become directly responsible for making restitution for any damage they cause. This could absolve the owners of the robots, who direct their activities and appropriate all the profits generated by their mechanised slaves, of their responsibilities.
The government has a range of tax policy possible options. As the legal affairs committee of the European Parliament suggested, the implementation of specific taxes on robotics would necessitate the introduction of ‘corporate reporting requirements on the extent and proportion of the contribution of robotics and AI to the economic results of a company for the purpose of taxation and social security contributions’. There would almost certainly be a rush to automate and lay off workers while the proposal was being debated and enacted. The options include:
Taxing robots: It is impossible to tax robots directly. They are non-sentient inanimate objects with no independent status or legal identity. They don’t get a share of the profits they produce for their owners, or earn any income. ‘Taxing robots’ involves taxing the portion of a company’s capital invested in robots.
Increasing the corporation tax rate: This would not reduce the incentive for firms to replace workers with robots; it would hurt labour-intensive businesses and firms using robots alike, and discourage domestic and international investment in the UK. Raising the corporation tax rate would increase the incentive for firms to invest in robotics if the increase in the corporate tax rate was not accompanied by the withdrawal of capital allowances on robots, because it would increase the relative value of this relief for marginal investment.
Lump-sum taxes: These are the only kind of taxes that don’t create distortions in the economy. They would not impede automation, however, because they are payable at the same level by everyone. Being unrelated to income or consumption, they bear most heavily on the poor. They would add insult to the injury suffered by those whose livelihoods were disrupted by automation.
Taxing firms on the imputed notional income of their robots: It would, theoretically, be possible to impute a notional salary to robots that displaced human workers, equivalent to the wages that were or would have been paid to the workers they displace. In reality, the technology used in automation cannot easily be linked to specific job losses. It is not always possible to say that this robot replaced that worker (or, more probably, this robot replaced those workers). Abstracting from the difficulties involved in compliance, the company owning robots that displace workers could be required to account for and pay income tax and national insurance in respect of their notional salaries. (The company would obviously not be entitled to deduct the notional salaries in arriving at its taxable profits.) The wages of the displaced workers would be used as a reference point for assessing the company’s liability to this tax. These reference wages could be valorised by the growth in earnings or inflation on an annual basis to maintain the real yield of the tax over time.
Robot levy: Firms that lay off workers following the introduction of robots could be required to pay a levy calculated by reference to the reduction in their aggregate wage bill or the level of their expenditure on robotic technology. The levy could be applied on an incremental basis, to protect small companies. (It would be necessary to have anti-avoidance rules to prevent the artificial fragmentation of larger businesses to avoid the charge.) The assessment of such taxes could be modelled on the system in some American states, under which redundancies are tracked to assess the amount the former employers have to pay into unemployment insurance schemes.
Imposing a ‘payroll tax’ on computers: William Meisel has proposed the introduction of an automation tax: ‘If software is to take over so many jobs, why not have an income [sic] tax on software? We could perhaps think of it a payroll tax on computers.’ This would be based on the ratio of a company’s turnover to the number of its employees. Under such a tax, ‘the automation tax would increase … as the revenue-per-employee grows, making it more attractive to create jobs than to replace them with automation’. The advantage of basing the ratio on turnover, rather than profit, would reduce the risk of the manipulation of the figures. Anti-avoidance rules would be needed to prevent manipulation of the ratio by reference to which the tax would be assessed. For example, large companies could bundle their highly profitable technology intensive businesses with newly acquired low wage, labour intensive businesses.
Disallowing relief on the acquisition of robotic technology: According to HMRC’s Capital Allowances Manual, expenditure on computerised or computer aided machinery and robotics is treated as qualifying expenditure on plant or machinery for the purposes of capital allowances. This subsidy for investing in robotic technology could be withdrawn by denying firms capital allowances for expenditure on robots that have AI or are capable of being installed with AI.
Increasing the cost of robots: The government could also substantially increase the rate of VAT payable on the purchase of robotic technology, and deny firms that use this technology the ability to deduct such payments from the VAT they have to account for on the sale of their goods and services.
Increasing the rate of VAT payable on value added by robots: Firms would only have an incentive to invest in robots with AI if they were more productive than workers; i.e. if they added more value and were therefore more profitable. It would theoretically be possible to require firms to monitor the value added by the robots they deploy, and subject it to a higher rate of VAT on the sale of its goods and services. Alternatively, firms whose ratio of turnover to the number of employees was above a specified level could be required to charge a higher rate of VAT on their goods and services. Either approach would reduce or eliminate the cost or price competitive advantage that firms which automated would have over competitors that continued to employ workers. The first option, namely disaggregating the current single rate of VAT to impose a split rate, would not be permissible under the current system. It might be legally feasible after Brexit, however. It would be highly complex, costly and unpopular with businesses. It would also conflict with the government’s unstated objective of maintaining the continuity and congruency of the VAT regime with that in the EU.
We are living in an age of extreme turbulence caused by the simultaneous impact of globalisation, climate change and new technologies. Those who are optimistic about the impact of technology gloss over the impact of these factors, primarily economic uncertainty, unemployment (as old industries die out or relocate where labour is cheaper) and mass migration (‘globalisation made flesh’). They see the replacement of human workers by mechanised slaves as ushering in the end of wage slavery and shorter working hours for a more skilled and entrepreneurial society. They are blind to the anger and resentment of the millions who feel that they have been robbed of their jobs and former certainties by the domination of their former industries by surging foreign economies and technological changes like the growth of e-commerce. Some have flocked to the banner of populist politicians; widespread unemployment might cause others to adopt more extreme measures than electing demagogues.
For some the adoption of a benign public policy towards the development of advanced robots is tantamount to irresponsible complacency. They believe that the economic benefits from the widespread displacement of human workers by robots with superior strength and intelligence would be far outweighed by the short and longer term human and social costs of creating potential mass unemployment. They foresee the spectre of a potential dystopia where robots replace most human labour and a small elite owning all the robots and other means of production.
Modern popular perceptions of robots are based on the quirky but amiable robots R2-D2 and C-3PO featured in the Star Wars films, the relentless eponymous android in the Terminator films, or the equally murderous Hal in 2001: A space odyssey. The robots in Star Wars comply with Isaac Asimov’s famous 'three laws of robotics' but the other two don’t. These laws state that:
1. A robot may not injure a human being, or, through inaction, allow a human being to come to harm.
2. A robot must obey orders given it by human beings except where such orders would conflict with the first law.
3. A robot must protect its own existence, as long as such protection does not conflict with the first or second law.
Robot rebellion has been a recurring theme in fiction and films since the playwright Karel Capek coined the word robot (from the Czech word for forced labour) for a play in which automata, meant to make life better for mankind, rebel and wipe out humanity. The development of AI and the speed of technological change have led some to express concern not merely about economic apocalypse, but the risk of the future enslavement of the human race by robots. They are fearful that if machine intelligence were to exceed human intelligence, and if we allowed robots to self-design, human beings could lose their position as the dominant life form on earth.
Professor Stephen Hawking concedes that robotic technology with AI could help to eradicate disease and poverty and to conquer climate change. But he argues that it could also create autonomous weapons, economic disruption and machines that develop a will of their own, and enter into conflict with humanity: ‘In short, the rise of powerful AI will be either the best, or the worst thing, ever to happen to humanity. We do not yet know which.’ Elon Musk, the chief executive of Tesla, which is pioneering the development of commercially marketed driverless cars, has repeatedly argued for the close regulation of artificial intelligence before ‘it’s too late’.
Musk’s comments suggest that he is fearful of a Terminator style uprising by autonomous robots with artificial intelligence: ‘But until people see robots going down the street killing people, they don’t know how to react.’ Musk recently debated his views with Mark Zuckerberg of Facebook. Zuckerberg accused Musk of irresponsibility and fearmongering about the risks from AI. Ironically, shortly afterwards, it was reported that Facebook had been forced to pull the plug on one of its own AI systems. Its robots, which had been programmed to communicate in English, began spontaneously communicating with each other in a new language that humans couldn’t decipher.
The government should urgently develop a legislative definition and ethical-legal framework for robots. It should also take steps to introduce corporate reporting requirements on their deployment, to gather information that would facilitate remedial action like the introduction of new taxes. The government has demonstrated a palpable lack of leadership in facing up to the substantial risks posed by the rapid diffusion of robotic technologies. This is evidenced by the government’s pusillanimous response to the recommendations in the House of Commons Committee on Science and Technology’s thoughtful report on Robotics and artificial intelligence earlier this year.
The government kicked the committee’s recommendation for the creation of a ‘National Robotics and Autonomous Systems Strategy’ into the long grass. It similarly fudged the committee’s recommendation for the establishment of a standing commission on AI to examine the social, ethical and legal implications of recent and potential developments in AI.
Responsibility for monitoring these developments and taking appropriate action to counter potential risks is divided between four government departments: Business Energy and Industrial Strategy (BEIS); Education; Work and Pensions; and the Treasury. There is an urgent need for better and more visible coordination between them. The government needs to demonstrate that it has a plan for addressing the risks, and to involve interested and informed parties in formulating possible solutions. The First World War General Helmuth von Moltke said ‘no plan survives contact with the enemy’; but it would at least demonstrate that the government was aware of the risks and had thought about how to deal with them.
The Treasury should take the lead in planning and coordinating the government response. It is aware of the risk to tax revenues and public finances. It carries more clout than the other departments, and it is more likely to deliver the timely development and delivery of the necessary legislative remedies.
