How do we make America great when we don’t make anything?

How do we make America great when we don’t make anything? The Role of intangible capital in our economy.

by Scott Dennis

Recently Microsoft founder Bill Gates reviewed a new book looking at the expanding role of intangible assets in a global economy driven by the technology sector.  He takes time to mention that the authors

“..don’t act like there’s something evil about the trend or prescribe hard policy solutions.”

Although his review was meant to bring attention to this economic trend the Freudian slip by Mr. Gates should cause people to ask if an economy built on intangibles is good for people or not?

Capital that cannot be touched is not new, for instance value in branding has been part of the modern economy since the start (think Colgate or Cadburys) and patents which are essentially just ideas spelled out on paper were widely used in 19th century France. The question that leads to concern is when value of a company becomes almost entirely intangible how can its true value be measured? Let’s use Toyota as an example an auto manufacturer that still lives in the standard economy because it follows the following economic logic:

The total cost production increases as supply increases because it takes a certain fixed amount of labor and materials to make the cars. The labor and materials are a type of capital inherently required to make Toyota cars.

Now imagine that Toyota was originally conceived as a brand of computer software, perhaps a large amount of resources are put into the initial launch of their product but the cost of production does not increase as supply increases because unlike cars each additional unit of software costs virtually nothing to produce. In today’s economy it is likely that the Toyota brand as a software company could very well be more valuable and in a shorter time frame than the company that has produced high quality tangible automobiles.

At this point let’s stop to consider that with the cost of capital requirements for production diminishing and only one (Exxon Mobil) of the top highest valued companies in the world actually working with a normal cost to production ratio in 2018, is this a good trend for our economy and if so who benefits the most?

The first thing that may come to your mind as you compare the tops ten list from 1998 to 2018 is how much human capital (labor) would be needed to run the 1998 group versus the top ten of today. With the exception of Amazon the top companies in 2018 employ roughly half the amount of people than in 1998, although the majority of the Amazon employees work in minimum wage warehouse positions with no union representation.  Even from an investors point of view this new configuration seems like it creates a lack of equilibrium because the most successful investors has always had a mix of profitable operating companies with predictable valuations due to ownership of capital (warehouses, machinery etc.) in order to buy up shares when the market slumps; this is a simplification of Warren Buffets “two buckets theory”.  With the new economy – investment dollars are “sunken”, that is to say if things go bad there is no capital to sell in order to offset your losses. Certainly there are synergies, faster scaling and overflow opportunities with intangible companies

but the concern for workers is that the underlying business plan for these companies is to create and support a network of more and more gig economy platforms, eliminating jobs that provide security and real wage growth.

Certainly Uber and Lyft are good for a sector of workers but our whole system cannot be supported with this model.

If the role intangibles assets companies are going to change the equilibrium of our market economy what role does labor have in the valuation of intangibles?

Labor organizations need to find their footing in the form of political power and legal reform when it comes to dealing with the new economy.  There needs to be a firewall between the speculative stock of companies over leveraged in intangibles and public funds that support communities or even private ones that sustain colleges.  The overwhelming wealth gap needs to be addressed in terms of tax reform. If these companies are holding billions in cash it’s a clear indication that the system is warped, cash is simply a vehicle to purchase goods, services or build more capital not to horde. It is clear that intangible companies are not contributing enough to the community that makes their business possible.

Scott Dennis writes for the Blue Collar Think Tank

Follow @bcthinktank

The Future of Work by Darrell M. West || A Review

The Future of Work|| Robots, AI, and Automation
Author Darrell M. West

A Review by Scott Dennis

If you have never considered the impact of automation on the workplace, this quote from a top technology CEO provides an opening salvo from Darrell West’s “The future of work” and should get your attention. “We will soon launch a robot that can perform tasks currently done by people with a high school education or less. The robot will only cost $20,000.00”. Throughout the reading of this important book I refer back to this quote and meditate on my trepidation for friends and fellow citizens that fall into this category.
The future of work is an insightful analysis of the precarious state that our society finds itself in. West describes industries’ heedless adoption of automation technology balanced by everyday workers that find themselves with little or no voice about change impacting their livelihoods. At the fulcrum are policy makers that are under informed about the impact of technology on their constituents. Politicians are also faced with the conundrum of accepting corporate funding from companies that will eventually pressure social programs by putting their citizens out of work.

