By Nigel Pinkerton*
Pianos and horses were big business about a hundred years ago. Picture yourself back then, as new innovations like the record player and automobile were showing up.
Without the benefit of hindsight, do you think you would have expected enough new jobs to show up to replace those that were lost due to automation?
How you answer that question is likely to determine where you stand on that same issue today. Society is facing an exciting yet just as uncertain future.
Computers are becoming more powerful, robots are becoming “smarter”, and we are finding new ways to automate things we couldn’t automate before.
Are we heading for widespread unemployment? Economist John Komlos argues yes in his paper “Has creative destruction become more destructive”.
Komlos argues strongly that the destructive element of “creative destruction” (the process whereby new industries and occupations replace old ones) is becoming more dominant. Digital cameras killed Kodak, which at its peak employed 145,000 people. Facebook only employs about 7,000. Bloomberg recently reported that a company in China has set up the country’s first virtually unmanned factory – making 650 workers redundant and boosting production of machinery parts by over 50%.
On the other side of the fence, many economists are much more optimistic.
Creative destruction is as old as capitalism itself. There can be winners (like the person who did a masters in robotics 10 years ago), and losers (like the person who bought a bookstore 10 years ago).
One of the functions of the welfare state in a country like New Zealand is to make sure those who are unluckily or make bad choices have a safety net – and ideally time to retrain.
A recent study by economists at Deloitte concluded that on average technology has created more jobs than it has destroyed over the last 150 years. However the effect on individual industries varied.
Agriculture is the classic example of an industry that has become so productive that is has actually shrunk in terms of employment.
The Deloitte study noted that in England and Wales the absolute number of agricultural labours has fallen by 95% since 1871, or from 6.6% to just 0.2% of the total workforce. At the same time we have more food than we have ever had, and an entire service industry has grown up around agriculture. Because we have substituted so much machine power for human exertion, the people that operate those machines are more productive, better paid, and can consume a wider variety of goods and services. New jobs have also sprung up to service the machines.
Another often used example is the automobile industry, where the interactions are more complex. It is very unlikely that all the jobs that were destroyed by the car were replaced by mechanics and auto factory workers. Smith is one of the most common western names for good reason, because looking after horses was very labour intensive.
Yet there are new modern industries that wouldn’t exist or would be much smaller without the automobile industry. Travel and accommodation, fast food, and many other leisure-based industries can be tied back to the invention of the internal combustion engine. Again there is also an income effect. Because people are wealthier they can buy more services people 100 years ago couldn’t, creating more employment.
A key issue for the labour market is how fast these innovations happen, and whether workers have time to adjust. Arguably the jobs created by technology are more desirable than the ones that are replaced, and many people are currently working in jobs that didn’t exist when they were at secondary school.
If we do end up with structurally more unemployment then policy responses, like a universal basic income, may become more likely – but that is for another article. In the meantime if workers are adaptable and invest in building transferrable skills, they can’t go too wrong.
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Nigel Pinkerton is the lead developer at Infometrics, an economic consultancy and forecasting service. This article originally appeared in Infometrics’ newsletter and has been republished here with permission. You can contact him here »
17 Comments
A 100 years ago we had no where near the beurocracy we have today.
Look how just the NZ government has grown
All the PR people, and consultants plus many other staff
Then you have the UN, the EU, the World bank, the IMF, the Comonwealth, the WTO, Economic forums like ASIAN and on and on. Then all these consulates.
Then you have the mamoth sports and sporting facilities. Look how the Olympic games has grown and the Comenwealth games. Then all these world cups.
Then you have all these wars and rise in prison populations
Then you have governments distorting the unemployment figures
Without all this we would be shot.
How long can governments keep on creating jobs and hiding unemployment
a) In 1900, there was no welfare/WINZ? no public hospitals? no public education?
b) We are 4.3million today in 1914, 1 million.
The rest of your post doesnt make a lot of sense in a common theme i can fathom...so your point is?
