This talk is a part of the HKUST IEMS & IPP – EY Hong Kong Emerging Market Insights Series. It is presented by HKUST IEMS with support by Institute for Public Policy and EY. Will the next AlphaGo beat you at your job? Will artificial intelligence overwhelm companies that rely on human decision-makers? Or is the concern over robots and automation largely media hype? This talk will offer evidence-driven insights about the on-going and likely future effects of the “robo-lution” on the global economy. Find out more at Iems.ust.hk/insights

1. 1. Robots and Technology Everywhere
2. Standard Economic Answers? Wrong!
3. Why AI Robot Technology is Different
4. Laws of Robo-economics and Ownership Solution
Richard B. Freeman, Harvard and NBER
Hong Kong University of Science & Technology/Ernst Young
May 16, 2017
Work and Income in the Age of AI Robots

2. Dictionary Definition: “Automatic device that performs
functions normally ascribed to humans”

3. 1.“Robots and Technology: headline hype
Will Robots Steal Your Job? Why the highest-paid
doctors are the most vulnerable to automation
Robots And Computers Could Take Half Our Jobs
Within the Next 20 Years
Robotic Construction Platform Creates Large
Buildings on Demand

4. Robots competing at all skill levels
Robot Serves Up 360
Hamburgers Per Hour
Miniature Robots
Perform Surgery
biopsies inside the human colon
Robots Are Replacing
Factory Workers at
Record Pace
Artificial Intelligence AI
Decisively Defeats Human
Poker Players
Headless Robot Dog Is
Boston's Creepiest
Delivery Machine Apr

5. 2. Standard Economic Response:
Wait! We've had these scares before
In Great Depression, FDR blamed unemployment on failure to
“employ the surplus of our labor which the efficiency of our
industrial processes has created”; technocracy movement said way
to solve problem was to replace markets with planning by
engineers.
In early 1960s fears that automation was eliminating thousands of
jobs per week led the Kennedy and Johnson Administrations to
examine the link between productivity growth and employment.
In the 1990s Jeremy Rifkind predicted that technology would
produce the End of Work (1995) just before the dot.com boom
raised employees/ adult population in the US to an all-time peak.

6. Standard Economics Answer rests on Comparative
Advantage: everyone (country in trade) produces
something even if they are less able in everything
“The Rock” is better at everything than you, but he is relatively
better as wrestler/movie star than at other stuff. Even though he is
better at your job than you but optimum is for him to stick to car
chases/beating villains and for you to do activities where you have
comparative advantage. (He may become next US President!)
Dwayne 'The Rock' Johnson might
actually run for president
May 10, 2017 Fox News

7. So where is our comparative advantage vs AI-robots?
NYT says robots might not take our jobs after all: they lack common sense.
Many say our edge is “intuition”/perception of patterns
Maybe our edge is in mobility – cheaper to move the chess/go piece – or in
saving the day when machine has problem “the human in driver less car” –
until there is an AI redundant robot that handles that problem
Many say our edge is general intelligence – flexibility: Random person can
beat Deep Blue at Go or beat AlphaGo at Chess … but robot can choose from
an ensemble of AI.

8. Herb Simon's Shape of Automation (1966) Analysis That
Pooh-Poohed Automation Scares No Longer Fits Reality
1- Labor less elastic supply than machines. Labor market clears.
Evidence – low unemployment despite tech change.
2- Technology for producing machines has constant returns to scale
so infinitely elastic. Evidence – real price of capital constant.
3. Then real wages of workers benefit rise through reduced prices
or higher wages. Evidence – real wages increase with productivity.
“the world’s problems in this generation and the next are problems
of scarcity, not of intolerable abundance. The bogeyman of
automation consumes worrying capacity that should be saved for
real problems...” (Simon)
But today labor's share of national income has fallen as real wages
stagnate despite rising productivity/increase less than productivity;
inequality has risen to levels that threaten democracy and stability.

9. I don't want to be robot assistant.
I want a good job at good pay and autonomy
Imagine your boss was a machine. For some people it’s almost
a reality, says Jane Palmer, so will we all end up working for
robots and algorithms? In some warehouse jobs, workers are
kept to a timetable by a handheld device which counts down
the time they have to complete a task.
BBC - Future - Are we about to see the rise of robot bosses?

