Future Economics, Or Who Will Be Wealthy From Manufacturing

by Gary Mintchell | Jan 30, 2013 | Automation, Commentary, Operations Management

Martin Ford is at the forefront of writers describing a pessimistic view of the future when all jobs can be automated. His book, “Lights in the Tunnel” was published in 2009. I reviewed it and a blog post and also did a video essay on the subject.

He recently took economist Paul Krugman to task in a recent blog post.

“Paul Krugman has recently taken a keen interest in the rise of robots and automation — an issue that I have been focusing on since the publication of my book on this subject back in 2009. In a recent post, Krugman says the following:

Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.

Ford continues: “I think there is a fundamental problem with this way of thinking: as jobs and incomes are relentlessly automated away, the bulk of consumers will lack the income necessary to drive the demand that is critical to economic growth.

“Every product and service produced by the economy ultimately gets purchased (consumed) by someone. In economic terms, “demand” means a desire or need for something – backed by the ability and willingness to pay for it. There are only two entities that create final demand for products and services: individual people and governments. (And we know that government can’t be the demand solution in the long run). Individual consumer spending is typically around 70% of GDP in the United States.”

Ford does get directly to the crux of the matter. If there are no jobs, then there is no income, then there are no consumers, then there is no need to make anything, so we don’t have jobs anyway.

I have been thinking about a radical rethinking of this idea. These ideas presume an economy based on cash. We really haven’t had an economy that required so much cash for that many years. Granted I’m from a rural area, but most folks I knew when I was a child knew how to get by with a lot less cash. They had big gardens and knew how to preserve foods. They raised chickens and other animals. They did a lot of hunting and fishing.

None of this works in a city necessarily, but those are skills that we’ve left behind. Speaking of skills. Humans want to be creative and productive. Ever heard of a barter economy? There was some of that when I was a kid, too. My dad was an accountant. Sometimes he was paid with a ham or something like that. The IRS may not like a barter economy, but if indeed jobs disappear and no one has cash, I bet that you’ll see a strong barter economy spring up.

Automation creates jobs

Meanwhile a trade association representing companies that manufacture robotics, vision systems and motion control systems maintained automation actually adds jobs. It offered no foundation for the premise. I think mostly it was just marketing its trade show. But an interesting point.

By the way, I am fascinated when all the non-manufacturing people–even Nobel-prize winning economists–discuss manufacturing. They don’t have a clue, do they? And they always equate automation and robots.

Skills gap

I never thought I’d highlight the American Enterprise Institute, but Confronting the U.S. Advanced Manufacturing Skills Gap By Thomas A. Hemphill, Waheeda Lillevik, and Mark J. Perry published last Monday is an excellent look at manufacturing and jobs.

Here are some excerpts, We have a skills gap and it’s going to get worse. Here’s what we can do about it.

The future of America’s advanced manufacturing sector looks very promising overall, especially if the reshoring/insourcing trend continues and manufacturers can find skilled workers for the factory floor of the 21st century. Now that the manufacturing sector and the education establishment are working together to confront the advanced manufacturing skills gap and train skilled workers for advanced manufacturing, we are hopefully on a path toward resolving the current skilled worker shortage.

In “Race Against the Machine”, Erik Brynjolfsson and Andrew McAfee also argue for the necessity of educating the workforce.

The New York Times guy misses one point. At least in western Ohio, skilled machine operators and technicians who keep them running make more than $10/hr. But then, we don’t need New York City incomes to live well out here, either.

What Does 60 Minutes Know

by Gary Mintchell | Jan 18, 2013 | Automation, Commentary, Operations Management

I guess that the TV show “60 Minutes” aired a program on automation and jobs. I say “guess” because I don’t watch that show. Haven’t for 20 years. It became infamous for its creative editing of interviews.

Seems that the focus of the show came from “Race Against the Machine” (taken from the old John Henry ballad) by Erik Brynjolfsson and Andrew McAfee. I saw a post on McAfee’s blog that was complimentary of the piece. The message is that automation replaces jobs.

For some reason in spite of the facts, the Association for Advancing Automation (A3), calling itself “the global advocate for the automation industry,” issued a statement saying it “is disappointed in how 60 Minutes portrayed the industry in Sunday night’s ‘March of the Machines’ segment.”

“While the 60 Minutes depiction of how technological advances in automation and robotics are revolutionizing the workplace was spot on, their focus on how implementation of these automation technologies eliminates jobs could not be more wrong,” said Jeff Burnstein, President of A3, a trade group representing some 650 companies from 32 countries involved in robotics, vision, and motion control technologies. “We provided 60 Minutes producers several examples of innovative American companies who have used automation to become stronger global competitors, saving and creating more jobs while producing higher quality and lower cost products, rather than closing up shop or sending jobs overseas. They unfortunately chose not to include these companies in their segment. With respect to MIT Professors Brynjolfsson and McAfee who gave their viewpoint in the piece, they are missing the bigger picture.”

Employment

While the trade association makes a point that some companies have added jobs because of robots (one of the main product groups within the association–the others being vision and motion control), the big picture is that automation in general and robotics in particular have eliminated many jobs. When you look at manufacturing output and relation to GDP in dollar terms, manufacturing is still significant. However, when you look at total employment, it has been declining for some time.

That is not all bad. Much of the work done by robotics was unsafe, unhealthy and difficult for humans. Getting manufacturing work done without injuring people is a good thing. Productivity is a good thing. As our manufacturing companies become more productive and efficient, they also become globally competitive.

I support robotics, vision and motion control technologies. They have advanced manufacturing significantly over the past 30 years. But not necessarily as a job creator. New jobs will come from new companies building new things that we don’t even imagine right now.

Skills needed

There are new jobs, though. And these jobs require education and skills. The problem is for unskilled labor. We built up a huge jobs engine for unskilled labor through the first 70 years of the last decade. The jobs were often back-breaking, but they also paid well. They were also monotonous. Unsafe. Unhealthy. Men often died very soon after retirement because their bodies were worn down.

Late 19th century writers saw the coming of mass industrialization. Up until then, manufacturing was done by craftsmen. One piece at a time. Their soul went into the making of the piece. Every little town had its blacksmith who created fine things out of metal. But philosophers began to see the production line and division of labor breaking down that craftsmanship. They preached that this took the “soul” out of the making of products.

In the 80s, a book entitled “The Second Industrial Divide” looked at that problem and predicted a return of craftsmen as we entered an era of “mass customization.” I know many craftsmen in manufacturing these days. Many are called technicians. These people are not so alienated from their product as the earlier generation.

Myths of Manufacturing

I wrote about this last August. There I noted–One question to me is what is to become of unskilled labor? Take a look at some comments from McAfee’s latest blog from older manufacturing workers. “You didn’t need a high school diploma.” “You just needed to be a hard worker, and you needed to show up every day, because it wasn’t easy work.” “The skills I had weren’t really applicable”.

And I concluded:

Part of the answer is to provide more and better education to more of our population. There are millions of jobs that require some sort of technical education. It may not always require a university degree, but it will require something beyond basic high school work. Let’s make more unskilled people skilled people.

What I like about “The Race Against the Machine” is that the authors do not end in pessimism. They offer what they call the “tip of the iceberg” of prescriptions. Here’s my summary of the top of the tip of the ideas:
• Invest in education
• Teach entrepreneurship as a skill
• Lower government barriers to business creation
• Invest to upgrade the country’s communications and transportation infrastructure
• Increase funding for basic research
• Reform patent system