Jobs: First, get rid of expensive Westerners. Second, get rid of people entirely

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The Great Recession has been going on since 2008, with no end in sight. A great part of the problem is financial: we borrowed too much money for too long and now don’t have the ability to pay off our debts. That is the reason why governments across Europe have been calling for austerity measures.

The argument for austerity is as follows: governments have spent too much money on social programmes. They have borrowed from the future to pay for expenditure for today. To get our fiscal houses in order, the argument goes, we need to cut government expenditure. This will reduce our borrowing requirements for funds that we have used to pay for ongoing social expenditures and will enable us to keep on paying the interest on our debts when they are due.

Unfortunately, whilst important, this policy ignores the fundamental problem with our economies. While politicians may struggle with the issue of indebtedness and fret over which social or military programme to cut, they are ignoring the central social and economic threat to our countries: the loss of good jobs. If you have good jobs you can afford to pay lots of taxes, which allows the government to pay for the various programmes that it is used to spending money on. If you have no jobs, you have no taxes and you cant afford to do anything.

Having a job is also key to having personal income.  With income you can buy things that you and your family need and want.  You can also save your income for a rainy day, or for retirement.  Without a job you have no income and can only get the things that you and your family need via charity – either privately given or publicly given via unemployment insurance –  or by theft.

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Note: this article is part of a series of articles which will form the basis of a book to be released at the end of the year.  As such it has a new tag – Long Reads.
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This article looks at the changing nature of jobs in society and highlights a fundamental problem: there is an increasing driver for Western companies to cut costs by either getting rid of expensive Western workers, and replacing them with cheaper workers in emerging economies, or by getting rid of workers entirely, and replacing their labour with automation, robots and computers.  While this temporarily helps the individual company by making it more competitive, there will come a point at which there are so few people employed in the West that nobody has the income to buy the company’s products.

With high levels of unemployment governments will be forced to tax those people who have incomes even more as governments get hit by a reduction in corporate and personal taxes and an increase in unemployment payments and health care expenditure as people feign illnesses to get access to increasingly restrictive unemployment payouts.  So while it may initially appear that the rich are largely unaffected by large increases in unemployment this will be a temporary phenomenon: the value of their assets in the form of shares and property will fall and governments will be forced to massively increase taxes on them.

Ultimately, a country’s citizens are all in the same boat.

We start this article by looking at how the West turned its back on manufacturing jobs in the 1980s and on service sector jobs in the mid 2000s. Finally, we look at the a new Industrial Revolution that is taking place at this very moment in time, which will result in higher levels of unemployment in both manufacturing and service sector jobs across the world.

 

Getting rid of expensive Western workers in manufacturing

The shift to getting rid of expensive Western workers has accelerated over the past ten years since China joined the World Trade Organisation in 2001 but it is not a new phenomenon and has its roots in Margret Thatcher’s Britain in the 1980s, if not earlier.  I was at school at the time and I remember being taught about the concept of primary, secondary and tertiary industries.

Primary industry was all about mining, timber and other extractive industries. This was deemed as dirty, primitive work, to be avoided if possible. Britain’s former colonies had provided Britain with the raw materials needed for Britain’s factories so there was also hint of cultural and racial superiority about not being involved in primary industries.  It also smacked of dirty miners – who were on strike at the time in Britain, putting the whole country at risk as coal power stations ran out of coal.

Next came the secondary industry – this was all about manufacturing. Manufacturing was one step up on the evolutionary ladder from primary industry, but was also deemed as somewhat primitive and undesirable. Yes, Britain’s wealth and empire had been built on the back of flooding the world with cheap, high quality, British goods, rather like China today, but Britain had not been doing so well in manufacturing for a while and so it was best to focus on what Britian should be doing instead: tertiary industry work.

Most people now refer to the tertiary industry as the service industry. It was believed to be the pinnacle of an evolutionary process that had started with the ideas of Adam Smith and David Ricardo in the late 1770s and 1820s. Manufacturing should be de-emphasised in the economy and the primary industry should be killed off.

Thatcher and her successor, Major, helped to propel the service sector into the stratosphere by introducing reforms to the financial services sector which created a revolution in finance. Sleepy building and mutual societies, that had required you to save with them for years before you could take out a small mortgage, were privatised and high street banks rushed in to capture market share, offering easy mortgages that triggered a bidding war on house prices that inflated the value of property.  The property bubble had begun.

Latched onto the financial services sector was a posse of clever lawyers and accountants that helped wrap sophisticated financial instruments around basic commodities, “adding value” along the way. The financial reforms unleashed by Thatcher in the UK and Reagan in the US are directly linked to the long boom that we lived through for nearly three decades, despite occasional blips, and the crash that occurred in 2008.

This ideal of an advanced economy, living off the brains and talents of its citizens, as opposed to the brawn and labour of its workers, is appealing. This ideology is also comforting and helps to explain why we are no longer a manufacturing powerhouse in Britain: we chose to leave manufacturing to be done by workers in poor countries rather than face the reality that we simply stopped being good at it. It also helps to explain why we want to emphasise higher education amongst our citizens as they are supposed to be competing with their brains as opposed to with their brawn.