I mean as a society/economy grows and becomes more complex it needs more management. So the Q is not how big it is, but is that control super-scaling, ie producing a result greater than the costs to do so.
So the bigger the economy the more complex. The more complex the more beauricrats that are required.
On that basis places like China and India should have thousands of MPs.
All these WTO, UN, EU etc are just for retired and booted out of office MPs and the thousands of staff are to soak up the unemployed. Just as the Railways was used to soak up unemployed
My personal view is that the less government we have, in the market and in our lives, the better.
For example, what business is it of the government as to homosexuals marrying or not.
Government has a monopoly of power over the society they rule and they obuse it. Time to end that monopoly
While you believe you are not able to run your life without someone else running it for you.
While our whole lives have been evolving our method of governance has remained virtually unchanged for centuries. Government needs to evolve into a new future.
Government is a shambles, we still have wars, inequality, bribary and corruption. They have fixed or solved nothing.
The market and society should be controlled by a set of rules that we all agree to. Not by interfeering governments.
It goes without saying that an economy that is equal and not dominated by government or monopolies has to be good.
You miss peak oil and a few other things. I suggest you get back to me after watching this, https://www.youtube.com/watch?v=G0R09YzyuCI
Automation facilitates improved productivity, it also encourages people to up skill to avoid obsolescence. The main question is why our legal framework is so slow to permit automation in many of the areas where automation is progressing around the world.
Third world countries like Malaysia have fully automated light rail networks. States in the USA are introducing laws governing autonomous vehicles (Driver less taxi / bus). When I was in Huston there were automated Ice Cream / frozen yogurt stores where you could select your flavor / combination of flavors and/ or toppings and watch the robotic arm make it for you ( they took up barely more space than a vending machine ).
Actually the historic evidence shows the opposite to what you say.
Automation actually leads to the de skilling of the production process and transforms skilled workers into machine tenders and button pushers. And those people whose jobs have been eliminated by automation don't suddenly become neurosurgeons, rather they become mechanics, commercial cleaners, drain layers, furniture rmovers, window cleaners, lawn mowers. Occupations with low barriers to entry and the consolation of independent self employment.
"Bright concluded that the overriding effect of automation was (in the jargon of labor economists) to “de-skill” workers rather than to “up-skill” them. “The lesson should be increasingly clear,” he wrote in 1966. “Highly complex equipment” did not require “skilled operators. The ‘skill’ can be built into the machine...Computers aren’t taking away all the jobs done by talented people. But computers are changing the way the work gets done. And the evidence is mounting that the same de-skilling effect that ate into the talents of factory workers last century is starting to gnaw away at professional skills, even highly specialized ones. Yesterday’s machine operators are today’s computer operators.”
http://www.wsj.com/articles/automation-makes-us-dumb-1416589342
If what you say is true we should have fewer programmers now than we did before? Automation requires higher skilled labor to design, build & maintain. This leads to higher demand for higher skilled labor which provides incentive for more people to up skill.
There are currently far more skilled programmers than there were in 1966, this clearly shows that movement is towards up skill as opposed to down skill.
Generally automation is developed where cost is too high, if highly skilled professionals cost more than the cost to develop and implement automation in that field then automation will occur ( sometimes partial automation ) replacing / reducing the need for those professionals. They are then freed up to perform a different role in society by re-educating in a different area.
My personal pet project is a device that should be able to screen (diagnose) medical issues that would normally have been brought to a GP, this would reduce the cost of healthcare, make it more accessible to the masses and lighten the work load on doctors by allowing them to deal with only the 0.01% of cases that can't be identified autonomously. This should have the effect of allowing the medical professionals to up skill and specialize broadening the scope of treatable conditions.
