Universal Basic Income Solves a Problem That Doesn’t Exist

Jackson Capper | 24 October 2018

By peddling fears of automation, a new generation of Luddites are gearing up for Socialism 2.0, certain to unleash poverty to fix a problem that never even existed.

Imagine being repeatedly warned that you will soon lose your job to automation, that the robots are coming to default your mortgage and put you on the street. With the endorsement of icons like Elon Musk, the concept of a Universal Basic Income has become irresistible to the masses. The temptation of UBI has even sucked in libertarians.

So what’s wrong with UBI anyway? What about forced redundancies? How will the ex-working class access products and services without an income? These seem like fair questions, but they are invalid questions from the very start. We will never have to answer these questions. To understand this, two myths have to be dispelled:

Automation Is Not a Robot Bogeyman

Automation is often portrayed as a humanoid-like robot tapping on the shoulder of a factory line worker and being told to get out of the way. This is of course a personification of automation to make the supposed enemy relatable and concrete to the average folk.

In reality, automation is just a change in production to improve efficiency which happens to eliminate human involvement. It’s simply a type of innovation. Automation may be based on technology such as email, or the self-serve checkout, but it may simply be a new methodology. A driving algorithm to reduce travel time between deliveries such as UPS’ “turn-right only” algorithm for example, reduces the driving time it takes to deliver a package. This reduces the number of humans required to deliver the same number of packages. Automation can also be trivial, such as upgrading to a faster photocopying machine to reduce human time spent doing a task.

Not Buying Something Is Logically The Same As Automation

Seeing automation as a malicious business practice becomes even more silly when you consider that any type of innovation, in any form, is effectively automating even where human staff are not directly affected. For example, a business may decide that its office is being unnecessarily cleaned. It decides to only clean it’s office only once every fortnight instead of every week. While it’s own staff have been unaffected, the process of analysing the costs and benefits of cleaning fortnightly is partially automating its cleaning and partially making redundant the cleaning service’s staff that would otherwise be cleaning weekly.

Taking this further, the act of not buying a yacht is automation. You are automating your satisfaction of the desire to go yachting, by eliminating boat builders and replacing them with what is effectively a robot: a rental yacht.

The point here is that automation is an arbitrary concept, having the exact same economic effect as deciding to forego buying a yacht. Not buying a yacht might displace workers who would otherwise build it, but nobody scalds you for not buying a yacht. Not buying a yacht makes sense, as your resources are better spent on renting an existing one. Should we tax everyone who doesn’t buy a yacht to encourage yacht purchases to protect boatbuilder’s jobs? When automation is seen for what it is, the idea of taxing the displacement of workers becomes ridiculous.

Automation Doesn’t Increase Profits

Automating is costly, not just in capital funds, but in risk. There is risk that the new process will not work. There might be unseen costs, or the possibility it will affect the perception of a brand. When Coles and Woolworths first introduced self-serve checkouts, customers were skeptical. Some even boycotted the supermarkets and turned to competitors such as Aldi. In the end it turned out well, but it could have easily been a PR disaster.

If automation is so risky, why would a business ever want to do it? Forgivingly, many assume that automation is specifically to eliminate human involvement, to decrease production costs to ultimately increase profits. Obviously the profits are derived from the difference between the old, high production cost and the new, lower production cost, right? You would be forgiven for thinking that automation increases profits however, this is impossible in a competitive business environment.

Automation Can Only Benefit Consumers

The savings in production costs are not passed on to shareholders, but instead to consumers. This is not out of philanthropy of course. Businesses can’t just do what they want, they have to operate within a very hostile environment.

Competition is key to automation being inherently beneficial under capitalism. Often critics see automation as being adopted by some cartoonish mega-corporation that hires robots and all the workers are kicked to the streets. Sure, a single business may take the initial risk to implement a new self-checkout machine and increase their margins for a short period of time, but this is usually short-lived. As margins increase so does the temptation to get a slice. Existing competitors either play catch-up or new competitors enter the market. Since these vendors are competing for a finite number of customers, they compete on lower prices to attract them. Prices go down, the consumers benefit and the margins are neutralised.

So where are the profits if it’s not in the margins? Sure, some profit margins are enjoyed while competitors play catch up but that hardly outweighs the enormous capital investment and risk of automating in the first place. Also, the eventual new lower prices will make your products more accessible to a larger number of buyers, but that benefit is also eliminated by the temptation of new competition. The truth is, there are no profits from automating!

The Truth About Automation

Why would a business automate if it didn’t result in more profits? As so often in economics, intuition doesn’t belong. A business does not automate to increase profits, it automates to keep its existing profits. If Woolworths did not implement self-serve checkouts, Coles would have. Why? Because if Coles did not implement them, then another vendor would enter the market with self-serve checkouts and completely undermine their model and their existing profitability. Businesses innovate not to increase profits but to prevent new competitors entering the market. That is, automation only occurs in order to survive. Businesses are therefore indifferent to automation for the sake of innovation.

Automation is simply an adaptation to a changing business environment where a particular technology or methodology becomes available. If a business is to survive, it absolutely must adopt the technology of the environment. H&R Block didn’t apply desktop computers to eliminate staff and make extra profits, it applied computers because computers had the ability to make accounting efficient, and computerised competition would undermine H&R Block’s current profitability. Businesses only automate because they would cease to exist if they didn’t.