David Ricardo Meets Daron Acemoglu: Automation, Productivity, Wages And Employment
From Knowable Magazine, November 5:
What happens to the weavers? Lessons for AI from the Industrial Revolution
Handled right, AI has potential to bring back middle-skill jobs lost to
the rise of computers, economists argue. Or, like the mechanized mills
of the past, it could toss whole sectors out of work.
In the blink of an eye, artificial intelligence has been set to work
transforming every walk of life — from self-driving taxis, to software
that reads X-rays as accurately as radiologists, to virtual assistants
that can schedule meetings and draft emails, to original if derivative
music created in an instant in the style of Mozart or Marley. Like
disruptive technologies before it — think automobiles, mechanical
textile looms and more — it promises to radically change the world we
live in, including the world of work.
Fascinated
and alarmed, economists and policymakers are debating how AI — and
especially much anticipated artificial general intelligence, or AGI —
will reshape the workforce. Techno optimists argue that technology has
historically been a powerful driver of economic growth, spurring new
industries with novel jobs. That’s what happened with the advent of the
automobile, after all: The ranks of carriage makers, horse breeders and
stable owners melted away as jobs opened up in the emerging oil
industry, and then in brand new sectors like motor hotels — motels — and
drive-in theaters. Why couldn’t the same happen with AI?
But others hold that the changes wrought by AI are of a different
scale. International Monetary Fund economists have estimated that AI may affect as many as 40 percent of all jobs
as AI-driven machines replace work that was traditionally performed by
people, much of it skilled. And even where jobs aren’t lost, work by
human beings could become less valuable, causing wages to fall, says
Anton Korinek, an expert on the economics of AI at the University of
Virginia.
With such worries widely felt, it is perhaps no
coincidence that two of the three recipients of the 2024 Nobel Prize for
economic sciences have written extensively about artificial
intelligence and its potential impact on jobs. MIT’s Daron Acemoglu and
Simon Johnson argue that we must act deliberately to ensure that AI’s
benefits are shared widely — through government intervention, bold new
policies and reskilling programs to avoid deepening inequality and
societal unrest in this age of growing automation.
The two
economists advise that, as we navigate this moment, we heed lessons from
the past — specifically, the early Industrial Revolution, another time
of economic and social upheaval, and the flexible thinking of a key
figure of that time: Englishman David Ricardo.
Acemoglu, Johnson
and their colleagues say that if, like Ricardo, policymakers act with
care and flexibility, AI might even help restore what the start of the
tech boom put in jeopardy: decent-paying middle-class jobs.
Changes hit home Ricardo, born in 1772, was a parliamentarian and noted economist of his time. In his younger years, he was a techno optimist of sorts. He believed that new spinning machines that converted raw cotton into yarn were going to increase worker productivity and prove to be beneficial for everyone — workers, entrepreneurs and the public.
The new machinery might
initially displace some home-based spinners, he recognized, but
eventually those people would find work elsewhere.
And that’s what happened — at first. Cotton textile manufacturing
boomed during Ricardo's lifetime: The new spinning machines developed in
the 1770s made producing yarn faster and cheaper.
Workers who had spun yarn at home on spinning wheels were disrupted by
these new machines, but many were able to transition into another
growing cottage industry — weaving the now more abundant and cheaper
yarn into cloth.
The first edition of Ricardo’s Principles of Political Economy and Taxation,
published in 1817, makes no mention of the potential ill effects of
machinery on workers. Indeed, in an 1819 speech before the English House
of Commons, he declared that “machinery did not lessen the demand for
labour.”
But a different reality was emerging with a second
invention: power looms, introduced roughly a generation after the
spinning machines. A single power loom could produce more cotton than 10
to 20 handweavers working from home, and the machines were so large
that they had to be housed in factory buildings, taking cottage industry
weaving off the table. As factory weaving eclipsed home weaving, this
time the displaced workers had no place to go, because power looms
created relatively few new jobs in the factories.
For home-based
weavers, this was a disaster. Family earnings for handloom weavers in
two Lancashire towns fell by half over a five-year period starting in
1814, Acemoglu and Johnson recount in a 2024 article in the Annual Review of Economics.
Handloom workers in the English cotton industry overall averaged 240
pence per week in 1806, but by 1820 — around the time Ricardo was making
his speech in the House of Commons — they were making less than 100
pence weekly.
Handloom
weaver wages plummeted after the advent of power looms. Wages for
factory workers were not high and did not see growth in the early 1800s.
(Numbers shown are nominal wages, not adjusted for inflation or changes
in the cost of living.)
Even
the factory workers who had jobs tending the powerful new textile looms
weren’t faring well. They experienced little real wage growth between
1806 and 1835. Growing wealth inequalities spawned social unrest,
especially in the hard-hit industrial north. A major demonstration, with
an estimated 60,000 people clamoring for political reform, was broken
up by deadly force in Manchester in August 1819, in what is known as the
Peterloo Massacre.
Ricardo, who had witnessed firsthand the
consequences of power looms in the cotton industry, radically changed
his mind. A more nuanced view of mechanization found its way into the
third edition of Principles, published in 1821. He inserted a whole new chapter to discuss machinery’s impact, writing,
in what amounted to a recantation: “The same cause which may increase
the net revenue of the country, may at the same time render the
population redundant, and deteriorate the condition of the labourer.”
