The Jobs Are Not Coming Back

The NY Times pub­lished an inter­est­ing arti­cle today the impact of robot­ics on man­u­fac­tur­ing jobs using Amazon’s pur­chase of robot maker Kiva Sys­tems as an exem­plar. The core ques­tion raised in the arti­cle is whether the adop­tion of automa­tion tech­nolo­gies will cre­ate more unem­ploy­ment or whether — as has been seen in the past — dis­placed work­ers will re-train and become employed in other pro­duc­tive areas of the economy.

The authors quote Lawrence Sum­mers views on the matter:

There has long been a men­tal­ity that we’re going to run out of work to do and there is going to be an absence of work for peo­ple,” Mr. Sum­mers said. “Both have been asserted in every gen­er­a­tion and always his­tor­i­cally been wrong. In real­ity, if peo­ple are freed up from one thing they are able to do some­thing different.

I believe Mr Sum­mers is quite wrong. It strikes me that his views demon­strate a lack of under­stand­ing of the very pro­found lev­els of man­u­fac­tur­ing automa­tion which are becom­ing avail­able. The com­bi­na­tion of entirely auto­mated pro­duc­tion sys­tems com­bined with highly inte­grated dig­i­tal sup­ply chains is going to make today’s man­u­fac­tur­ing worker an endan­gered species. It is not clear at all how our economies would re-absorb a dis­place­ment of this mag­ni­tude. His­toric pat­terns for employ­ment dis­lo­ca­tion are unlikely to be good mod­els for future realities.

The biggest impact of next-generation automa­tion is likely to be in China. The his­toric cost of labor in China has meant that there is lit­tle to be gained by invest­ing in auto­mated man­u­fac­tur­ing sys­tems. But that is likely to change. In a world of $150+ oil man­u­fac­tur­ers will start to pay close atten­tion to dis­tri­b­u­tion costs. Min­i­miz­ing those costs will cre­ate eco­nomic advan­tage. It will pay to bring man­u­fac­tur­ing closer to the cen­ters of con­sump­tion. That’s good news for the United States. The repa­tri­a­tion of man­u­fac­tur­ing from China would be a polit­i­cal god­send. Except that this will be a very dif­fer­ent type of manufacturing.

Fac­to­ries that relo­cate from China to the United States — or other devel­oped economies — will not come with jobs. They will come with automa­tion. That will be great for the high tech man­u­fac­tur­ing sys­tems sec­tor but not for man­u­fac­tur­ing work­ers. The dis­place­ment effect in China is likely to be cat­a­strophic. Fac­to­ries that today employee mil­lions of work­ers and drive the growth of the con­sump­tive middle-class will sim­ply dis­ap­pear — to be replaced by fully auto­mated pro­duc­tion in other coun­tries. The prospect of a gen­er­a­tion of unem­ployed — restive — unem­ployed fac­tory work­ers should be giv­ing the Chi­nese polit­i­cal elite nightmares.

In the United States politician’s promises to bring back man­u­fac­tur­ing jobs will remain empty. Man­u­fac­tur­ing may return but the jobs will not. There are two pos­si­ble paths beyond this trans­for­ma­tion. Either Sum­mers is right and those dis­placed by automa­tion will be re-absorbed into other sec­tors of the econ­omy — or he’s wrong. I’m in the pes­simistic camp. In my view — as I wrote here — we’re unlikely to be able to use his­toric mod­els to pre­dict future pat­terns. The com­bi­na­tion of com­plete man­u­fac­tur­ing automa­tion with other dig­i­tal ser­vices — sen­sors, 3D print­ing etc. — cre­ate such a dis­rup­tion that the econ­omy will not be able to adjust in the short period over which this tran­si­tion takes place.

Economies whose pop­u­la­tions con­tinue to grow will see an increas­ing divide between the dig­i­tal lit­er­ates who ben­e­fit and con­trol — and can exploit - this auto­mated man­u­fac­tur­ing and ser­vices infra­struc­ture and those who are dis­placed by it. The alter­na­tive path sees pop­u­la­tions shrink­ing as new wealth gen­er­ated by this next gen­er­a­tion of automa­tion dri­ves down fer­til­ity rates. Both of these paths come with their own prob­lems. The only sure thing — at least for the next decade — is the inex­orable rise com­pu­ta­tional power which will be applied to ever greater lev­els of automa­tion. A major dis­lo­ca­tion of man­u­fac­tur­ing employ­ment pat­terns it com­ing. The ques­tion is how we’ll han­dle the dis­lo­ca­tion it drives?