Will The Next Industrial Revolution Really Replace Humans

By Graham Vanbergen: There are in fact four industrial revolutions to know about. The first harnessed the power of water and steam to start the mechanisation of production. The Second used electric power to create mass production. The Third, the one we are currently in uses electronics and information technology to automate production and other elements of work. But now a Fourth Industrial Revolution is building on the last one at alarming speed. It is characterised by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

For the purposes of this article I am going to concentrate on the acceleration and final stage of the third.

The first two industrial revolutions reduced inequality by making many people richer due to the increased requirement of skilled and professional workforces but towards the end of both, inequality rose each time to new heights as industry sought ever more exploitative methods to increase profits. We are now well into the third industrial revolution, that of robotic manufacturing. Robotics and digitisation are now merging into the manufacturing arena and this is a game changer not just for productivity but potentially for the human way of life, as the search for profits reaches a new dimension.

Robot explosion

Last September the International Federation of Robotics forecasted that by 2019, more than 1.4 million new industrial robots will be installed in factories around the world. Its latest report says “In the race for automation in manufacturing, the European Union is currently one of the global frontrunners: 65 percent of countries with an above-average number of industrial robots per 10,000 employees, are located in the EU. The strongest growth drivers for the robotics industry are found in China; however, in 2019 some 40 percent of the worldwide market volume of industrial robots will be sold there alone.”

 

The sale of industrial robotic units from 2015, will have doubled by 2019. Around 70 percent of industrial robots are currently at work in the automotive, electrical/electronics and metal and machinery industry segments. The electronics manufacturing industry is currently replacing humans at a rate of 9 percent a year, the metals industry at 8 percent and automotive industry 5 percent a year.

 

In Eastern Europe, sales of robotic manufacturing units increased 25 percent in 2015 and 29 percent in 2016. Of the top 20 countries worldwide with an above-average usage of robot technology, 14 are located in the EU. The big Western European economies are still well ahead of up-and-coming China. The largest gap in this respect is with Germany with 301 vs. 49 units per 10,000 employees, the smallest being with the United Kingdom  at 71 vs. 49 units. The forecast for China though is that by 2020, just three years away, more than 40 percent of all robots in use worldwide will have been delivered there.

Another surprise is how slow America is in adopting this new technology. It currently has just 5 percent growth and by 2019, growth is expected to be just 7.5 precent, meaning any competitive advantages it does have is ebbing away each year.

Threat to jobs

The IFR report also says that “The positive effect of automation on the number of jobs is confirmed by a study recently published by the ZEW, in partnership with the University of Utrecht. In essence, reduced production costs result in better market prices. The increasing demand then triggers more jobs.” Or so that’s the theory.

Viktor Shvets, the global strategist of the investment bank Macquarie Group does not agree.

 

“Long-term structural decline in rate of “return on humans” due to deep structural changes in relationships between humans; humans & machines; humans, machines & society. The pressure has been intensifying over the last three decades with the peak of ‘crescendo’ just around the corner.”

 

The bigger picture here, according to Shvets, is that the global economy is stuck in stagnation. There is, according to Shvets, “no growth; no trade; no return to conventional business and capital market cycles for years to come.”

According to Shvets, there are two key drivers for this lack of productivity. The first is over-leverage and overcapacity in services and merchandising economies, and the second is the decline in the “return on humans.” The search for profit is escalating.

His report said: “It takes around 50-70 years to start enjoying productivity gains. However, the 3rd Industrial Revolution is even more disruptive than the first two, as it aims to replace rather than augment humans. In the middle of Industrial Revolutions, productivity rates tend to decrease; income & wealth inequalities rise; social and geopolitical tensions escalate.”

Technically, what Shvets and IFR reports both say is pretty much the same thing. Innovation is progressing fast in a globalised world. Where they differ though is understanding that even the race to the bottom in human wages (off-shoring) is coming to an end. Industrialisation will be on-shored again as the cost of human input declines.

The middle classes are already at the forefront of job losses through developments in software. Employment in accountancy, logistics, economics, recruitment, legal and even the airline industry are feeling the crunch. New jobs created today tend to be in low productivity occupations such as the service industry, but soon the real effects of robotics on the labour force will be felt the most.

