Usually when Reserve Bank Governor Glenn Stevens delivers a speech he focuses on the current economic situation. Last week he ventured into unusual territory when he spoke to the annual dinner of Australian Business Economists.
His speech entitled: “The Long Run” saw the Governor bring out a larger than normal crystal ball to focus his forecasting skills on the longer term outlook. That was interesting in itself, but perhaps more significant is the fact that our Reserve Bank Governor harbours a rather different view from most economists about the impact of digital disruption in the all important labour markets.
He told his audience that, while small forecast changes in economic data received a lot of attention, the far more important question was whether we recognised and understood the “big forces” at work. Stevens said: “An understanding of these forces ought to help to get policy responses roughly right. And that, in the real world is probably as much as we dare hope.”
Stevens identified a number of these big forces:
- The collapse in Australia’s terms of trade along with the coincidental inability of the household sector to underwrite a lift in growth because it had no scope to increase its leverage as it had already done that in the past.
- A global economy growing but only moderately, affected by considerable structural change and facing legacy effects of debt.
- A deflationary or disinflationary environment for the production of goods and services.
- Extremely low returns on safe financial assets, as central bank actions have removed a significant proportion of these assets from the market, and have encouraged investors to accept interest rate risk on the remainder by providing guidance. This is leading to “…high and rising valuations on existing fixed assets, including dwellings, around the world, but not so much, thus far, in the way of new capital formation by most existing businesses in the real economy.”
No surprises in that collection of usual suspects. Governor Stevens suggested that to this list of ‘conventional’ forces we might add the ‘disruption’ of the increasing application of digital Wednesday 2 December 2015 technology, which may mean–among other things–that growth in sales, capital formation and returns to capital are happening in entities and activities we do not measure very well, or at all.
The technology he is referencing encompasses the broad spectrum of rapid expansion and capacity of robots, automation, artificial intelligence and the networking powers of the “Internet of Things”.
Around the same time that Governor Stevens was airing his disruption concerns, Martin Ford was being honoured in London as the author of what has been judged by The Financial Times as the best business book of 2015. The publication is entitled The Rise of the Robots: Technology and the Threat of Mass Unemployment.
Ford is a Silicon Valley-based software developer and entrepreneur. His previous book The Lights in the Tunnel (2009) was criticised in some quarters as being “the rantings of a latter-day Luddite”. He describes it as having been based on a thought experiment about tomorrow’s world.
The Rise of the Robots is more conventional in style, but retains a gloomy view of the social and economic implications of the rapid spread of technological innovation, especially the rise in unemployment. He claims, with some justice, that time has vindicated his rejection of the assumption that automation is primarily a threat to workers who have little education and lower skills level. That assumption, Ford says, emerges from the fact that such jobs tend to be routine and repetitive. Before you get too comfortable with that idea, however, consider just how fast the frontier is moving.
At one stage, a “routine” occupation would probably have implied standing on an assembly line. The reality today is far different. While, Ford says, lower skill occupations will no doubt continue to be affected, a great many university-educated, white-collar workers are going to discover that their jobs, too, are squarely in the sights. Ford says the fact is that “routine” may not be the best word to describe the jobs most likely to be threatened by technology. A more accurate term might be “predictable”.
Ford sprinkles his narrative with examples of how technology is wiping out more jobs than it creates. He warns that the major disruption will be in the service sectors of the US and other advanced economies. That is where the vast majority of workers are now employed. This trend he points out is already evident in areas like ATMs and self-service checkout lanes.
Ford predicts that the next decade is likely to see an explosion of new forms of service automation, potentially putting millions of low-wage jobs at risk. He cites the case of San Francisco start-up company, Momentum Machines Inc. (MMI). It is launching a business that automates the production of gourmet-quality hamburgers. To this end it has developed a device which shapes burgers from freshly ground meat and then grills them to order. It even includes the ability to add just the right amount of char while retaining all the juices. The machine, which is capable of producing about 360 hamburgers per hour, also toasts the bun and then slices and adds fresh ingredients only after the order is placed.
Not surprisingly such entrepreneurs tend to dodge any discussion on the impact of new technology on working conditions such as wages. MMI’S co-founder Alexandros Vardakostas has no such inhibitions. He told Ford of the company’s objective: “Our device isn’t meant to make employees more efficient. It means to completely obviate them.” Labour costs for burger production in the US are about $US9 billion annually.
I used the hamburger venture as an example of how automation is changing the most prosaic of jobs. I could have gone to a 300-page report published in early November by the Bank of America, which forecasts that robots will take over 45 per cent of all jobs in manufacturing and shave $US9 trillion off labour costs within a decade.
Alternatively the Bank of England’s chief economist, Andy Haldane, has warned that as many as 15 million jobs are under threat of replacement by smart machines. If you remain a sceptic, then listen to Governor Stevens who last week told his business economist colleagues that ”Demographic factors suggest strongly that all other things being equal, the problem isn’t going to be a shortage of jobs, but instead a shortage of workers”.