Problem with Robots is…

Sony_Qrio_RobototIn the recent past, there have been a spate of news-reports talking about robots taking over manufacturing. A recent news-report talked about the German shoemaker Adidas manufacturing shoes in its home country after more than two decades.

But instead of using human beings it has decided to use robots. Another news-report points out that Foxconn, a company which manufactures mobile phones for both Samsung and Apple, is replacing 60,000 workers with robots. Closer to home, information technology companies have also talked about robots taking over low-end activities.

On the face of it, it makes immense sense for a company to replace a human being with a robot. Robots can work all the time. They don’t sleep. They are not moody and there are no days when they don’t feel like working. They don’t need lunch and dinner breaks. They don’t need to go to the loo. And they don’t need to be paid every month or given an increment every year, either.

As Rutger Bergman writes in Utopia for Realists: “Scholars at Oxford University estimate that no less than 47% of all American jobs and 54% of those in Europe are at the high risk of being usurped by machines. And not in a hundred years or so, but in next twenty years.”

He then quotes a New York university professor as saying: “The only real difference between enthusiasts and skeptics is a time frame.”

The idea that machines will take over human jobs is nothing new. It has been around for the past two centuries. But nothing of that sort has happened as productivity levels (or output for every unit of input) have gone up. Nevertheless, it takes fewer and fewer employees now to create a successful business than it did in the past.

Take the case of the Indian manufacturing sector and the share of population it employs in various states. As Amit Amirapu and Arvind Subramanian write in a 2015 research paper titled Manufacturing or Services? An Indian Illustration of a Development Dilemma: “No major India state has achieved more than 6.2% of employment from registered manufacturing in the last 30 years, and many major states peaked at less than half that… most states have not been experiencing secular growth in employment shares over time (the only exceptions are Himachal Pradesh, Tamil Nadu, Haryana and – possibly – Karnataka).”

What this basically means is that even though the absolute size of the manufacturing sector in India has gone up over the years, the proportion of the population working for it, hasn’t. This is primarily because more and more manufacturing now is carried out by machines rather than human beings. In the Indian case, one of the major reasons are the hare-brained labour laws that companies need to follow.

But globally the basic reason is different. As Bergman writes: “The reality is that it takes fewer and fewer people to create successful businesses, meaning when a business succeeds, fewer and fewer people benefit.”

Take the case of Kodak, the company that invented the digital camera. In the 1980s, it employed 1.45 lakh people. It filed for bankruptcy in 2012. On the other hand, Instagram, the Kodak of this era, had just thirteen employees on its rolls, and was sold to Facebook for a billion dollars.

Nevertheless, there is a basic problem with all this, best explained through this example. As Bergman writes: “When Henry Ford’s grandson gave labour union leader Walter Reuther a tour of the company’s new, automated factory, he jokingly asked, “Walter, how are you going to get those robots to pay your union dues?” Without missing a beat, Reuther answered, “Henry, how are you going to get them to buy your cars?”

The point being if people don’t have a job, they don’t have any income or not much income. And in that situation they are going to buy only the most basic stuff that they require for survival. They will not have money to spend on all the goods being manufactured by companies which use robots.

And therein lies the basic problem with robots.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at vivek.kaul@gmail.com)

The column originally appeared in the Bangalore Mirror on June 1, 2016

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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