There will be labor force “roadkill” that comes alongside the substantial benefits that society derives from the rising use of artificial intelligence, Berkshire Hathaway’s Chairman Warren Buffett said at this year’s annual meeting in May.
But even the Oracle of Omaha could not predict who would be hurt or how fast change would come when asked to contemplate how advances in AI—beyond autonomous vehicles—will impact Berkshire’s businesses.
A shareholder asked: “In your conversations with Bill Gates, have you thought through which…businesses will be most impacted, and do you think Berkshire’s current businesses will have significantly more or less employees a decade from now as a function of artificial intelligence?”
Prefacing his response by saying that he brought no special insight to the party, Buffett focused on uncertain employment and political consequences weighed against productivity benefits.
“I would certainly think [AI advances] would result in significantly less employment in certain areas. But that’s good for society [even though] it may not be good for a given business.”
“They’re getting small benefits and invisible benefits, and the guy that gets hurt by it—who’s the roadkill of free trade—feels it very specifically.
Photograph by Daniel Acker/Bloomberg
“Is the world better off or not?” he asked.
Attempting to answer his own question, Buffett continued by noting that while less work-hours per week “would be a good thing,” the change would also “require enormous transformation in terms of our how people relate to each other [and] what they expect from government.”
Stressing that his example was extreme—”as a practical matter, more than one person would keep working”—he pushed the idea forward to make a point about the consequences of making great progress in artificial intelligence.
“That’s enormously prosocial—eventually; it’s enormously disruptive in other ways,” he said, with a pregnant pause before he uttered the word eventually. “And it could have huge problems in terms of a democracy and how it reacts to that.”
“It’s similar to problem we have in trade, where trade is beneficial to society but the people who see the benefits day-by-day” see only small benefits—like saving a few cents on imported socks at Wal-Mart compared to domestically produced ones—while the suffering of others causes significant pain. “They’re getting small benefits and invisible benefits, and the guy that gets hurt by it—who’s the roadkill of free trade—feels it very specifically. And that translates into politics.”
Buffett concluded: “It gets very uncertain as to how the world would adjust in my view to get increases in productivity. And without knowing a thing about it, I would think that artificial intelligence would have that usually beneficial social effect but a very unpredictable political effect if it came in fast, which I think it could.”
Vice Chair Charlie Munger disagreed about the rate of change as he dismissed the extreme idea of one person producing everything while the rest of society enjoyed the benefits of leisure.
“How about if we just got twice as productive in a short period of time so that 75 million people could do what 150 million people are doing now,” Buffett asked Munger, who responded that he thought most people would react favorably.
Buffett isn’t so sure. “If you cut everybody’s hours in half, it’s one thing. If you fire half the people and the other people keep working—I just think it get very unpredictable. I think we saw some of that in this election,” Berkshire’s chairman said.
Munger said society has already adjusted to an enormous amount of industrial changes over the years. “Nobody complained that they were getting air conditioning who didn’t have it before,” he said, giving an example. “Nobody wanted to go back to stinking sweating nights in the South.”
“We have adjusted to an enormous amount of it. It just came along a few percent per year,” Munger said.
AI and the Insurance Business
Buffett brought the reality of situation back to Berkshire’s businesses, using the example of GEICO’s workforce to highlight his level of uncertainty about what is to come. “It’s an absolutely fascinating subject to see what happens with this but it very hard to predict….We’ve got 36,000 people, say, employed at GEICO, and if you could perform all the same functions with five or 10,000 people and it came on quickly, and the same thing was happening in a great many other areas—I don’t think we’ve ever experienced anything quite like that and maybe we won’t experience anything like it in the future.”
“I don’t think you have to worry about that,” Munger said.
“That’s because I’m 86,” Buffett replied, prompting Munger to repeat his view. “It’s not going to come that quickly,” Munger said.
The two men agreed unequivocally about the impact of one use of AI on GEICO—putting driverless cars on the road—in response to an earlier question at the meeting. An analyst asked specifically about the impact of driverless trucks on Berkshire’s railroad business, and Buffett tossed out his view on the negative impact on GEICO as well.
“Driverless trucks are a lot more of a threat than an opportunity to the Burlington Northern. And I would say that if driverless cars became pervasive, it would only be because they were safer and that would mean that the overall economic cost of [auto insurance] losses had gone down and that would drive down the premium income of GEICO. So, I would say [for] both of those—autonomous vehicles widespread would hurt us. If they spread to trucks, they would hurt us.
“My personal view is they will certainly come. They may be a long way off but that will frankly depend on experience in the first early months of production in other than test situations. And if they make the world safer, it will be a very good thing. But it won’t be a good thing for auto insurers. Similarly, if they learn how to move trucks more safely—there tends to be driver shortages in the trucking business now—it obviously improves their position vis à vis the railroads,” Buffett said.
Munger concurred. “I think that’s perfectly clear,” he said.
‘Nobody Should be Roadkill’
The subject of labor force “roadkill” came up again during the very last question of the meeting about the fear that corporate America is created for millions of workers by sending jobs overseas to maximize shareholder value—the very analogy that Buffett had drawn in his discussion of AI. “Do you think that businesses should consider factors outside of pure economics in making these types of decisions? What obligations do they have to their employees and communities? If a Berkshire CEO came to you for your approval to close an operation and relocate it overseas to save money, what questions would you ask beyond the economics of the decision,” the shareholder asked.
Buffett described the benefits of free trade but emphasized the obligation of government to take care of the workers hurt in the process. Reviewing examples specific to Berkshire investments, like Fruit of the Loom and Dexter Shoes, he said they would not be able to compete today if production had not been moved outside the U.S. decades ago.
“Trade—both export and import—is enormously beneficial to both the United States and the world.” But the textile workers in New Bedford and the former shoe workers at Dexter are not comforted by the idea that they’re doing this for the greater good—”so that shoes or underwear would sell for 5 percent less” or some amount that the American public doesn’t even notice.
“Nobody should be roadkill,” Buffett said, prescribing two government actions to deal with the consequences of free trade.
“We need an educator-in-chief, logically the president—I don’t mean this specific president. I mean any president…—has to be able to explain to the American public the benefits of free trade.
“And then beyond that, we have to have policies that take care of the people that become the roadkill in the process because it doesn’t make any difference to me…if my life is miserable because of something that’s good for some 320 million people in some infinitesimal way and it’s messed up my life,” he said, describing the plight of displaced domestic workers.
“You’ve got an enormously prosperous country—almost $60,000 in GDP per capita… Six-times what it was when I was born in real terms. So, we’ve got[ten] to prosperity, and prosperity is enhanced by trade. We were only exporting 5 percent of our GDP back in 1970 and [now] it’s up around 12 percent….
Buffett continued: “We have got the resources to take care of those people. The investors, I don’t worry about….The investors can diversify their investments in such a way that overall trade probably benefits them and they don’t get killed by a specific industry condition. But the worker, in many cases, can’t do that. You’re not going to retrain some 55-year-old workers in New Bedford who may not even speak English in our textile mill. If they get destroyed by something that’s good for society, they get destroyed unless government puts in some policies that take care of [them].
“We’ve got a rich society that can do that, and we’ve got a society that will benefit from free trade. I think we ought to hit both objectives by making sure there is not roadkill and that at the same time 320-some million people get the benefits of free trade,” he concluded.