As notorious as California freeways are, the state’s leading gubernatorial candidates are vying to make things even worse. Former Health and Human Services Secretary Xavier Becerra and billionaire fossil-fuel investor Tom Steyer have each vowed to reverse the California DMV policy authorizing autonomous truck testing. Though framed publicly as a safety issue, the candidates occasionally reveal that the real conflict is between labor and technology.
“We should be making sure that we don’t make dramatic changes in the way that people work,” Steyer said. Not to be outdone, Congressman Ro Khanna, who represents the state’s 17th district in Washington, said he will “fight for legislation to stand up for truck drivers.”
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Though Becerra, Steyer, and Khanna’s automation aversion could be interpreted as naked deference to the Teamsters, it also touches on some of the thorniest economic and social questions of our time. They aren’t wrong to consider truck driving among the most remunerative non-college jobs Americans can find today. They aren’t crazy to think that automation will disrupt the industry. But they show strikingly little interest in how the freight industry’s economic dynamics affect other Californians and Americans more broadly.
Rising labor costs have left America’s transportation sector in gridlock. According to the latest Consumer Price Index release, transportation services costs are up 4.1 percent year-over-year. FreightWaves CEO Craig Fuller put the industry’s tensions on display in an April essay alleging that lobbyists’ influence on regulatory policy has made roadways more dangerous. He claims that commercial driver licensing standards have been weakened—even to include illegal immigrants—so that companies can avoid paying more qualified and costly drivers.
The transportation sector is a prime example of the Baumol effect: costs for labor-intensive services rise with the tide of the economy, even when worker productivity stays flat. This benefits truck drivers but costs everyone else.
As demand for transportation services increases, driver wages have risen concomitantly, even as the work has remained the same in principle. The field is so emblematic of the Baumol phenomenon that it was highlighted by economist Ha-Joon Chang in his iconoclastic tract 23 Things They Don’t Tell You About Capitalism.
Chang uses bus drivers as an example. He describes two men who perform the same job but who receive wildly different incomes. The causal factor is that Sven lives and works in Sweden, while Ram is in India. As Chang puts it, “The primary reason that Sven is paid 50 times more than Ram is that he shares his labor market with other people who are way more than 50 times more productive than their Indian counterparts.”
In his essay, Fuller shows that large trucking companies respond to the rising pricing power of Svens by bringing more Rams to countries like America and Sweden. From a purely economic standpoint, it makes sense. Millions of drivers in India, Latin America, and elsewhere would gladly take the wheel in the United States for less than the prevailing wage. It’s also consistent with the work of economist Lant Pritchett, who argues that the economic solution to high labor costs isn’t investment in technology but mass migration.
Fuller’s essay, however, illustrates why Pritchett’s answer to rising labor costs fails politically in the United States. The horror stories he recounts reinforce the public view that enlarging the trucking labor pool through immigration carries unacceptable tradeoffs in safety, standards, and social trust. “The cost of cheap freight is simply too high when it’s paid in human lives,” he argues. In other words, the industry and its customers just need to eat higher costs. What Fuller misses is that the technology to moderate the growing cost pressures in the industry while adhering to important safety standards has already arrived.
As if in answer to Ha-Joon Chang’s Sweden example, next-door Norway has begun to roll out autonomous buses. In the United States, freight companies like Aurora are now piloting autonomous operations, too. New autonomous driving platforms can break the Baumol pattern by lifting industry productivity. In the not-too-distant future, one-driver-per-truck will no longer be the assumption.
This is precisely what California’s politicians are fighting against. Though they frame their opposition to automation as a matter of safety, the group they are aligning with—the Teamsters—has resisted technologies unrelated to preserving the one-driver-per-truck standard. The Teamsters have also opposed in-cab monitoring technologies despite their clear safety advantages. Blocking such innovation while simultaneously benefiting from immigration restrictions amounts to extracting economic rents from the broader public.
As structural economic factors push costs for the freight industry and consumers higher, the American public has three options. It can accept higher prices for all transportation services; it can enlarge the labor pool through immigration; or it can embrace new technology that improves transportation productivity and resolves the Baumol dilemma.
Becerra, Steyer, and Khanna have followed the path prescribed by FreightWaves’ Fuller, promising to force higher freight costs onto the public. While the Golden State’s coalition politics might require genuflecting to the Teamsters, Californians are bound to notice before long that they’re paying higher prices than people in other states while also lagging behind them technologically.