The Bear’s Lair: The robot revolution resembles the industrial one.

New technology disrupted working life as never before. A large percentage of the workforce seemed likely to lose its job and maybe never work again. Poverty threatened the displaced workers, who succumbed to addiction and disease. It sounds like a dystopian prediction on the introduction of robots – but it is actually a description of Britain’s problems during the first Industrial Revolution. The parallels are striking and instructive.

Americans tend to think of the Industrial Revolution as luring citizens off their farms to industrial jobs whose nature was already clear, thereby allowing them to acquire all the trappings of modern life, while being supported by an underclass of immigrants who themselves would work their way up in a generation or so. The disruption was moderate, the wages were high by contemporary standards, and the options were fairly clear-cut for all concerned. Only African-Americans, kept down by discrimination in both Southern agriculture and Northern industry, could not be so certain of raising their living standards in short order.

The early steel mills or automobile factories did not produce unemployment, they greatly raised the rewards of employment even for the relatively unskilled. The United States went from a primarily agrarian economy with little unemployment because of the abundance of land to an urban economy in which most unemployment before 1929 was merely cyclical.

In Britain, three quarters of a century earlier, the process was far more difficult for ordinary people to navigate. Unlike in the United States of 1875, in the Britain of 1800 there were a multitude of non-agricultural workers engaged in work that paid quite well and was undertaken on an “outwork” basis, without powered equipment. Handloom weavers were the largest class of these, but stocking-frame knitters and “croppers” who “dressed” cloth by hand each appear to have numbered in the tens if not hundreds of thousands. These workers welcomed their relative freedom from workforce discipline; they worked from home, using their own unpowered equipment, could work the hours they chose, and were paid by the amount of product they produced.

Initially, the industrialization of spinning increased the demand for handloom weavers, who had a very good decade in the 1790s – it was like being a journalist after the invention of the Internet. However, the arrival of powered equipment for weaving and stocking-frame knitting and a mechanical cropping machine revolutionized these workers’ lives for the worse. They continued to be paid by the products they produced, but the value of those products was lower because they could be produced more cheaply by with water- or steam-powered equipment. The unfortunate hand workers were not thrown out of work immediately, but if they stayed in the same occupation their earnings fell over the next couple of decades by as much as 80-90%.

Hence for a generation, even as living standards were rising generally, there were substantial groups of workers that were immiserated. Many of them turned to Radical politics, becoming Luddites and smashing machinery or participating in various abortive uprisings. For them, industrialization meant greatly reduced living standards or outright unemployment. Their choices were by no means as clear-cut and easy as for workers in the U.S. industrialization of the 1870s and 1880s.

The advent of robots bears more similarity to the advent of industrialization itself than to the extension of industrialization to a new environment, the United States, or to previous advances within an industrialized system. There is very little understanding of what the new world will be like, because the changes in work patterns are unprecedented. This is not like the advent of automobiles, electricity and computers which revolutionized people’s lives in general but made much smaller changes to their work patterns (though the second-generation computer revolution with the Internet has made more changes in work lives.)

There is also a huge fear of redundancies, much of it justified, as whole categories of decently paid occupations seem likely to be wiped out – for handloom weaver read truck driver or supermarket cashier. As with handloom weavers, the redundancy of truck drivers may take a generation to happen; as with handloom weavers, it is inevitable in the end and in the meantime will result in huge pressures on truck drivers’ living standards.

For individuals, the best option for handloom weavers was to get a job in one of the new textile mills, where wages were higher and new technology gave them a global cost advantage, over Indian and other foreign producers, not just over domestic handloom weavers. However, early in the transition this was not obvious; the cost advantage of factories was only modest and there were often disadvantages in quality. Furthermore, there were obvious disadvantages to factory work compared with home-based handloom weaving – the hours were long, you were separated from your family, and you very likely had to leave the village in which your family had resided for generations. Thus, the transition process was sticky and even though average incomes rose, a substantial portion of the workforce found themselves becoming rapidly poorer.

Policymakers in the first Industrial Revolution got policy just about right. They removed the mediaeval regulations such as the 1563 Statute of Artificers, which could have hobbled the early, financially unstable factories with only moderate cost advantages, thereby hampering the arrival of better second-generation factories. At the same time, the authorities brought in the first child labor legislation, beginning the process of checking abuses in the factory system.

In the late 1810s the authorities were both skillful and lucky in preventing the outbreak of serious unrest — those were very hard times, perhaps the hardest that British workmen had seen since the early seventeenth century, This is not surprising; the onset of serious industrialization required a transfer of resources from labor to capital, which inevitably put severe pressure on wages Moreover, the long wars had already burdened Britain with a gigantic government debt, so much so that the French economist Jean-Baptiste Say, visiting in 1814, believed that the burden of debt and taxes would make British goods permanently uncompetitive in Continental markets.

However, because the wartime government debt consisted of low-coupon bonds that had been issued at a large discount, it provided a huge capital gain, of the order of 70% of GDP to bondholders in 1818-24 as stability returned. Consequently, the 1820s were a much better decade; wages generally rose, as did the pace of industrialization and the economic growth rate therefrom. The 1830s and early 1840s then saw relapse, as less capable Whig economic management combined with the heavy investment needed for the railway network and the abolition of slavery, before a slackening in railway investment and the rewards of earlier frugality after 1846 brought permanent gains in living standards.

Among the mistakes the government avoided in 1810-1830 was minimum wage legislation; the framework knitters put up a Bill to parliament after the Luddite riots of 1812, but it was rejected. That was lucky for them; a minimum wage would have trapped hundreds of thousands of workers in obsolete occupations or thrown them out of work altogether, while weakening the growing economic incentive to move to the factories.

This time around, the authorities should follow the example of the successful managers of the first Industrial Revolution. High minimum wages are a snare; they deter workers from moving to jobs that can better use their skills. Restrictive regulations that impede new businesses with new business models need to be swept away; again they impede the successful allocation of labor and other resources. Welfare and disability payments should be minimized as far as possible; they encourage workers to stay in place, both physically and occupationally, without seeking new robot-friendly occupations in other locations. The cost of government, a deadweight on wages and profits, should be minimized

Conversely, the authorities must take every step to assure that the supply of labor does not exceed the demand for it, in an era when that demand in some traditional areas is disappearing. This means that tight control of immigration, especially low skill immigration is essential to prevent some present-day Americans suffering the fate of the handloom weavers, and seeing their wages drop by 80-90%.

Above all, we should not worry about the robotic revolution’s effects. The first Industrial Revolution seemed just as likely to kill jobs, as it made obsolete all kinds of hand-powered work, replacing it with steam power. The demand for human muscle fell by a substantial percentage, and seemed to have rendered many skills obsolete. But in the long-term, the Luddites among the stocking-frame knitters and the handloom weavers were wrong. If they moved to a factory, certainly after about 1820, they could be guaranteed to improve their lot, and the possibilities for their children. And in the very long run, all humanity benefited, by an improvement in living standards that would have been unimaginable to the workers of 1810.

Today’s Luddites will also be proved wrong, so long as governments, which are far larger and more intellectually arrogant than in 1810, do not put impenetrable obstacles in the way of new possibilities emerging. The future may appear very uncertain to those threatened by new technology, but unlike in 1810 we have seen this before.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)