In this blog and in my talks around the country, I frequently harp on my belief that we are only in the early stages of a new digital machine age that will transform our lives and our entire notion of work.
To communities, to which I provide economic development consulting, I would advise that you embrace and, indeed, become the future. It is the safest bet to relevancy.
To companies, to which I provide site selection/location analysis consulting, I would advise that you look to those communities that are becoming the future. They are the safest bets from which to operate.
And what is this future? To some degree, it is already here — robots and computers performing a range of routine physical work activities better and more cheaply than humans.
But it will not stop there. The machines will become increasingly capable of accomplishing activities once considered too difficult to automate, such as making tacit judgments, sensing emotion, or even driving.
In short, this new digital machine age of robotics, artificial intelligence, and machine learning will change the daily lives of everyone.
We know it to be big because it already has been. Automation has enabled manufacturers to make more than ever before, at a much lower cost. U.S. factories now manufacture twice as much as they did in 1984, with one-third fewer workers, according to the Federal Reserve.
I was somewhat amused this past week when I read a professor’s remarks on LinkedIn, apparently lamenting that automation was being employed by companies to “save a few dollars.”
No doubt, the concept of efficiently competing in a world marketplace escapes him. A human welder may earn $25 an hour, a robot welder costs around $8 an hour over a five-year period, according to estimates from the Boston Consulting Group. BCG says the cost could fall to $2 an hour in the next 15 years.
Does that make it morally wrong for a company to use welding robots? Apparently so, according to this professor, who believes it is a primary duty for industry to employ as many people as it can. But that is not reality.
Fewer Jobs Required
The decades-long decline of U.S. manufacturing employment (plunging from 18.9 million jobs in 1980 to 12.3 million today) and the highly automated nature of the manufacturing sector would indicate that the “job intensity” of U.S. manufacturing will continue to decline over the long term as digital technologies advance.
“In 1980 it took 25 jobs to generate $1 million in manufacturing output in the U.S. Today it takes five jobs,” wrote Mark Muro, a senior fellow at the Brookings Institution.
Automation improves productivity, reduces errors, and improves quality and speed, all of which is very good if you own the factory. If you are a worker in that plant, well, your job could be at risk.
Jobs Will Change
The good news is that only 5 percent of all occupations are at risk of being entirely automated, according to a new report from the McKinsey Global Institute.
Rather than disappearing, the report’s authors say, jobs will change dramatically, forcing workers to adapt. (I would add companies and communities, too.) McKinsey’s analysis of 800 occupations and 2,000 job tasks predicts that half of workers’ current tasks could be automated by the year 2055 using technology that currently exists.
Those changes won’t lead to mass unemployment—instead, the authors say, automation could increase global productivity by 0.8% to 1.4% annually over the next 50 years.
“As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” researchers from the McKinsey Global Institute wrote in their report, titled” A future that works: Automation, employment, and productivity.”
Tasks, Not Occupations
The McKinsey analysts take a somewhat optimistic, half-glass-full, approach. They contend that any forecast regarding automation, robotics or artificial intelligence should look not at individual occupations but rather at the tasks that comprise those jobs.
“Given currently demonstrated technologies, very few occupations—less than 5 percent—are candidates for full automation. However, almost every occupation has partial automation potential, as a proportion of its activities could be automated,” the McKinsey analysts wrote.
“We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $16 trillion in wages.”
Not surprisingly, the tasks most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. They make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages, according the McKinsey, and are most prevalent in manufacturing, accommodation and food service, and retail trade.
“And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential. As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” the analysts wrote.
The Rise of Trump
The McKinsey report states that most workers displaced by automation will find alternative employment. But what will that alternative employment look like?
Millions of people lost their manufacturing jobs that paid $25 per hour plus health and retirement benefits, only to find service-sector jobs paying $12 an hour without benefits. I believe that battering of the middle class led to the rise of Donald Trump and his brand of populism.
Prior to the election, I was talking at length to Trump supporters in our country’s interior and sensed an upset in the making. Most were working-class white people who felt abandoned, irrelevant, and, yes, angry. I reported as much in two blogs, one before the election, and one written four days after, “Confessions from Red Country.”
Candidate and now President Trump speaks of the “carnage” done to the working class, but it will be highly unlikely that he will be able to change the dynamic of digitization in manufacturing and the resulting need for less people. I’m afraid that train has left the station.
McKinsey reports that companies on average are less than 40 percent digitized, including everything from deployments of digital tools in their supply chains to customer-facing products and services. And with that will come opportunities, despite the hysterical articles out there that robots are coming for your jobs and will eat you, too.
I’ve Changed My Tune a Bit
When I first started talking about the digitization of manufacturing five years ago, some people looked at me askance. I probably overreached, suggesting the robots were going to eat us.
Today, I’ve changed my tune a bit. I still believe the advance of digital technologies will be transformative, and the efficiencies created by those technologies will mean fewer people will be needed in certain sectors, including manufacturing.
But now I am coming around to the belief that automation and artificial intelligence can and will be a boon to those who adapt and embrace it. And that includes people, companies and communities. The jobs will change, and so will we.
Many of the jobs that we will be doing in 10 and 20 years from now do not currently exist. We can only imagine what they will be. But they will be. And that is what gives me solace.
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at email@example.com or at 972-890-3733.