In my neck of the woods
(a)
Woolworths and Coles the two largest grocery chains have been going at one-anothers throats for some time, rolling out touch-screen checkout counters and self-checkout touch-screen + automated payment technology. 5 years ago Woolworths was all the go with Coles a distant second. Coles has now got its act together and is beating Woolworths hands-down
Having to re-invent itself Woolworths is now reverting back to staff attended check-outs - in the main people dont "like" self check-outs
(b)
It's a real problem when the check-out terminal or network goes down. The staff freeze and cant cope - they do not know what to do
(c)
The car-service business
These days you dont need to be a mechanic- You hook the car up to a computer and it diagnoses if there is a problem- If there is a problem they simply replace the problem part - whether it can be fixed or not - the employees are simply fitters of replacement parts
Personal experience - the reality
Back when mainframe computers were the go, having just returned from a couple of years in AU and hooking up with an AU girl who worked in IT and (she) got a job immediately with IBM in AKL, was picking her up after work one day, waiting in the foyer when her boss asked me if I was interested in doing an aptitude test. In those days IBM and Burroughs employed people based on specialised "aptitude" skills. Did so. They offered me a job the next day. The salary was astronomical compared to what I was used to in my own profession. So much so I gave up my own well-paid profession and took up IT
Latterley specialising in robotics
Now-a-days most businesses wanting IT work done, outsource it to India at $10 per hour
Needless to say I dont work in IT anymore - having reverted back to my original profession
"There are currently far more skilled programmers than there were in 1966, this clearly shows that movement is towards up skill as opposed to down skill."
There are more people in general, through natural reproduction and immigration. Children of factory workers displaced by automation may choose to become programmers depending upon their personal inclinations and aptitude. A friend of mine is a programmer and his late father was a forestry worker though his mother was a teacher and both encouraged him to pursue tertiary education and a professional career. Not a universal tendency in a working class family by any means.
Steven might know the answer to this. The government's stated goal is to achieve a high tech export economy, but where will the jobs and income for the averagely intelligent and unskilled majority of the population come from? Right through to the eighties the majority of kiwis were in low skilled jobs.
Where are they now? Or are they condemned to a life on the dole? How do we ensure the wealth gap doesn't keep growing, and there is opportunity for all irrespective of qualifications or IQ?
A good Q and one Ive yet to see anyone answer let alone act on such.
How many of my peers (and betters) and friends in the last 15years have I watched jump to OZ for better money do you think? answer a depressingly large number. In some cases help to be driven there by awful managers/business owners, but mostly pay and conditions.
In terms of unskilled (and actually I dont think these are a minority) well when the top ppl leave the jobs in the semi-skilled and unskilled also go. Example say a barrista, if there are fewer to buy coffee, fewer barristas are needed.
So what is JK doing now? allowing in skilled migrants which depresses wages, helping send the better ppl off to OZ, yes sounds a great idea.
Why cant we train NZers? I fail to believe there are not a decent % of NZers that can achieve far more for themselves and NZ.
I think you hint at a really good point. I think the demand for skilled workers is to a certain extent smoke and mirrors. Employers want skilled workers who will work for a pittance, but someone educated here will expect to earn a reasonable living to pay off student loan etc (and make the Kiwi dream). But immigrants with a world class education but from highly competitive or third world countries see NZ as a paradise and will accept any offer to get in the door. A good example was AirNZ tried to get qualified pilots listed as a stressed resource but failed when the General aviation community proved to the Government that there were plenty of Kiwis qualified and capable but AirNZ didn't want them because their expectations were too high. Doctors trained in India get some of the best medical education in the world, but the class system there can make it almost impossible for some people to get a break.
I work in a company that now mostly employs immigrants as they are cheap(er) ie will come to an interview most NZers wouldnt look at. The end result of being cheap is we dont often get good people and when we do they move on within a year or two, while we get stuck with the not so good ones. Its amazing how much difference a change of leadership in an organisation can make, ie put in an accountant, yes man type and its not such a good result. Not so sure on doctors trained in India myself as Ive worked in hospitals for over 10 years, generally their peers consider they are of a poorer standard to NZ/UK/OZ trained ppl.
I've worked with Indian and Malaysian trained Doctors in a DHB too, and found them not only good, but more down to earth than a couple of white middle aged arrogant snots who considered themselves at a similar level to Hitler's Aryan super race. A few nurses also fitted that mould too.
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