Tuesday, January 15, 2013

Rise of the Machines

Some trends are more catastrophic than others
Labor force participation rates have been in steep decline at least since the collapse of the dot com bubble in 2000.  Arguably, the decline started in 1989 and the overall trend was only masked by the vast hiring free-for-all of the nineties, when everybody who could fog a mirror could at least get a marketing job.

Recently, the news has been full of exciting, hopeful announcements that a significant portion of high technology manufacturing is returning to the United States.  The explanation is that market forces are driving flexibility, customization and quicker time-to-market in such a manner as to require localized, or at least "on shore", manufacturing and assembly operations.  That explanation may even be reasonable, but it's not what's driving these two seemingly unrelated trends.

Have you ever seen a television show called "How it's Made"?  No matter your level of interest in the subject matter on display, you will find this program instructive for another reason.  Just watch the factories and assembly lines - how many people do you see working there?  You'll see a huge amount of automated, high-speed production, but virtually no workers.  Think about the same kind of factory twenty five years ago.  It would have been filled with workers, doing repetitive, menial tasks, operating the cutting, bending and welding equipment that was the basis of fabrication, inspecting the parts, doing the final assembly, packaging and shipping.  But not today.  Today, machines are not just faster, cheaper, more reliable and more precise.  They are smarter, making consistently better decisions, seeing at more wavelengths, gathering and reviewing more information faster than people ever could.

Those manufacturing jobs we keep hearing about - the ones that are returning to the US from low-wage countries in Asia?  These are high technology assembly jobs - classically building smart phones, computers, tablets and networking gear.  Those jobs use very few people.  They are done by automated circuit board machines, automated pick and place robotics, automated final assembly and packaging lines, all with integrated automated Quality Control inspections throughout.  The parts are too small, the volumes too high, and the required precision too fine for people to be capable of doing them.  Of COURSE the jobs would come back to the US once the labor cost was eliminated from the process.  It makes no sense to assemble products in Asia if the assembly work is all being done by machines.

And now it's not just manufacturing.  Phone systems are automated and everyone is expected to type, so the role of secretary is obsolete.  Large scale enterprise software manages entire supply chains, so there are no buyers, no planners, increasingly no project managers.  Machines have the sensors and intelligence to do a better job of inspection, so there are no QC/QA techs.  Warehouses are rapidly replacing people with automated smart pick and pack systems, and inventory manages itself with RFID systems and automated procurement.

Lets face it.  As machines get smarter, more capable, cheaper and even mobile, the number of jobs requiring people is going to shrink, and at some point a tipping point will be reached.  Now, this should be a very good thing, ushering in a new era of rising productivity, unlimited GDP and economic freedom for all.  But does anybody look at the system Americans have built and expect that outcome?  I don't.  The machines will be produced, not by labor, but by the owners of capital.  The goods will be produced, not by labor, but by the machines owned and operated by the owners of capital.  The result will be a larger share of economic activity will flow to the owners of capital, and the share flowing to labor will, as a consequence, shrink.  If you think we are a desperately unequal society today (and we certainly are), just wait until we are competing with machines for jobs.  There will be a huge underclass of unemployable people, people who have few skills but are too slow, too fragile and too expensive to do the work of an intelligent machine.  Is there any reason to expect that those wealthy people and corporations are going to contribute some of their wealth to help those dislocated by the technologically driven change, or even stand by and accept higher taxes so that the community might care for them?

This is not some kind of "future problem" that might affect the next generation.  This is with us today - note the graph.  That is a frighteningly steep decline in people with jobs - or, put another way, in jobs for people - and there is no reason to believe it's likely to turn around any time soon.  No matter what we might do to reduce unemployment, as long as the number of jobs requiring people is shrinking fast, even with fairly strong economic growth we can expect to see stubbornly high, even rising long-term unemployment.  The levels of inequality, of homelessness, of illness and depression and suicide will rise as technology eliminates any hope for a significant and rising number of Americans.


  1. But does anybody look at the system Americans have built and expect that outcome? I don't.

    Me neither. The market is God and judges us and that is right and proper to the powerful people.

  2. But for some reason, we still need to pay incompetent CEOs gazillions of dollars.

    The invisible handjob of the market, I suppose.

  3. Don't forget the bonus they'll get for cutting head count...