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Automation: Tomorrow's Manufacturing?

There is more and more discussion of technological change, automation, and what is often resultant labour hour (and hence employee) reductions.

For historic interest you might want to read Arguments For and Against the Use of Machines, an article that reproduces:

  • a 1786 Leeds (England) Woollen Workers Petitiion complaining about the effects of machines that were replacing workers in England's woollen mills; and,

  • a 'sort-of' retort 1791 Letter from Leeds Cloth Merchants in support of the use of the machines being complained about by the workers.

As but one example of ongoing technological change discussion, I suggest you read The Next Industrial Revolution will be Led by Robots written by Gregor Macdonald. I have not met or spoken with Mr. Macdonald, but have periodically have read articles he has written over the past five years. He strikes me as a sound 'somewhat out of the box' thinker whose ideas generally are well worth thinking about.

Occasionally when I reference an article in my commentaries I add the words 'thinking time much longer'. Today, if you read this commentary, I suggest you take the time to think carefully about the implications and consequences of what is discussed.

Subsequent to 1790 the industrial revolution eventually created a large number of jobs that we would think of today as largely 'manual labour' type jobs. Mr. Macdonald suggests that two landmark periods/events have marked important thresholds in manufacturing - and importantly, in employment of manufacturing labour:

  • first, the introduction of coal as an important energy source that from the late 1700's created employment and contributed significantly to what has become known as the industrial revolution; and,

  • second, from about 1980 the development of computers, the internet, and after 1999 world leveraging of developing world low labour rates.

In summary, Mr. Macdonald suggests large numbers of technically proficient robots will trigger the next 'industrial revolution', and the consequences of that will include:

  • higher levels of manufacturing productivity;

  • potential lower manufactured product selling prices;

  • a lesser requirement for the developed countries to be as reliant as they currently are on the developing countries for goods that currently have high 'cheap labour' requirements; and,

  • a ever diminishing need for human labour irrespective of country.

So far so good. That all makes sense to me, and the first and last of those four things have been said by me in recent Newsletters. Frankly, I had not focused on either 'possible lower manufactured product selling prices' or the possible long-term affect on the 'low labour rate developing countries (read China) until reading Mr. Macdonald's article.

Mr. Macdonald also suggests that further consequences of manufacturing automation include:

  • energy input costs in manufactured goods will be somewhat reduced. That might well prove to be the case, but Mr. Macdonald does not quantify the impact of this and I don't know it;

  • automation will put Gross Domestic Product (presumably in America and other developed countries) back on the "higher growth path seen in previous industrial advances". That statement strikes me as inconsistent, as consumers in developed countries drive a large percentage of GDP. In the world envisioned by Mr. Macdonald, there will be many fewer Main Street workers and resultant higher unemployment. Presumably those that have work will be forced by supply/demand factors to work for ever lower wages, as those with financial capital look for returns on that capital.

  • the possibility that those who write about a somewhat utopian 'everyone will have more free time to enjoy themselves' environment that automation will result in high societal risks, possible radical levels of inequality, and might result in a 'now what do we do that we have what we wished for' moment.

There is a great deal to think about here. Some observations, all of which I think are important:

  • there are many more people in the world today than there were in 1790 - then about 1 billion. While that number today generally is taken to be about 7 billion, it is important to reflect on population numbers in 1927 (2 billion) and 1974 (4 billion). It took until 1790 for the world population to reach 1 billion, 137 more years for it to double, 47 more years for it to re-double, and now a further about 40 years to almost double once more. One might say that at least the doubling rate on a non-statistical basis has stabilized;

  • automation is, in my view, highly Darwinian. That is, it favours those individuals best able to survive change;

  • for those over 60 years of age, it is all too easy to read this commentary and say "makes sense, but it won't affect me. I am going to the golf course, play golf, and have a drink and play cards with my friends - none of this will affect me in my lifetime". I think from a timing point of view that is probably true, and I never criticize people for playing golf, drinking moderately, or playing cards;

  • that said, like me, you very likely have children and grandchildren. I believe most people who are under 60 years old today will be impacted significantly by automation and all the other things I regularly write about in this Newsletter. I also believe that a very large majority of intelligent people, for whatever their differing reasons, don't take nearly enough time to get their respective heads out of the sand an look around them. I think they need to do that. You might want consider discussing potential automation and resultant economic change with your children and your grandchildren. They are inheriting legacy problems as it is, automation may exacerbate those legacy problems and create new ones, and to be forewarned is to be forearmed;

  • finally, barring one or more events that result in a serious decline in the world's population or some currently unpredictable marvellous solution to 'idle time on ones hands', it seems likely that current ongoing technological change - which arguably is 1790 on steroids - will result in developed and developing country populations that may behave like 'Luddites on steroids'. Luddites was the name given to textile workers who, circa 1810, broke machinery in protest over job losses.

Topical Reference: Arguments For and Against the Use of Machines, from Economist's View, February 5, 2013 - reading time 6 minutes. Also read The Next Industrial Revolution will be Led by Robots, from OilPrice, Gregor Macdonald, Feburary 7, 2013 - reading time 5 minutes.

 

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