19 Apr 2017

Controlling International Trade with a 'Crypto Customs' Bureau // The End of National Labor Politics 

Papers Please.

A stagnant job market with declining prospects for the working class has brought labor politics back to the center of the American consciousness.

There’s talk of immigration policy as a way to limit domestic labor supply and protect jobs and wages in existing industries. There’s concern that waves of mass automation enabled by robotics and machine learning will decimate entire industries (self driving cars and trucks are the poster children here). And there’s serious conversation about Basic Income as a redistribution mechanism for mitigating the extreme economic disparity that inevitably results from technological progress.

Most of the policies advocated for by labor protectionists would be implemented at the national level, and in an increasingly globalized economy–which increasingly is an information economy–it is unclear that anything other than global policy and governance will effectively treat the problems at hand.

‘Local’ Production and Services

Protectionist policies will probably have the best chance of success for ‘local’ work, by which I mean work that necessarily happens on domestic soil–construction (excluding prefab), transportation, agriculture (to a lesser extent, as you could import competitive products), landscaping, hair cutting, teeth cleaning, etc.

For each of these, downward pressure on wages might come either from increased labor supply or from increased productivity enabled by technology. Limiting immigration is one tactic du jour for limiting labor supply and keeping wages up.

Technology regulation is another recourse when the primary pressure on wages is a new form of automation, like autonomous vehicles. There are actually pretty natural choke points that labor unions could use to prevent the adoption of autonomous vehicles, namely, legislation banning these vehicles from operating on the roads or requiring human ‘co-pilots.’

The adoption of autonomous vehicles will not be a matter of efficiency, cost, safety, or customer preference, but ultimately the result of a lobbying battle to set policy, with labor unions on one side and consumers / corporations on the other.

Factory Production

It’s a bit more difficult to design policy to protect manufacturing jobs producing goods that can be shipped around the world.

Historically, the tariff has been a tactic for protecting domestic manufacturing jobs by inflating the price of competitive imports. But this really only protects jobs producing goods that are consumed domestically (vs those where products are exported).

Things get more interesting (and challenging) when the manufactured goods are mostly exported. I came across an interesting example of this in Jaron Lanier’s (excellent) Who Owns the Future? China has very successfully built up a huge middle class largely comprised of jobs that manufacture global exports, like iPhones. Theoretically, a newly invented robotics technology making it possible to dramatically reduce the number of factory workers required to make an iPhone would threaten a large number of middle class jobs in China. Given how tightly China manages its economy, it’s not unthinkable that China would ban the adoption of the robotics technology for the sake of protecting jobs. But, if a single other country adopts the new technology, it could price cut the Chinese product and quickly steal all the global demand.

National policy offers little protection from a globalized, techno-deterministic race towards productivity (a race to the bottom for human wages). At best, a country might ban an automation technology and the imports of products manufactured using that technology to protect domestic jobs, but it would only protect the portion of manufacturing jobs required to satisfy domestic consumption and lose its share of the global production and export revenue.

Information Production

Policy protecting information work seems even less tenable than protection of manufacturing.

In a knowledge work + services economy, nations lose customs as the choke point for regulating foreign imports.

Broadly, I think you can divide products of the knowledge work / information economy into 2 categories: (1) information that can be reused, where consumer audience size >> 1, ie, ‘mass’ media, and (2) information that is not valuable for reuse, audience size =~ 1.

Mechanisms protecting producers of mass media include policies like intellectual property rights and technology like DRM and paywalls. These topics are particularly germane to the United States because media / Hollywood comprise a non-trivial percentage of our exports.

The mechanisms that protect mass media are not very useful for protecting information products of class (2), where the audience size is small. For these information products, the threat is not uncompensated redistribution of illegal copies, but outsourced labor. DRM of spreadsheets does nothing to protect domestic accountants, for example, because each spreadsheet is valuable only to the purchaser. So the purchaser will just go to the global labor market and seek the lowest cost of production for their spreadsheet.

One way you might protect domestic knowledge workers from being price cut by outsourced foreign labor might be a national firewall–if you limit the flow of information in and out of a country the way you control shipped goods through customs, you might prevent the transaction with the foreign accountant from occurring at all. (This idea has not escaped China, it seems.)

Another option for regulating cross border information trades would be to allow the information and communication to flow freely, but then regulate the flow of money across borders. If all transactions took place on a global blockchain ledger that recorded the identity and nationality of the parties involved, then every trade–even my payment of to a foreign tax accountant–could be monitored and potentially taxed by each nation. Nations could use a sort of ‘crypto customs’ to regulate international trade, even at the micropayment level.

If we had such a ledger, it is possible that some sort of black market ledger / privacy coin would arise in parallel, to facilitate under the table, duty free international transactions. This could potentially sidestep ‘crypto customs.’ But even if such a duty free, private blockchain existed, each nation might still be able to catch a large portion of this activity at the point of repatriation–just as the government regulates and monitors conversion of BTC to USD, you can imagine similar regulation of any transactions converting privacy coin into public coin. Ultimately, I think the ability to use blockchain to regulate international trade will come down to how useful a private / anonymized blockchain is vs a public one, and incremental value of repatriation into the public blockchain (perhaps you’d only get access to certain instruments, like public markets, debt, other banking services, on a public blockchain, perhaps you could only get a business / retail license if you transact with customers via public coin, etc).

Basic Income

So far, I’ve mostly considered policies designed to protect jobs and wages from pressures of globalization and automation. When a particular nation can capture enough of the value created by productivity increases, it alternatively might ameliorate casualties via redistribution policies like public health care, progressive taxes, and, as has been proposed more recently, Basic Income.

This is where perhaps immigration policy is more relevant–given immigration policy’s limited efficacy in protecting domestic jobs when the globalized supply chain is so efficient, immigration policy advocates might have more credibility reframing the discussion as a free rider problem. It could be incredibly costly to allow the immigration of large numbers of workers trained on jobs that are being replaced by automation, as this might simply increase the number of recipients of public healthcare (and other benefits) without increasing gross production of a nation.

My friend Sam has often raised this concern about Basic Income, namely, that it is incompatible with open borders. I think this entails not that Basic Income is a poor way to address the extreme disparity that results from technological advancement and increased productivity, but that it’s very difficult (perhaps impossible) to implement Basic Income as a single nation operating within a fluid global economy.

Closing Thoughts

It can be easy to completely disregard current discussions of international policy because of their absurdity (building a wall…) and xenophobic overtones, but I think the centrality of trade and immigration laws to labor politics will only increase as we continue to witness the hollowing out of middle class jobs due to globalization and automation. There may be some last ditch efforts of individual nations to protect the working class using some sort of digital customs bureaus leveraging blockchain to regulate the information economy, but this seems unlikely. My guess is the acceleration of technological progress and globalization will only further increase extreme economic disparity, which ultimately will need to be addressed by global governance and regulation. Perhaps this is why Marx addressed his ideas to the workers ‘of the world.’


Thoughts? Email me: andrew.kortina@gmail.com

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