The chapters of the book are intuitively ordered into the categories of “accelerating innovation”, “economic and social impact” and “an action plan” so that a logical and nuanced understanding of the technological challenge to society can be understood by any reader. Importantly possible strategies to avoid social catastrophe are offered for policy makers and activists alike to consider. In “accelerating innovation” West takes the reader on a tour of the technological advances that have infiltrated our daily lives. These advances have made our lives easier in many ways, robots that can perform dangerous or monotonous tasks, machine learning breakthroughs that have evolved into our faithful personal assistants or even something more intimate. Imagine an autonomous vehicle that could safely drive you and your children to appointed destinations in the morning and perhaps make some money for you as a driverless taxi when you are not using it. Autonomous driving and many other innovations discussed in the book are only possible through a chain of technologies being controlled by artificial technology or “AI”. Advances in AI are akin to a modern day space race with enormous corporate and national budgets employed to keep ahead of the curve. West quotes a 2017 statement from China’s state council to “build a domestic AI industry worth almost $150 billion by 2030”. The key take away from this discussion of deep learning machines is what kind of data sets are we providing AI and can ethics truly be programmed into what are essentially electronic brains? The author wisely advocates for a policy of transparency and a vigilance regarding the decisions humans are making during this nascent moment in the history of robotics.

“We will soon launch a robot that can perform tasks currently done by people with a high school education or less..”

The section on Economic and Social Impact opens with the utopic musings of author Edward Bellamy, in his vision of the 21st century automation has led to shortened work weeks and happy citizens who can spend their leisure time mentoring the young. The betterment of themselves and their community has become their focal point in life because their basic needs of housing, food and health care have been met. Here West takes the positive view suggesting that despite the fact that we are in a time where health benefits and secure careers are a more distant reality for workers that it takes a societal change about the very nature of work to shift to a more equitable economy. The shared or collaborative economy is defined by services exchanged peer-to peer, usually through an electronic platform, the major example being Uber drivers. Employees enjoy time flexibility and a certain amount of autonomy but give up the certainty of the health care support system. In order for these models to be sustainable West argues there will have to be unionization or at the very least agreed upon minimums in remunerations for these “new collar workers”. There are now millions of Americans joining in this type of work, popularly known as the “gig” economy. The future of work does a good job of introducing the reader to a host of models that could help restore the traditional benefits arrangement of full employment, the key concept to all of them being the notion of portability of benefits. The idea is laid out this way, since corporations are moving towards limited contracts workers then benefits such as medical leave and retirement should move with the employee instead of the employer; this creates a new social contract between company and worker. Regardless of which scheme is adopted the most heated area of debate is who will pay to support this shift in the economy? Assorted tax proposals are discussed within this book with one common conclusion, namely that the wealthy will have to give up something to help those displaced. Reading between the lines here the reader must ask themselves, who is actually benefiting from cutting back workers and technological efficiencies? In our lifetimes have we not seen the focus of business move from rank and file workers to the shareholder? Whatever the outcome it is clear that working citizens will have to leverage the power of democratic and educational institutions to regain their seat at the table of our shifting economy.

In the section “Action Plan” West asks if our political system is up to the challenge of structural change, even a casual observer of the present state of deadlock in the beltway the answer seems dubious. Unlike political struggles in the past however inaction concerning displacement of workers due to automation will increase the distrust of democratic institutions West agues. Anyone experiencing the tumults of the twenty four hour news cycle would have to agree. The book draws on some of the best economic historians to outline a fascinating new legal structure referred to as “Republic 2.0” where the various initiatives for change could have a chance to flourish. The basic understanding is that politics cannot be separated from economy and that even the amending of the U.S. constitution to reflect a people first attitude in the new economy must be considered. The future of work is required reading for anyone concerned about their place in the future labor force, once read it should serve as a guide for equitable change for activists and policy makers alike.

