The Creative Destruction of Capitalism: Robotics

In these times of persistent unemployment, I am interested in whether technological innovations ultimately will lead to the creation of jobs and economic growth.  In previous postings, I analyzed technology trends within the framework of an article by Professor Clayton Christensen of Harvard Business School.  Christensen categorizes innovations by their effect on job creation. Some may be “Empowering Innovations” or “Sustaining Innovations” that create or sustain economic growth.  Others may be “Efficiency Innovations” that lead to the loss of jobs, recognizing that Efficiency Innovations often free up capital for future deployment in job-generating growth.

This week I apply the Christensen framework to the significant technology trend of Robotics that was identified by Erik Peterson.

Short-term, I am concerned that the Robotics trend will result in Efficiency Innovations that lead to a loss of jobs. Think of it as the destruction envisioned by Marx, without the creative regeneration envisioned by Schumpeter.  According to Adam Davidson in a recent New York Times article www.nytimes.com/2012/11/25/magazine/skills-dont-pay-the-bills.html?pagewanted=all, this has been the case over the last decade:

Nearly six million factory jobs, almost a third of the entire manufacturing industry, have disappeared since 2000. And while many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers. Those jobs are not coming back….

Although robots can perform manufacturing that requires extreme precision, their greatest immediate impact is likely to continue to be replacing humans with machines that can work longer hours at a lower cost.  This could help the US preserve jobs or even recapture some manufacturing jobs from lower-cost offshore competitors. But globally, the short-term impact of robotics appears to be increased efficiency at the expense of jobs.

Let’s assume that the Robotics trend will lead to the return of manufacturing jobs to the United States.  Manufacturing performed by robots requires humans to supervise the machines. According to Davidson, “many believe that the industry’s future (and, to some extent, the future of the American economy) lies in training a new generation for highly skilled manufacturing jobs — the ones that require people who know how to run the computer that runs the machine.  This is partly because advanced manufacturing is really complicated…”

Unfortunately, there continues to be a “skills gap” between the demand for skilled workers and the insufficient supply of trained workers.  “The National Association of Manufacturers estimates that there are roughly 600,000 jobs available for whoever has the right set of advanced skills.”

Because these jobs require skill and training, it would be reasonable to assume that these skilled manufacturing jobs would be high-paying, particularly given the shortage of qualified applicants. But Davidson cites a Boston Consulting Group study that concludes this is not the case.  Apparently, to be competitive, manufacturers are offering low wages.  “Trying to hire high-skilled workers at rock-bottom rates,” the Boston Group study asserted, “is not a skills gap.” The article observes manufacturing wages in the $10 to $15 per hour range, and compares these wages to the $14 per hour wages paid to new shift managers at McDonalds.  As a result, “according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.” So my fears about automation in the manufacturing sector appear justified and my cautious hope for new jobs from the Robotics trend appears overly optimistic.

Although it is harder for me to envision, the additional skills of robots could generate economic growth or otherwise benefit mankind. For example, robots are already performing or assisting in surgeries.  In this case, robots (operated or directed by surgeons) do a better job than unaided surgeons. The arguments for robotic surgeries include the following www.en.wikipedia.org/wiki/Robotic_surgery :

Major advances aided by surgical robots have been remote surgery, minimally invasive surgery and unmanned surgery. Some major advantages of robotic surgery are precision, miniaturization, smaller incisions, decreased blood loss, less pain, and quicker healing time. Further advantages are articulation beyond normal manipulation and three-dimensional magnification, resulting in improved ergonomics. Robotic techniques are also associated with reduced duration of hospital stays, blood loss, transfusions, and use of pain medication.

Robotics may benefit mankind, but it is hard to see how the benefits will take the form of job creation.

 

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One Response to The Creative Destruction of Capitalism: Robotics

  1. Tod Martin says:

    “Robotics may benefit mankind, but it is hard to see how the benefits will take the form of job creation.”

    I think there are two points missed by your analysis.

    First, robotics — which is technology driven — has to get some of the credit for the largest increase in human prosperity in the history of mankind. It has created jobs on a global scale in a way that is unprecedented, creating what is commonly referred to as the global middle class. So, if your perspective is xenophobic and solely U.S. focused, then perhaps you have a case — although technologies initial reliance on markets with lowest cost production is now being reset by rising labor and transportation costs. Our neighbor Mexico — a part of NAFTA — is now the world’s largest exporter of flat-screen televisions.

    Second, robotics produces an increase in productivity and efficiency. That rise is at least part of what has enabled U.S. corporate profits to reach record highs. After-tax corporate profits are the largest percentage of GDP they’ve ever been. Unfortunately, that rise in efficiency and productivity is currently only benefitting executives and, in some case, share owners. Wages currently represent the smallest percentage of GDP recorded.

    Job creation could — and should — be an outcome of robotics (and technology-enabled gains in productivity and efficiency) if there was more far-sighted corporate governance. As long as wages are suppressed and executive compensation is inflated, job creation is limited since the economic impact of concentrated wealth is far weaker than the economic impact of a broader rise in wages.

    Let’s not blame the robots — unless you’re talking about robotic CEOs, who have been programmed by Wall Street.

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