The new automation revolution is going to disrupt both industry and services, and developing countries need to rethink their development strategies.
A NEWS item caught my eye last week, that Uber has obtained permission in California to test two driverless cars, with human drivers inside to make corrections in case something goes wrong.
Presumably, if the tests go well, Uber will roll out a fleet of cars without drivers in that state. It is already doing that in other states in America.
In Malaysia, some cars can already do automatic parking. Is it a matter of time before Uber, taxis and personal vehicles will all be smart enough to bring us from A to B without our having to do anything ourselves?
But in this application of “artificial intelligence”, in which machines can have human cognitive functions built into them, what will happen to the taxi drivers? The owners of taxis and Uber may make more money but their drivers will most likely lose their jobs.
The driverless car is just one example of the technological revolution taking place that is going to drastically transform the world of work and living.
There is concern that the march of automation tied with digital technology will cause dislocation in many factories and offices, and eventually lead to mass unemployment.
This concern is becoming so pervasive that none other than Bill Gates recently proposed that companies using robots should have to pay taxes on the incomes attributed to the use of robotics, similar to the income tax that employees have to pay.
That proposal has caused an uproar, with mainstream economists like Lawrence Summers, a former United States treasury secretary, condemning it for putting brakes on technological advancement. One of them suggested that the first company to pay taxes for causing automation should be Microsoft.
However, the tax on robots idea is one response to growing fears that the automation revolution will cause uncontrollable disruption and increase the inequalities and job insecurities that have already spurred social and political upheaval in the West, leading to the anti-establishment votes for Brexit and Donald Trump.
Recent studies are showing that deepening use of automation will cause widespread disruption in many sectors and even whole economies. Worse, it is the developing countries that are estimated to lose the most, and this will exacerbate the already great global inequalities.
The risks of job automation to developing countries is estimated to range from 55 to 85%, according to a pioneering study in 2016 by Oxford University’s Martin School and Citi.
Major emerging economies will be at high risk, including China (77%) and India (69%). The risk for Malaysia is estimated at 65-70%. The developed OECD countries’ average risk is only 57%.
From the Oxford-Citi report, “The future is not what it used to be”, one gathers there are at least three reasons why the automation revolution will be particularly disruptive in developing countries.
First, there is “premature deindustrialisation” taking place as manufacturing is becoming less labour-intensive and many developing countries have reached the peak of their manufacturing jobs.
Second, recent developments in robotics and additive manufacturing will enable and could thus lead to relocation of foreign firms back to their home countries.
Seventy per cent of clients surveyed believe automation and 3D printing developments will encourage international companies to move their manufacturing close to home. China, Asean and Latin America have the most to lose from this relocation.
Thirdly, the impact of automation may be more disruptive for developing countries due to lower levels of consumer demand and limited social safety nets.
The report warns that developing countries may even have to rethink their overall development models as the old ones that were successful in generating growth in the past will not work anymore.
Instead of export-led manufacturing growth, developing countries will need to search for new growth models, said the report.
“Service-led growth constitutes one option, but many low-skill services are now becoming equally automatable.”
Another series of reports, by McKinsey Global Institute, found that 49% of present work activities can be automated with currently demonstrated technology, and this translates into US$15.8tril in wages and 1.1 billion jobs globally.
About 60% of all occupations could see 30% or more of their activities automated. But more reassuringly, an author of the report, James Manyika, says the changes will take decades.
Which jobs are most susceptible? The McKinsey study lists accommodations and food services as the most vulnerable sector in the US, followed by manufacturing and retail business.
In accommodations and food, 73% of activities workers perform can be automated, including preparing, cooking or serving food, cleaning food-preparation areas and collecting dirty dishes.
In manufacturing, 59% of all activities can be automated, including packaging, loading, welding and maintaining equipment.
For retailing, 53% of activities are automatable. They include stock management, maintaining sales records, gathering customer and product information, and accounting.
A technology specialist writer and consultant, Shelly Palmer, has also listed elite white-collar jobs that are at risk from robotic technologies.
These include middle managers, commodity salespeople, report writers, journalists, authors and announcers, accountants and bookkeepers, and doctors.
Certainly, the technological trend will improve productivity per worker that remains, and increase the profitability of companies that survive.
But there are adverse effects including loss of jobs and incomes for those who are replaced by the new technologies.
What can be done to slow down automation or at least to cope with its adverse effects?
The Bill Gates proposal to tax robots is one of the most radical. The tax could slow down the technological changes and the funds generated by the tax could be used to mitigate the social effects.
Other proposals, as expected, include training students and present employees to have the new skills needed to work in the new environment.
Overall, however, there is likely to be a significant net loss of employment, and the potential for social discontent is also going to be large.
As for the developing countries, there will have to be much thinking about the implications of the new technologies for their immediate and long-term economic prospects, and a major rethinking of economic and development strategies.
Global Trends by Martin Khor
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
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