A recent report, commissioned by the Sutton Trust, a charity focused on social mobility, warns that 15 million jobs in the UK could disappear due to automation in the next two decades. Think about that for a moment. Over 40 percent of the total workforce out of work.

 

Preparation for mass unemployment

Shvets, being an investment banker, is predicting an employment crash period similar to the 1930s and now suggests focusing on a handful of themes in investing such as: replacement of humans (robotics; automation; AI), augmentation of humans (biotech), societal control (security, intelligence and warfare).

The rising level of unemployment will also create an increased demand in entertainment and companies that benefit from “from government transfer of fiscal & social payments, R&D and skilling.”

 

The consequence to that is that government’s around the world are facing mass unemployment. Robotics as an industry will not be able to replace what it displaces. Discussions are already underway for a ‘universal basic income (UBI).’ This is a form of social security in which all citizens or residents of a country receive a regular, unconditional sum of money to live on.

 

This is already being trialled in Finland. In February, the Guardian reported that “2,000 unemployed people between the ages of 25 and 58 will receive a guaranteed sum – a “basic income” – of €560 a month for two years. It replaces their unemployment benefit, but they will continue to receive it whether or not they find work. The government hopes it will encourage the unemployed to take on part-time work without worrying about losing their benefits.

A month earlier, another report shows similar thinking gaining ground in Scotland. Guy Standing, the radical economist who founded the Basic Income Earth Network, sought cross-party support to pilot a “universal basic income.

The idea in Finland and Scotland to combat unemployment is gaining ground further afield too. Enthusiasts now include Silicon Valley’s Elon Musk and former Clinton labour secretary Robert Reich along with Benoît Hamon, the French socialist presidential candidate who recently lost out to Macron, and South Korean presidential candidate Lee Jae-myung. Canada’s UBI trial is already underway with 4,000 participants. The Netherlands and Kenya are about to do the same.

All these and a growing number of economists, advisors and politician’s are rapidly considering ways to combat what looks like a surge of future unemployment.

Not everyone agrees though

The World Economic Forum – Future of Jobs report says: “While the impending change holds great promise, the patterns of consumption, production and employment created by it also pose major challenges requiring proactive adaptation by corporations, governments and individuals.”  It continues “While some jobs are threatened by redundancy and others grow rapidly, existing jobs are also going through a change in the skill sets required to do them. The debate on these transformations is often polarised between those who foresee limitless new opportunities and those that foresee massive dislocation of jobs. In fact, the reality is highly specific to the industry, region and occupation in question.”

Evidence of disruptive technology emerges as one report states that as much as 44 percent of employees around the world are already feeling the effects delivered by mobile applications, co-working, remote working, teleconferences and the like.

However, the list of emerging tech that requires a lot of human innovation is extensive, such as: mobile internet, cloud technology processing power, big data, new energy supplies, the Internet of Things, sharing economy, crowdsourcing, robotics, autonomous transport, artificial intelligence, 3D printing, new materials, biotechnology and genomics. And it should come as no surprise that the No1 field of job demand by 2025 will be described as ‘problem solver’.

Conclusion

Yes, there will be significant drivers of change and the demographics of employment will change and yes there will inevitably be winners and losers. The Future of Jobs report expects strong employment growth across areas such as architecture and engineering and computer and mathematical job families, a decline in manufacturing and production roles and a decimation of office and administrative roles.

 

With regard to the overall scale of demand for various skills by 2020, more than one third (36%) of all jobs across all industries are expected to require complex problem-solving as one of their core skills, compared to less than 1 in 20 jobs (4%) that will have a core requirement for physical abilities such as physical strength or dexterity.

 

This very fast changing world is going to require that overall, social skills—such as persuasion, emotional intelligence, problem solving and teaching others—will be in higher demand across industries than narrow technical skills, such as equipment operation and control.

The OECD goes even further, saying that automation is more likely to replace some tasks within jobs, rather than render vast numbers of occupations entirely redundant. This upbeat assumption is highly unlikely. Many roles of employment in the past have become extinct as a result of new technologies. The issue is overall employment not just the shift of direction.

The reality is that this phase of industrialisation is likely to render millions of factory and office workers permanently redundant, create an even bigger inequality gap and leave government’s the problem of funding new levels of poverty whilst corporations thoroughly exploit machinery to raise or protect profit margins.

 

 

 

 

 

 

 

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