Business and Technology

The Rise of Automation: Why it will be different this time

In the past, technological innovation had led to higher worker productivity, which led to rising wages, which led to increased purchasing power for workers, which led to higher demand, which led to more innovation to meet that demand. Innovation has made our lives easier. With the Industrial Revolution, people shifted into factory jobs from agriculture and as automation became more advanced, humans again shifted, this time into service jobs. People didn’t weep that millions of jobs had been lost: back-breaking labour no longer had to be done and people were better off. Though people have assumed this cycle is infinite, automation is now changing this by cutting workers out of the equation altogether.

All jobs, if you look closely enough, contain repetition that can be mimicked by algorithms. This means most jobs have the potential to become automated. Computers can already land planes, detect cancer and trade stocks. A study by Oxford Economics says 20 million manufacturing jobs could be lost by 2030. Another by PwC states up to 30% of jobs by the mid-2030s have the potential to be automated. A McKinsey & Company study found 75-375 million people will need to change jobs or gain skills by 2030 if they want to stay employed. While the studies differ in their conclusions, the consensus is clear: a huge number of jobs will disappear within the coming decades.

This isn’t a problem if all these jobs are replaced, as has been the case with previous industrial revolutions. However, automation is different this time because technological advances will soon be eliminating jobs faster than they’re being created. The number of jobs being created as a percentage of existing jobs has already fallen. The studies above indicate vast swathes of jobs will be lost and the actuality is these jobs won’t be replaced. In fact, the whole situation will be exacerbated further by the booming global population. Even in countries like the USA where the birth rate is relatively low, the lack of new jobs will still be made worse by population growth: the USA needs 145,000 new jobs per month just to keep up with its population growth. Upcoming industries are booming; yet they’re creating significantly fewer jobs at a worrying rate. In 1979, General Motors made $11 billion employing 800,000 workers. On the other hand, in 2012, Google made $14 billion employing 58,000 people.To give an even better example of two companies in the same sector, in 2004, Blockbuster made $5.9 billion employing 60,000 people. Contrarily, Netflix made $20 billion employing only 8,600 people last year (all figures adjusted for inflation).

Clearly, millions of jobs are already being lost and will continue to vanish without being replaced. The reason for this is the information sector has already and will continue to swallow up millions of jobs. As AI gets more advanced and robots improve, jobs will become automated away at an ever-increasing rate. Not only are robots getting better and cheaper and will wipe out millions of jobs in this way, but digital machines, ushered in by the information age, will soon effectively start machine learning, which enables them to acquire information and skills by analysing data. The effectiveness of machines will subsequently explode, and they’ll start seizing vast numbers of jobs. Such machines are essentially free and can get better at an exponential rate. For example, a San Francisco company provides a management software for big companies. First, the software decides which jobs can be done by its software and precisely where professional humans are needed. It then assembles a team of professionals online, who receive work distributed and monitored by the software. It then uses learning algorithms to track the workers and gather data about their work. This usually reduces costs in the first year by 50%, and by another 25% in the second year. This is only one example of many.

Automation is inevitable. While initially expensive to invest in, it’s extremely lucrative for businesses. Morgan Stanley has projected autonomous vehicles will save $168 billion per year. Sufficiently advanced autonomous vehicles already exist and it’s only a matter of time before regulation has to admit that they’re safer than humans. This means the advent of driverless cars is a certainty, which would essentially wipe out the trucking industry in the USA that employs over 8.7 million people. While transport will be particularly harshly affected, all industries will be hit hard by the arrival of AI and automation. However, the world is already starting to feel the effects of automation. In 1998, US workers worked 194 billion hours. 15 years later, in 2013, their output increased by 42 percent after being adjusted for inflation, but the number of hours worked by US workers was still 194 billion hours. Despite productivity increasing drastically, thousands of new businesses opening up, and the US population growing by over 40 million, there was no growth at all in the number of hours worked in 15 years. Productivity is separating from human labour and it’s resulting in widespread job loss. It’s resulting in a severe disparity between the value of workers’ hourly output (productivity) and how much workers are paid (compensation). A reason no-one is paying attention to this is the misleading unemployment rate statistic. After the 2008-9 financial crisis, the unemployment rate has fallen due to huge numbers of discouraged workers unable to find work exiting the workforce, and not to large numbers of new jobs being created, as commonly believed. Unlike the unemployment rate, which counts only those people actively seeking jobs, labour-force participation, which shows how many able-bodied individuals are employed, offers a stark illustration that captures workers who have given up and stopped working.

Our future doesn’t have to be like this though. Global GDP is projected to grow by 26% or $22 trillion by 2030 due to AI, These rewards could be distributed to all with few negative side effects if the right economic policies are pursued. Ideas like a universal basic income and retraining workers on a mass scale have already been proposed and the key thing is to start a conversation now about the future. The flipside of this is if widespread job loss occurred, purchasing power could decrease, resulting in a lower consumption of goods and eventual economic stagnation. Nonetheless, the information age and the rise of automation could be a huge opportunity to change human society for the better, reducing poverty and eliminating inequality.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: