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Are Robots the Biggest Threat To American Manufacturing?

Jan 5, 2017

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What does Donald Trump mean when he says he wants to "make America great again"?

One definition might be to turn back the tide of globalisation and bring manufacturing jobs back to America. Exactly whether that's possible - whether American workers can compete with cheaper labour abroad - remains to be seen.

But yesterday we got a sign that perhaps it's not as impossible as you might think. Ford announced it's cancelling plans to build a $1.6 billion manufacturing plant in Mexico. It'll build it in Michigan instead.

Ford CEO Mark Fields claimed the move had nothing to do with Trump. But given the backdrop, that's hard to accept. The idea of building a major manufacturing plant in Mexico with an unpredictable and anti-globalisation president probably wasn't worth the risk.

But what if Trump is fighting the wrong thing? Automation falls into the same category. And maybe it is automation not globalisation that's the real threat to America "becoming great again".

It's certainly possible. Globalisation has been the dominant trend of the last half century. Automation is likely to take its place in the next 50 years.

If you're anti-Trump you'd certainly have to enjoy the irony. You may have seen the news at the end of last year that Amazon announced it'd successfully delivered a package using a drone. That's automation in action. It's the automation of delivery: cut the humans out and use a machine because - ultimately - it'll be cheaper and faster for the customer.

Yet on the very same day, Amazon CEO Jeff Bezos happened to be visiting Trump in New York, as part of a discussion between the president-elect and the tech industry. I'd guess globalisation was one of the topics up for discussion. Was automation?

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I wasn't in the room so I can't tell you. But you'd hope that it was. At least if you were Trump you would. If anti-globalisation sentiment got him elected, where will the tide of anti-automation anger take him?

Another great example of the irony that seems inherent to the Trump/automation story: late last year Trump tweeted that Foxconn, a supplier to Apple, was considering bringing some of its manufacturing back to America. Make America great again! Woo-hoo!

But wait. Foxconn was the same firm that not all that long ago laid off 60,000 workers in China, replacing them with robots. Not so great for America's workers then. Great for American robots though. Make American robots great again!

That's the irony here. Let's say Trump can persuade firms to bring manufacturing jobs back to the US. What if the only reason they're able to do so is because they can automate much of the work. Is that a win or a lose for Trump?

I'd argue a win. Work is work. It'd bring wealth and jobs - a different kind of jobs, but work all the same - back to the States. But I don't work in manufacturing in one of the places left behind by globalisation. And I can't vote in a US election. So my opinion is irrelevant.

There's one big objection people have to the idea of automation. No one disputes its benefits: cheaper goods and faster, more efficient services. Those are the ultimate outcomes. The problem is, people often say, if automation puts large numbers of people out of work... who will purchase all those goods and services?

It's a valid point. Answering it is complicated. One answer some people come up with is a universal basic income. The idea of this is that the state distributes money to everyone, regardless of their employment status. Finland is in the process of launching a trial version of this right now. The state has chosen 2,000 people to receive €560 per month, whether they work or not (for the purposes of the trial, all of those people are currently receiving benefits - the ultimate goal is for the income to be for everyone).

I don't see that working. And that's for two reasons. Firstly because it breaks the link between working and earning altogether. I think that's a deeply held belief for most people. We all distrust the idea of something for nothing. Secondly because work is an important part of identity. It helps make us who we are. It contributes to self-worth and self-esteem. Plus, lots of people like working! I'm one of them. If I didn't have to write all day I'd run all day and wear my knees out.

So how else can the world adapt to higher levels of automation?

I would say it comes down to education and expectation. There will always be work for people to do. But the nature of that work will change. Why? Because automation is really a form of hyper-specialisation. If a machine can outperform a human in a given task, for a lower price and in less time, it'll ultimately replace that human.

That's not a radical idea, by the way. It's the same reason if I ask for the square root of 12,151 you'll probably use a calculator rather than work it out yourself. The calculator has a specialised skill that makes it superior to you.

But the downside of specialisation is a loss of adaptability. That's something people are great at. And that's why I think there'll always be work to do: because people will always be able to adapt to new ideas quicker than technology.

I think what will change is the idea of a highly specialised manual career that lasts for 40 odd years. The nature of a career will change. It'll evolve to become more about constant adaptation and the learning of new skills. The idea someone can drive a cab (as an example) for their whole career will probably die out. That doesn't mean no one will have a job. It just means people will have multiple jobs in the course of their lives, and that flexibility and the ability to acquire new skills quickly will become an even bigger element of working life. Retraining into new industries will become normal.

Of course, there's one new industry where all the threads of today's piece come together. What's at the nexus of a new car manufacturing plant in the US and the concept of automation?

Driverless cars!

We talked about this a lot at the end of last year. But expect it to be a big theme this year too. Because as investors, the highly automated world creates different opportunities: we can back the firms that are making higher levels of automation possible in the first place. If driverless cars are coming, where do we invest our capital to benefit from the birth of that new industry?

Please note: This article was first published in Capital and Conflict on January 04, 2016.

Nick O'Connor is a writer and editor at Moneyweek. He is also the publisher of Exponential Investor.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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