Mr. Darrell M. West is Vice President of the governance program at the Brooking Institute

Scott Dennis is the Executive Director of the Blue Collar Think Tank @bcthinktank

 

Optomistic Perspective on Automation

The Robots Are Coming To The Workplace. What you need to know.
John Hawthorne guest contributor

In the history of business and manufacturing, automation has become commonplace. In many ways, people have been replaced by machines in the manufacturing, retail, restaurant, and corporate settings.

At the same time, opportunities have arisen for employees who specialize in programming, engineering, and maintenance of machines in all areas of commerce and industry.

So here’s the crucial question: Will automation kill or create jobs?

Will the robot uprising be a good thing or take our livelihoods?

Let’s dig a little deeper.

Jobs Lost to Automation In the United States

 

Before we start panicking and declaring robots to be evil, let’s look at the statistics. While it’s clear that robots and Artificial Intelligence (AI) have displaced some workers in the past, the effect on the US economy is relatively minimal. There are currently between 1.5 and 1.75 million industrial robots operating around the globe, according to the International Federation of Robotics.

The auto industry accounts for 39% of such robots, followed by the electronics industry at 19%, metal product manufacturing at 9%, and the plastics and chemicals industry at 9%, according to MIT economists Daron Acemoglu and Pascual Restrepo.

This translates into “one more robot per thousand workers” reducing the aggregate employment to population ratio by about 0.34%. In other words, every new robot added to a given commuting zone reduces employment by 5.6 workers. And the researchers project that the number of industrial robots will reach between 4 and 6 million by 2025.

If the total number of industrial robots quadruples by 2025, the researchers expect 0.94 to 1.76% lower employment-to-population ratio and 1.3 to 2.6% lower wage growth between 2015 and 2025. Technologies such as artificial intelligence, machine learning, and robotic automation will erase 16% of US jobs by 2025.

So while the current numbers aren’t staggering, the future is a bit concerning. If sixteen percent of US jobs are eliminated by robots, that’s quite a few people on unemployment.

Jobs Lost to Automation vs Outsourcing
Automation is not the only factor in unemployment in the United States. Job outsourcing helps US companies be more competitive in the global marketplace. They lower labor costs by hiring in emerging markets with lower wages. That lowers prices on the goods shipped back to the United States.

The main negative effect of outsourcing is it increases US unemployment. Currently, 14 million outsourced jobs are almost double the 7.5 million unemployed Americans. In other words, outsourcing is just as destructive to the economy as automation.

Automation Can Create More Jobs

Getty Images

However, automation can create more jobs as well. For example, when the industrial revolution replaced work that was normally done in a long, drawn out, and tedious ways (such as weaving machines replacing individual seamstresses), those who were displaced learned how to operate the machines. Textile workers were most often those displaced seamstresses.

The industrial revolution taught the world that as traditional jobs disappear, we need to ensure that people of all ages are sufficiently educated to work in the emerging roles in the immediate future.

The changing times demand new skills, new mindsets, new competencies, and new institutions. While there are certainly soft and hard skills from the past that should remain staples in education (like personal communication, collaboration, basic mathematics, writing skills, etc.), it would benefit the country to also consider adding curriculum in robotics, computer science, and engineering.

Though many school systems have these capabilities and are implementing such programs, not all have the funding or resources to make such changes.

Just as with every new industrial age, the age of robots will lead to more jobs. Kallum Pickering, analyst with Berenberg, has pointed out a large hole in the argument that artificial intelligence (AI) will lead to vast numbers of workers joining the ranks of the unemployed:

“Producers will only automate if doing so is profitable. For profit to occur, producers need a market to sell to in the first place. Keeping this in mind helps to highlight the critical flaw of the argument: if robots replaced all workers, thereby creating mass unemployment, to whom would the producers sell? Because demand is infinite whereas supply is scarce, the displaced workers always have the opportunity to find fresh employment to produce something that satisfies demand elsewhere.”

