Wednesday, January 11, 2012

Automation and the Future of Globalization

This video has been making the rounds of late: Thirty story hotel built in 15 days.

Personally, given the time-lapse footage, I would have preferred 'Yakety Sax' as the music instead of the faux-Hans Zimmer score, but oh well. Lloyd Alter comments:
As an architect, I find this completely amazing. Before the Olympics we showed the Ark Hotel erected in six days, but it had nothing on this 170,000 square foot, 30 story hotel that was turnkeyed in 360 hours. It completely changes the way buildings are constructed and, I believe, is about to change the entire industry.
As an architect as well, I agree, although the aesthetics are rather sad. It seems prefab and automation are finally delivering as promised. Good comments, too. In the comments, someone wrote “Sounds great until you realize that ships even MORE jobs to china.” To which, Lloyd replied:

You are, unfortunately, absolutely correct. Construction was just about the last industry that couldn't be efficiently offshored. They just solved that.

Now they're planning to use the technology to construct a 200 story building that houses 100,000 people! Of course, based on yesterday's post on skyscrapers, I wonder if there will even be a market for such technology in the future. It will either destroy it, or enhance it as what few buildings remain will need to be constructed more cheaply and with less labor. Of course, construction history is littered with innovations that never caught on. On a related note, here’s Marginal Revoloution on medical automation:
In 2004 I wrote In Praise of Impersonal Medicine arguing:

I have nothing against my physician but I would prefer to be diagnosed by a computer. A typical physician spends most of the day playing twenty questions. Where does it hurt? Do you have a cough? How high is the patient’s blood pressure? But an expert system can play twenty questions better than most people. An expert system can use the best knowledge in the field, it can stay current with the journals, and it never forgets.

and in 2006 I noted:

The practice of modern medicine is surprisingly primitive…My credit card company knows far more about my shopping history than my physician knows about my medical history.

I now believe that we are on the cusp of major changes to medicine. The thousand dollar genome sequence is less than a year away, Ford has just developed a car seat that can monitor your health, many people are already using wrist monitors to measure heart and sleep patterns. All of this data will soon be combined with massive databases to offer predictive and prescriptive health diagnosis.
I have to say, I'm in agreement with Alex Tabarrok on this one - I've made much more accurate diagnoses of my own medical problems using Google that my doctor has talking to me. And see this post from Early Warning: Automation or Outsourcing? Evidence From General Motors. The conclusion:
I found an extended excerpt from GM's 1955 annual report here. In that year, GM made 4,477,000 cars and trucks in US factories. To do so, it employed about 555,000 people domestically. Thus GM was producing 8 cars/employee in 1955. In 2009, according to its annual report, GM sold 2,084,000 cars in the US. To accomplish that required 77,000 US employees. Thus GM was domestically producing 27 cars per employee. (I checked and it doesn't make much difference to this ratio if you include Mexico and Canada). The ratio 8/27 is 30%. Thus we can attribute a reduction of jobs by a factor 0.3 to be due to increased productivity which we can presumably mainly put down to automation.

Of course, these two factors are multiplicative. If GM had had no loss of market share but somehow was managing to do this at 1955 levels of productivity, it would employ 1/(0.3*0.4) = 8.3 times as many people. Of the two factors, both are roughly equal in importance, but productivity improvements (automation) appear to be slightly more important than loss of market share (offshoring) -- though I wouldn't place too much stress on that difference given the uncertainties of this rough calculation.

Thus when Mr Burnstein claims "U.S. technology and business innovators recognize that robots in factories have the potential to save and create more jobs than they eliminate", I don't think he's telling us the truth.
What are the end results of such innovations? Calculated Risk posted the chart below, which has been getting some attention.

The Downward Spiral interprets explains the implications:
As you can see by the chart above, not only was the current downturn at its deepest worse than any which preceded it, we have now entered uncharted territory in that it is also the longest we've gone since the Great Depression without regaining at least as many jobs as were lost during a recession period.

Shockingly, we still stand around 4.5% below the December 2007 total job figure, having only regained about one-quarter of the losses since we began to leave behind the deepest depths of the job downturn around a year-and-a-half ago. That means that even if the economy keeps adding jobs at the pace it has since the downturn's low point, it will take over four more years just to get us back to zero. By that time it will have been more than eight full years since the downturn started during which the U.S. population will have increased by at least 20 million people.

