Artificial Intelligence Series, Part 1: Productivity and Opportunity
This article is adapted from the previously published article Who owns the Productivity dividend?
Let’s consider this simple story.
Hans Schumacher is a kind man who has owned the family shoe business for many years. Shoe manufacturing technology continues to improve, and it is time to replace his obsolete Mark II shoe machine with a new Mark V model.
Today, the Mark II Shoe machine manufactures 10,000 shoes each day requiring 10 workers to operate it.
The new Mark V machine is twice as fast. It can manufacture 20,000 shoes each day with 10 operators, or 10,000 shoes each day with only 5 operators.
The new machine is arriving, and Hans faces a difficult choice. He can:
1. Retain his 10 employees, manufacture 20,000 shoes each day and hope to find enough customers, perhaps by reducing prices and increasing marketing, to sell all those shoes. Here the productivity dividend—the benefits resulting from increased productivity—is shared between Hans, who is selling more shoes, and the customers who are getting shoes at a lower price. Hans knows that the number of feet in the world remains relatively constant, so he is concerned that it may be difficult to sell so many more shoes.
2. Layoff 5 employees, retain 5 employees, and manufacture 10,000 shoes each day with only half the number of employees. Here the productivity dividend goes to Hans, and the 5 employees laid off become unemployed. Hans would feel bad for the loyal employees he would layoff but sometimes that’s just business.
3. Some blend of these options, such as 16,000 shoes each day with 8 employees.
4. Retain all 10 employees, but have them work half-time, and continue to manufacture 10,000 shoes each day. He now has choices in how to pay the employees. Based on hours worked, it would be fair to pay them half what they were getting earlier. Based on productivity, he could afford to pay them the same as they were making earlier. He liked that idea.
This inspired him to imagine another option. What if he could find 5 employees who would volunteer to leave in return for receiving ongoing severance payments? With the money saved by this reduced workforce he could create a productivity dividend fund. This fund is the direct result of the increased productivity. The resulting savings could go into the fund, and the employees that volunteered to leave would receive payments from the fund as their share of the productivity dividend.
 I recognize this analysis neglects the purchase price of the Mark V machine, material costs, cost of sales, and other costs not related to manufacturing labor. Presenting this simple model as a thought experiment allows us to focus on alternatives for distributing the productivity dividend.
The new Mark V Shoe machine manufactures 10,000 shoes each day requiring only 5 workers to operate it. The savings could go into the productivity dividend fund and be distributed to the displaced workers.
This raised several important questions he needed to consider:
- Would this undermine the work ethic?
- Has anything like this been done before?
- Is this starting down the slippery slope toward socialism, or even communism?
- How would the displaced workers spend their free time?
- Would this be fair?
- Would the business become uncompetitive?
Hans had serious issues to deliberate before making his decision.
This is the first in a three-part series exploring the future of productivity. Re-visit The Fulcrum for the next installment in this series on Friday, August 18, where we dive into the difficult concept of deliberation on the effects of increased productivity.
- Artificial Intelligence Series, Part 2: Productivity and Deliberation - The Fulcrum ›
- Artificial Intelligence Series, Part 3: Productivity and Transformation - The Fulcrum ›
- The critical need for transparency and regulation amidst the rise of powerful artificial intelligence models - The Fulcrum ›
- AI literacy: An odyssey in need of a compass - The Fulcrum ›