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The Fourth Industrial Revolution and Robot Tax: Do Firms Have a Natural Duty to Employ Humans?

Abstract

The Fourth Industrial Revolution represented by big data, artificial intelligence (AI) and Internet of Things (IoT) is prompting the advent of an age of ultra connectivity and ultra intelligence. There are both optimistic and pessimistic views on the kind of future that those technologies will bring.

We have a keen interest in technological innovation and societal changes in the age of digital revolution. However, we don’t seem to be as much interested in how to control and manage businesses – the agents which develop, advance and socialize innovative technologies.

One of the biggest concerns caused by the Fourth Industrial Revolution is the issue of AI and robots replacing human jobs. This replacement has been taking place on two fronts – technology and economy. On the technological front, the World Economic Forum 2016 predicted that the progress of the Fourth Industrial Revolution will make more than five million out of seven million jobs disappear across the globe. A 2015 report by the consulting firm McKinsey says that even with current technologies robots can replace 45% of human jobs. However, there has been debate over whether AI and robots replace human occupations themselves. Some argue that those technologies replace human tasks not occupations, which means the net impact of AI or robots on human job replacement would be minimal. Time will ultimately resolve this debate but it is certain that striking advances in science and technology are set to diminish the number of areas previously thought to be reserved for human intelligence.

On the economy front, a new threat to human employment is growing with the emergence of digital platforms in the virtual space of ultra connectivity. Now we can look for jobs by logging on to a digital platform wherever and whenever we please. This allows businesses to operate without hiring regular workers. They can avoid costs and uncertainties involved in full-time employment. With the Fourth Industrial Revolution, new employment practices will spread rapidly as the-so called gig economy or online economy dominates the world.

From the perspective of both technology and economy, the replacement of humans by AI or machines will eventually lead to a condition where productivity increasingly decouples from employment. As is well-known, technology-driven productivity gains in the First, Second and Third Industrial Revolutions created new jobs and expanded employment. With the Fourth Industrial Revolution, however, productivity improvement through digital automation rapidly diminishes, not creates, jobs – which makes the issue even more serious. We must now ask again “Does a firm have a natural duty if any to employ humans?”, “Where does the meaning of life come from?” We need to reunion of economics and ethics.

This paper shifts the focus from the question “What is a solution to the issue of human jobs being replaced by digital technology?” to “How should businesses be managed, controlled and supported as they drive the Fourth Industrial Revolution?” I will address this question mainly by discussing the recently-emerging issue of robot tax.

The issue has sparked debates after Bill Gates mentioned it in a recent media interview that took place on February 17, 2017. He claims robot tax needs to be introduced to resolve massive unemployment triggered by robotic automation. He says governments should impose taxes on human-replacing robots at a similar rate that would be levied on incomes if humans are employed. Advocating for taxing robot users, Gates emphasizes that robot tax can be used to re-educate those who have lost their jobs due to the expansion of robot use so they can work again and get paid. He also believes robot tax could slow down automation that has been accelerated across the economy.

However, the rationale of the opponents sounds reasonable as well. One of their main points is that robot tax will undermine technological innovation. There is also the epistemological difficulty of how to distinguish taxable robots from exempt ones. Moreover, given the inherent task of businesses to maintain their competitive advantage in order to survive in the market, replacing human labor with automation is desirable, or at least unavoidable, and thus robot tax is detrimental to the nature of business entities.

This paper contends that addressing the rapid decline of human employment in the age of Fourth Industrial Revolution should start with two fundamental questions: “What are firms?” and “Why do they exist?” Answering these questions is critical to finding the right direction and policies to address the issue of unemployment in this new environment.

In identifying the nature and mandate of businesses, this paper will try to answer the question “Do firms have a natural duty to hire humans?” In order to deal with this question, I will critically review the existing theories of firm including the neoclassical economic theory, the transaction cost theory and the firm as a nexus of contracts. Then I will use the review as a basis to present a new perspective on businesses.

The Fourth Industrial Revolution necessitates deep introspection on the value and meaning of human labor in life and it also requires a new approach to the nature and mandate of businesses. Humans used to give orders to machines in order to get their job done more effectively. In the age of the Fourth Industrial Revolution, however, they may be reduced to following orders for the purpose of meeting the needs of AI and machines. In order to respond as active agents to new technologies, we should look deeply into how to control and manage businesses that develop, advance and socialize digital technologies.