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Will a Robot Replace Me? - Outside View by Nitin Gregory
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Will a Robot Replace Me?
May 10, 2016

A machine capable of carrying out a complex series of actions automatically, especially one programmable by a computer.
- oxforddictionary.com

What would you classify as a robot? Must it have arms and legs and eye sockets? Robots have been around us for centuries. Machines have helped us in our daily work for a long time. Today, they can even do some thinking for us (my Word document is highlighting mistakes and giving me suggestions). My smartphone is most certainly a robot...

Now, a quick flashback - John is a farmer in America in the 1920s. Tractors are becoming popular. The workers in his fields are getting nervous. Will this 'tractor' replace us, they wonder? What about my children?

John had a son, Mark. Mark grew up to be a mailman. In the 1980s, email was just making its entry. Mark and his coworkers were getting nervous. Will email replace us, they wondered? Will there be enough jobs in the future?

Mark has a daughter, Rose. Rose is an administrative assistant. Virtual assistants and artificial intelligence are becoming popular. Should she be nervous?

The point is technology and automation has always been around. Advancements in technology have caused disruptions to the job market for ages. But, while technology does not 'take' jobs, it does cause 'job displacement' - some routine jobs are automated while demand for other skills pops up.

For example, as computers replaced clerical work, it spawned demand for workers who could use computers to solve complicated problems - developing websites, mining data, creating apps, etc.

Today we hear of robots replacing humans in manufacturing, logistics, and even customer support. The possibility of driverless cars endangers a number of professions.

Will we all be jobless? John Maynard Keynes predicted that technological advancement would provide much more leisure time in the future. So far, Keynes has been wrong. We continue to channel capital and labour into areas of unmet demand.

We cannot wish away change and its effects, but we can prepare for it. People who adapt their skillsets to embrace technology see an improvement in their productivity and an increase in the demand for their skills. I call this 'riding the technology wave'.

The Robotic Revolution in China

China has embarked on a 'robotic revolution'. By some estimates, a quarter of the industrial robots sold globally in 2015 were purchased by China. And party leadership has given a clear indication that they intend to support the robotic revolution in Chinese manufacturing.

This push is driven by two key factors. The first is related to changes in China's labour force. China has been growing fast for the last few decades. This has resulted in better wages. Some cities have already become too expensive for low-cost manufacturing. The one child policy, which was phased out only last year, has resulted in a decline of the productive workforce. The current generation of young Chinese are more educated and aspire for non-factory jobs. A shortage of labour and increased costs means that China no longer has the low-cost advantage.

The second factor is related to the advancement of technology and automation. The cost of robots and machines has been dropping. This means that the 'payback' period for an investment in automation has dropped sharply. Goldman Sachs estimates this payback period has fallen from 11.8 years in 2008 to 1.7 years in 2015. In the face of rising labour costs, an entrepreneur in China can make a one-time capital investment in robots and hope to recover his investment in less than two years!

The Chinese government understands that to remain a manufacturing powerhouse, being a low-cost labour destination is not enough. It has to adjust to the realities of the workforce and current technology. China must move up the productivity ladder.

This shift in the Chinese manufacturing sector is profound and will have far-reaching effects. What will be the impact of this change in China? What will be the impact on other emerging economies such as India? Until next time...

This column is authored by Nitin Gregory. Nitin, who graduated from IIM-Calcutta, is currently pursuing a finance role with an automotive major. He has a deep interest in Macroeconomics and pens a blog at Gregonomics.

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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