SBA

Futurology and the Bombs

If you’ve been following my IT Matters articles you’ll realise that I mostly write about the exploitation of information technology in business, and recall that recently I have written about advances in Robotics, Artificial Intelligence, and Quantum Computing. I’ve previously written about the past and possible future impacts of progress in IT on employment, business and value creation through automation, information sharing and globalisation. 

The three big delivery themes of politics, almost everywhere, are employment, health and security. Each is multifaceted and complex. Taxation of the first pays for the other two. Education is a major contributor to the ability to deliver all three, without which any nation will fail to meet the aspirations of its people. Information Technology has both made huge contributions to the delivery of these themes, and changed the landscape in which they must be achieved in order to maintain political stability. It is irresponsible to look at the big picture of technology, past or future, without considering the strategic political impacts. 

Recently we have heard lots about the latest Isle of Man Population Census, which confirms that the employed population is falling and the average lifespan is increasing. This is seen as being a problem for the Government, because fewer people employed implies lower tax receipts to pay for public services and benefits, whilst longer lifespans implies higher outgoings for state pensions and healthcare services. The problem is widely called a “Demographic Time Bomb” - and it’s only going to get worse because Quantum Computing is going to help crack more complex medical problems and thereby enable people to live even longer.

Increasing employment tax receipts by increasing tax rates is seen as undesirable by most employed people who, one one way or another, generate most of the tax income for the Government; and by employers and government who both see that tax increases will reduce the attractions of doing business on the island and thereby further reduce employment. Apart from some fiddling around the margins with “Stealth Taxes” the Government’s scope to raise tax income per worker is very limited.

The obvious way forward for the Government then, which has also been proposed by lobby groups representing employers, seems to be to increase the number of workers on the island. Because the island’s unemployment rate is very low there are few “spare” people available to convert into employed taxpayers, so the strategy proposed by Government, Chamber of Commerce et. al. is to increase the employed population by retaining or importing more workers. 

I, and others with a logical bent of mind, could pick a lot of holes in this strategy. Younger workers who will not be retiring soon tend to be medium output and low maintenance - they pay their taxes and make limited direct use of public resources. Unfortunately they also tend to have children who make extensive use of public education and healthcare services - two of the major consumers of tax revenues - so the net gain to the public purse of more younger workers is potentially quite small. Ideally we probably want to import workers in the 50 - 65 age bracket, who generally pay more in taxes (because they earn more) and burden the state less with indirect costs because their offspring are adults, but being older these 50 - 65 year-olds will qualify for the state pension sooner and also place more stress on our healthcare services sooner. It’s a very complicated problem (worthy of Quantum Computing!). 

Nitpicking aside though, the strategy of increasing the workforce is based upon our current understanding of the relationship between employment and tax revenues in the present and the recent past, and assumes that this current understanding will hold good for the future. This is where a little futurology may help.

I have previously written in IT Matters about the Luddite movement of two centuries ago and its resistance to advances in automation which would (and did) cause “Technological Unemployment”, and I have written about the “Future of Employment” report published by Oxford University academics which forecasts that a third of current jobs will likely be replaced by improved automation technologies (Artificial Intelligence, Robotics etc.) within the next twenty years. That report was compiled before recent developments in Quantum Computing, the subject of my last article, which will massively accelerate increases in the capabilities of automation technologies. It seems we are looking at a “Technological Unemployment Bomb” within the foreseeable future which will have a huge impact on employment and its associated tax revenues. That’s not just my opinion; last month Bill Gates, Billionaire founder of Microsoft, said:

“Certainly there will be taxes that relate to automation. Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.”

Bill, like me, understands that the future of employment, and of employment derived taxes, will be radically different to the present or recent past due to the massive strides being made in automation. His suggestion of taxing robots has however met with widespread condemnation as impractical. Some EU politicians also seem to get the problem - also last month the European Parliament rejected proposals for extra taxation on businesses which use robots to displace humans, but instead called for additional regulation to control the seemingly inevitable rise of the robots. This is of course a recipe for jurisdictional arbitrage; any country which inhibits the use of robots and other business automatons through taxation or regulation to protect employment will see a flight of business to friendlier places.

Whether anyone other than me has called this problem the “Technological Unemployment Bomb” I don’t know - but it is as real and as material a threat to our tax revenues and national stability as the “Demographic Time Bomb”.

So will someone kindly explain to me (preferable in words of one syllable) why, when the European Parliament, the world’s richest man, and many other hugely credible and intelligent commentators are going on about the problems we are all going to face due to massive unemployment as a result of increasing automation, is our Government so focused on increasing a working population which will likely be facing mass redundancy by 2025? 

Bluntly, the Isle of Man Government’s strategy, endorsed by some employer lobbyists, to increase the working population to mitigate the tax gap, “Does Not Compute”.

I wish I were clever enough to come up with a way forward on this, but I am smart enough to know that doing the wrong thing is not going to improve matters, and increasing the working population now means increasing the unemployed population within the near future. It seems to me that the increased cost of paying out unemployment benefits to the victims of the “Technological Unemployment Bomb” is going to make the tax gap bigger, not smaller, before most current members of Tynwald retire. 

The reality of the near future is that society cannot afford further advances in automation, but equally it can’t avoid them either because any nation that suppresses the rise of the robots through taxation or regulation will see an exodus of businesses to less regulated climes.

Technology has been a key driver in creating the Demographic Time Bomb. It will also drive the Technological Unemployment Bomb. Human progress is faster than ever before due to technology - too fast? As the finance sector continually reminds us, the past is an unreliable indicator of the future. The Isle of Man need a strategy for public sector finances which takes account of the future, because depending on more of the current model is unsustainable.

Those on the island who are Fellows of the Royal Society for the encouragement of the Arts, Manufactures and Commerce (the RSA) will know that the RSA’s Chief Executive, Matthew Taylor, is currently preparing an independent Review of Modern Employment for the UK Prime Minister, and that the RSA also has a project in flight called “Age of Automation” which is to publish, in Spring, a report on the likely effects of new automation on employment. Perhaps these two reports will hold some clues to addressing the problem of employment and taxation for the near future.