Unfortunately, that is also the BEST case scenario. More likely than America continuing to steadily add jobs over the next four years is that at some point there will be a double dip recession, which reverses the direction of that red line and starts it downward again. There are so many factors creating headwinds for the economy that there is no way that doesn't happen.

Another factor the chart does not show is the declining quality of the jobs that ARE being created. Many of the jobs that were lost during this downturn were good paying positions that enabled their holders to live a middle class lifestyle. Many of the replacement jobs, however, pay far less and have little or no benefits like health care attached to them. For a consumer based economy, this is a long term disaster, even if the recent trends in job creation do not reverse anytime soon.
And see this post also from Early Warning. He looks at the employment-population ratio for working-age men (25-54). His conclusion - "At this pace, we will return to the pre-recession level some time in the late 2030s." He adds "What is overwhelmingly more likely is that the ratio will not recover to the pre-recession level before a new shock arrives and knocks it lower yet." He concludes:
I continue to be amazed that this data - together with its causes and implications - are not at the center of our economic-political discussions. The importance of hard work and self-discipline has been a central value of western culture for many centuries (if not millenia). One in five working age men are no longer working (or not in any way that society is able to measure at least) and as far as I can see there is little or no hope of a fundamental reversion in this trend. We are going to have to either a) change the situation in the economy, or b) undergo a massive values shift to give honor and meaning to men who don't work, or c) experience a major crisis.
Given the state of our 'leadership', I'm betting on c). When are we going to realize we are in uncharted waters here? When will our leaders stop pretending that tax cuts, more education, or some unspecified “innovation” is going to solve our problems? The whole industrial enterprise is only two centuries old – in other words, extremely novel. By contrast, the Neolithic Revolution was around for six thousand years before the first cities began forming. Can the industrial project survive? Even the World Economic Forum is skeptical:
(Reuters) - A backlash against rising inequality - evident from the Occupy movement to the Arab Spring - risks derailing the advance of globalization and represents a threat to economies worldwide, according to the World Economic Forum.

Severe income disparity and precarious government finances rank as the biggest economic threats facing the world, according to the group's 2012 Global Risks report released on Wednesday.

The 60-page analysis of 50 risks over the next decade precedes the World Economic Forum's (WEF) annual meeting in two weeks' time in the Swiss ski resort of Davos, and paints a bleak picture of an increasingly uncertain world.

Over the past four decades, Davos, which brings together politicians, central bankers and business leaders, has become a byword for globalization. Now confidence about the steady gains from the onward march of the global marketplace is faltering.

Rising youth unemployment, a retirement crisis among pensioners dependent on debt-burdened states and a yawning wealth gap have sown the "seeds of dystopia," according to the report, based on a survey of 469 experts and industry leaders.

For the first time in generations, people no longer believe their children will grow up to have a better standard of living.

"It needs immediate political attention, otherwise the political rhetoric that responds to this social unease will involve nationalism, protectionism and rolling back the globalization process," said Lee Howell, the WEF managing director responsible for the report.

The unsustainable level of government debt in many countries had already been highlighted as a top threat in the previous two WEF risk reports but the chronic nature of fiscal deficits means the issue remains centre stage.

"We're seeing governments kicking the can down the road and not trying to get their hands on it," Howell said.

Since last January, the euro zone's debt crisis has spread and deepened - toppling governments in Greece and Italy - while the United States has lost its triple-A credit rating, after failing to stabilize its debt position.

There will be a greater focus than ever in Davos this year on the failures of the modern market economy, including discussion on the uncertain future of capitalism, a subject that would have got short shrift in the years before the financial crisis.

Other threats identified in the 2012 report include the risk that financial and other regulatory systems designed to safeguard the modern world may no longer be up to the job, as well as rising greenhouse gas emissions and looming water shortages.

Governments and corporations must also stay abreast of a host of "X" factors - emerging concerns with still unknown consequences - such as the risk of a volcanic winter or a major accident involving new technology, such as genetically modified organisms or nanotechnology.
This concern coming from the World Economic Forum is laughable, since it is their own policies that have caused the situation. Yet even they are beginning to see that it is unsustainable (and no mention of peak oil?). The world is becoming more complex and more chaotic. How long can such a system last? When even the World Economic Forum begins to believe that globalization is under threat, it’s time to pay attention. I doubt the elites flying into Davos on their private jets will take any action that will rectify the situation, however.

Most likely what will happen is that the elites will turn to increasingly authoritarian measures to preserve their wealth and status (authoritarian capitalism), even as the world continues to deteriorate.As I've said before, there is no solution to the crisis under the current paradigm.

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