Most employers and analysts generally agree that there should be measures in place to reduce the impact of jobs lost to automation, like education programs for re-skilling workers who will lose their jobs.

So does automation cost jobs? Sure. Every industrial revolution initially displaces a portion of workers. But automation will also create many new jobs as displaced workers adapt to the changing economy.

What Jobs Will Automation Create?

A Deloitte study of automation in the U.K. found that 800,000 low-skilled jobs were replaced by AI and other automation technologies. But, 3.5 million new jobs were created as well, and those jobs paid on average nearly $13,000 more per year than the ones that were lost.

Positive, worker-friendly outcomes like this illustrate a more complete range of possibilities for automation. Technology is changing the way we work — this is undeniable. These changes can improve people’s lives and lead to a more creative, intellectually engaged workforce. AI is most often used to perform mindless, repetitive tasks, which means that employees can spend more time on complex tasks for which they are suited, such as interacting with customers or brainstorming innovative new ideas.

Creativity is what distinguishes humans from machines. And not just the capacity for creative work, but the ability to reimagine what jobs might look like in the near future and beyond.

Here are three examples of companies using automation to create jobs and help their leaders develop better businesses:

Panera Bread

Panera Bread announced in April of 2017 that it would create 10,000 delivery driver and in-café jobs in response to the popularity of its delivery service. High customer demand for ordering soups and sandwiches through the chain’s AI-powered digital platform led the company to decide to expand the service to 40 percent of its stores. The company said that its drivers would enjoy “daytime hours and competitive wages”.

The Marlin Steel Factory

The Marlin Steel factory in Baltimore is a classic case of automation driving innovation. When Chinese manufacturers undercut Marlin Steel’s prices for its core wire basket product line, the company was forced to pivot. Marlin Steel purchased robotic wire-forming machines and began focusing on making high-quality precision products for companies such as Boeing and General Motors. It also hired more people and increased wages, attracting workers whose diverse backgrounds complemented the computer-aided production processes around which the factory now revolves.

Boxed

When AI and robotics replaced the need for 100 fulfillment workers at Boxed’s New Jersey facility, the online grocery startup retrained and promoted them into different departments. Some of the workers became trainers teaching coworkers how to use the new fulfillment systems, while others transitioned into customer service roles. A number of former temporary workers became full-time employees and enjoyed a 13% pay increase.

These companies have made the choice to embrace technology and make it work for them and their employees. The fear of automation should not be a driving factor in the decision-making process of any company. Careful study and understanding of how to best utilize resources, including human resources, are the lifeblood of a successful business.

Are There Other Benefits of Automation?

There are multiple impacts in the use of automation across many industries.

The first is that production costs are reduced, which allows more consumers to purchase a company’s products.

The second will be the demand for skilled labor. As more robots and AI apparatuses are integrated into business, the demand for skilled workers who can operate, repair, and maintain such devices will increase.

The third is the possibility that wages will increase for the workers. If companies can make more money with the same number of workers, they can pay those workers better.

The fourth is that automation allows humans to become more innovative and spend more time being creative. If humans aren’t bogged down by routine tasks, they will find something better to do.

Finally, we may need automation.

QZ notes:

As the birthrate in many countries declines, the share of the working age population will shrink. To maintain today’s GDP, those workers will each need to be more productive than workers today, and they’ll need to improve at a faster rate than they have in the past. Even if productivity continued to improve at the same rate that it has throughout the last 50 years—within which the computer and the internet both became mainstream tools—it wouldn’t be enough of an improvement to sustain GDP. Automation technology could be the answer. According to a McKinsey analysis, it could raise global productivity by as much as 0.8% to 1.4% annually—but only if humans keep working, as well

Should We Fear A Robot Apocalypse?

While automation is becoming more commonplace, so are the opportunities for the worker to learn new skills and possibly earn a higher wage. Mundane, routine tasks will be taken over by robots, AI, and other forms of automation; this will allow workers to expand their innovation and creativity. Such opportunities will allow the job market to change and grow to fit ever changing technology.

So while the idea of increased automation may seem frightening on the surface, it actually heralds great things for the future. So bring on the bots!