The Real Issue Facing Trump Regarding Job Creation: Mexico, or Technology?
President-elect Trump has seemingly been making great progress (even though he has yet to take office as President) in his promise to bring jobs back to the USA. Certainly if his tweets are anything to go by, the job creation at home scenario is going well with car companies now seemingly convinced that Mexico is no longer the place for them to build cars among other much touted wins. These stories make for nice headlines, but there is an underlying issue which may take some of the sheen off the soon to be President’s job creation program.
I’m talking of course about the threat of technology and automation. This is increasingly the issue of our time, and while it is easy to blame the loss of jobs on globalisation and international trade with cheap labour existing in abundance around the world and manufacturing largely offshored and/or automated, people are missing the real problem when it comes to job creation.
Industrialisation has brought huge benefits with it. Consistent quality control, ease of mass production, cheaper goods and services as well as many other good points. What it also brought with it is the need for less human involvement in the production line. As robots and automation become ever more efficient, the role of the human worker is increasingly reduced to that of exception management and overseer, which ultimately of course means there are less jobs.
Davos World Economic Forum: John Kerry today mentions that 85% of job losses in the US are a result of technology, not globalisation.
Let me give you a scenario, one of my several jobs is in finance so I’ll use one relevant from this field.
In 2012, J.P. Morgan had its “London Whale” trading scandal. The bank had accumulated huge losses (at least $6bn) as a result of these trades. Aside from the losses, fines from regulators were of course likely, as well as a further clamp down on activities seen as overly risky. To try to appease regulators, the bank hired at least another 3000 people in compliance and risk related roles to ensure that this kind of thing couldn’t happen again.
At a guess, say the average cost per person across that group of new hires was $100,000/year, that’s a cool $300m cheque J.P Morgan is cutting every year. What do you think their first order of business would be to this increased cost? If you don’t think that the duty to its shareholders is to try to automate those jobs out of existence as much as it can as fast as it can, well…
As someone who has worked a lot on automated financial trading systems, I owe a reasonable amount of my career to having put a lot of floor traders out of a job. What used to take tens, hundreds, thousands of people can now be done by a few reasonably powerful computers with an operator to govern the main functions and handle exception management. A lot of those guys on the floor were smart and found other jobs, perhaps even making close to the kinds of money they made as traders, but the jobs they had are no longer there.
Technology is a wonderful thing, it enables us in the most amazing ways, but sooner or later people are also going to realise that as technology marches ever on, the skill level of jobs which it makes redundant will continue to get higher. It started out with the easy jobs, but the jobs which technology is displacing are getting more and more complex all the time. As John Kerry, Stephen Hawking and others have noted, the real challenge isn’t so much on getting a factory to be located here or there, charging tariffs for this or that and creating protectionist policies, but what to do when the jobs are simply automated out of existence.
Don’t Bow to AI Overlords Just Yet…
There is the possibility that the clever among us will find new things to do, other jobs to earn money, put a roof overhead and food on the table but increasingly the concern is that we may reach a tipping point where there simply aren’t enough jobs to go around and (particularly for those who are not overly intelligent or capable of doing more advanced work) what do people do when their job no longer exists?
Human ingenuity is clear, perhaps we will always push the boundaries further and create new industries which take technology time to catch up to in perpetuity, thereby ensuring a plentiful supply of jobs in the long term, but whether this is the case or not, jobs will continue to be lost to automation and technology, whether to the humble washing machine, the factory robot, a computer, or even AI. Globalisation and cheap labour are risks, but perhaps not the primary ones.