I’ve been seeing quite a few articles lately about the the future of work — namely the near complete automation of labour (think robots, machine learning and artificial intelligence). If you weren’t aware already, there are people today who think we’re on the precipice of a major economic revolution that’s about to take us over. Without wanting to sound like an alarmist, however, their message has me somewhat scared about the longterm future of dividend investing.
If you think about the building blocks of a modern capitalist economy, the use of money to organize labour is a pretty central concept. When you break it down, capitalism is essentially the exchange of goods and services for money. There’s nothing controversial or particularly worrisome about this statement — until you consider the fact that the vast majority of people earn their “money” by trading their labour for it. So what will happen when their labour is no longer needed? Does the whole system fall apart? Well that’s precisely what some are saying: we’re all about to be replaced by cheaper, more reliable robots that are also more efficient.
If you think this scenario is a long way off, guess again. Just this month Uber started testing driverless taxis in the city of Pittsburg. Although there’s still a human in the car to supervise the AI’s driving, I would be absolutely terrified if I made my living driving taxis. If this takes off, which there’s no reason to believe it won’t, taxi drivers will essentially become obsolete. But taxi drivers aren’t alone; it’s also reasonable to believe that bus drivers, truck drivers, delivery trucks, etc will become obsolete too. There has to be a few million people in the US alone whose transportation-related jobs probably won’t exist in the next 10-15 years. And that’s just one sector.
“I’m sorry Dave, I’m afraid I can’t employ you right now”
Some are countering this potential problem by saying that these “obsolete” people will simply find new industries to work in. Historically speaking, they say, this is what has always happened whenever a new technology disrupted an entire industry. Except this time it’s different — because no job is safe. If you have 15 minutes to spare, consider watching the following video to learn why.
So what does automation mean for dividend investors?
As investors we’ve traditionally welcomed the advent of new technologies that make the companies we invest in more efficient and cheaper to run. That’s the sort of progress we expect to see. But what happens when 25% of your economy’s working population effectively becomes unemployable (not just unemployed). We’ve seen these sort of unemployment rates before, and it was never pretty (even for rich stock holders). Contrary to the past, however, our economies have always recovered. But will such a recovery be possible when a large swath of the population becomes permanently jobless?
It’s easy to forget that the stocks we buy are actually investments in other people’s labour. There isn’t a company out there (that I know of) that doesn’t use human labour in some way to make money. But more importantly, investors create jobs so that the economy also has consumers (that buy the things other workers make). It’s a economic mechanism that, up until now, has always more or less worked. This concept of creating consumers is one that Henry Ford understood perfectly — let’s not forget that his original goal was to build a car that your average American could afford, including his own employees. But how does a company make money when nobody has any money to spend (since they have no jobs)? And if companies can no longer make money, what does that mean for our dividends? That’s the question I’m asking here.
So what do you think? Is it too soon to worry about this? Is there any reason to worry about it at all? Leave a comment below and tell me what you think.
Rise of the Machines, Wired.com
A burger flipping robot?, CalgaryHerald.com