10. If robots do all the work,
my life will be leisure,
the joys of the idle rich:
playing computer games
or having fun with my
sex-robot (CENSORED)
That is insanity. I do
not want to work if I
do not have to. The
only reason to work is
to get paid. .
What! Me worry if robots do all the work?

11. 3. Why this Technology is Different
● Much work has shifted to on-line, where you have to compete with
AI that is master of digital world, with big data and processing
power → deep learning neural nets
● Sensors give robotics abilities to see off-line world (could be
better than what you see) and to assess outcomes from algorithm
● Improved motion gives robots ability to change the off-line world.
● People become more like the technology –
●
●
●
● Technology mimics general intelligence by ensemble of programs.

12. I don't know any facts. I
don't think. I don't try to
remember. I look it up on
Google Search – er Baidu or
whatever search engine
works best … until the RTR
replaces me.

13. AI Turns Malthus Upside Down
The power of robotic artificial
intelligence is so superior to that of
flesh and blood creatures that
replacement by robot work must in
some shape or other visit the human
race” – Labor Economist, 2015

14. Industrial Robots Increasing
(we have no measure of growing use of AI)

15. 3. Laws of Robo-Economics (and Ownership Solution)
1. Artificial intelligence + improved computerization +
robotics based on biological analogies→ better machine
substitutes for humans: higher elasticity of substitution
2. Technological change reduces costs of robot substitutes for
humans over time, bounding wages: W < Production cost
of robot substitute.
3 Effect on incomes depends on who owns robots. If you
own robot that does your job it is a tool that improves your
work & income. But if I own robot that does your job,
tough luck suckah! Who owns the robots rules the world!

17. Evidence on Effects of Industrial Robots on Jobs and
Wages by Affected Areas in US, 1993-2007
Acemoglu-Restropo (NBER, WP23285)

18. Robots/machines near-perfect substitute for me?
Owned by Mr. & Mrs. Big! Jobs and Wages Falling!
Labor's Share of Income, US

19. China is 27% of 2015 World Robotic Market
(expected to be 39% in 2019)

20. A Robot Revolution, This Time in China
NYT MAY 12, 2017
HANGZHOU, China — Even a decade ago, car manufacturing in
China was still a fairly low tech, labor intensive endeavor. Thousands
of workers in a factory, earning little more than $1 an hour,
performed highly repetitive tasks, while just a handful of industrial
robots dotted factory floors.
No longer. At Ford’s newest car assembly plant in Hangzhou in
east central China, at least 650 robots, resembling huge, white necked
vultures, bob and weave to assemble the steel structures of utility
vehicles and midsize sedans. Workers in blue uniforms and helmets
still do some of the welding, but much of the process has been
automated. The state of the art factory exemplifies the vast
transformation that has taken place across manufacturing in China.
General Motors opened a similarly ultramodern Cadillac factory in
the eastern suburbs of Shanghai, as well as one in Wuhan. …
Robots are critical to China’s economic ambitions, as Chinese
companies look to move up the manufacturing chain.

21. Can we prevent robotization from leading to more
inequality/social unrest/division between few and many?
Try to stop robotization? Tax robots ala Bill Gates' suggestion?
Neither feasible nor desirable

22. Adams: “the only possible way of preserving…equal liberty…is to
make the acquisition of land easy to every member of society”
Jefferson: “legislators cannot invent too many devices for
subdividing property”
Hamilton: “the desire of being an independent proprietor in land is
founded on such strong principles in the human breast”; “equality
and moderation of individual property” would promote growth
Madison: “without violating the rights of property reduce extreme
wealth toward…mediocrity”
Land was the key form of capital in those years; business and
knowledge capital are the key form of capital today. Diverse set of
policies – from taxes/procurement policies favorable to ESOP/
profit-sharing to pension fund ownership to UBI.
Ownership Solution: American Revolution way to control
inequality and preserve middle-class democracy

23. If citizen's own the robots/AI technology
23
If the super-wealthy own technology
Upper 1% Upper 0.1% Upper 0.001%