As manufacturing has gone out of favour, free trade, in stark contrast, appears to have provided so much. It has taken our, unwanted, dirty industries and relocated them to poorer parts of the world. It has opened up other markets of the world to our high-value service products. It has enabled us to buy goods at prices that would be impossible to match in the West, providing us with a level of material wealth that has been unmatched in history.

All of this is wonderful.

And yet, if you no longer think that manufacturing is worthwhile, you will have no vested interest in protecting and promoting your own manufacturing sector. This is great news for countries like China, who are very interested in promoting and protecting their manufacturing sector.

This is classic disruption theory, as articulated by Clayton Christensen. In his various books he describes how as a company moves up the value chain, it will typically lose interest in competing for its original place in the value chain, enabling competitors further down the value chain to move up and takes its place in the value chain that it once occupied. As with all such disruptions, however, eventually there is no place for the higher value seeking company to go: they run out of space to move up into and they wake up to discover that even their high value work has been taken over by the nippy newcomers.

However, in this scenario, it is not companies that are being disrupted but entire countries.

The problem for the West is that places like China can have comparative advantages in everything, simultaneously. China can be great at manufacturing AND resource extraction. It can produce cheap plastic toys AND state of the art high speed rail engines and networks. It can produce food AND generate more patents per year than almost everyone else. It can provide low cost labour for manufacturing AND churn out thousands of PhDs in advanced materials science and biotechnology.

Manufacturing is also the heart of an ecosystem of services sector jobs. Engineers, designers, financiers, lawyers, accountants and consultants all need manufacturing companies to exist so that they can provide their services. Without manufacturing those domestic service sector jobs will eventually disappear as there are no domestic companies to provide their services to. Without those manufacturing and service sector jobs, there is no income to pay for all the other things that we value in life. It will result in losses of jobs in tourism, entertainment and leisure sectors. The jobs will disappear in construction and furnishings. The knock on effects are enormous.

We have failed to realise the importance of having a balanced economy with primary, secondary and tertiary industries. Our pride has made us think that service sector jobs are somehow superior to manufacturing jobs. Since we have not valued manufacturing, we have put in free trade policies that have enabled manufacturing jobs to be lost to foreign competition and to foreign imports. Until we change that mindset, they will not come back. If we wait too long our economies will be so hollowed out that even if we wanted them back, it would be too late.

But there is a new threat to Western economies as well.  While primary and secondary industries may have lost their appeal in the 1980s, since the mid 2000s there has been a shift to getting rid of expensive Western workers in the services sector as well.

 

Getting rid of expensive Westerners in service sector roles

I met with a partner of an accounting firm in 2012 who said that he and his partners had realised that most of the accounting work that is not face to face with their customers can be done anywhere in the world.

With this realisation, his firm looked at a map of the world to find the cheapest place where all this non face to face work could be done, whilst maintaining the required levels of quality.   They picked a city in India, which was miles from most of the normal Indian outsourcing destinations and then went about hiring and then training the best people they could find.  Why?  To help prevent his expensively trained accountants from leaving for other jobs with other western service sector companies in finance, law and accounting that were doing the same thing.

He now has Indian PhDs doing accounting due diligence work which is both technically difficult and mind bogglingly boring.  He is able to charge his European clients the Western rate for doing this, but able to pay his high calibre Indian PhDs a mere €8,000 per year.  His is happy, as his revenues are high, his costs are low and his profit margins are fantastic.  Meanwhile, his Indian PhDs are happy as their income is sufficient for them to afford a nice house, with a driver and a maid.

Eventually, he agreed, this situation would have to end.

Firstly, his clients will ask why he is charging so much for work that is costing the firm so little to actually perform. This will put downwards pressure on his fees, so that they end up being only a small percentage above the cost of the Indian for doing it. Top line revenues for this activitiy, as as result, will collapse.

Secondly, there is nothing stopping his Indian PhDs from setting up a competing business, going back to all of his existing clients and informing them:  I have been doing all of this work for you for the past 5 years. You are happy with what we have done.  Why don’t we cut out the middleman who is not adding any value?  This way you can save money and we can increase our fees.  A win-win for both parties.

His story is no different from that of countless other design agencies, banks, law and accountancy firms in the West who are doing the same thing. Being a partner in such a firm used to be a ticket for a very comfortable upper middle class existence.

So if you are a senior accountant or lawyer and have been invited to become a partner in a law firm or accounting practice you need to ask yourself a simple question before you pay your partnership investment:  is this such a good idea?  Will those high margins last forever?

The answer is, probably, no.

It is not just financial services and their legal and accounting brethren, however, that are being affected. Many jobs in the creative sector are also being outsourced to foreign firms. Disney already outsources much of the computer animation work for its films and TV shows to India, keeping costs low but also providing on the job training for future competitors. Western web design and advertising agencies frequently keep their customer facing directors close to their home market, but have staff in low cost countries who do most of the actual work.

This is a real problem for Western societies.  Individuals who have service sector jobs today are incentivised to find ways to cut costs.   Since people in the West have a cost of living that is higher than in the rest of the world, it is hard to persuade Westerners to cut their salaries as if their salaries are too low they will not be able to afford to live in their own country.

It is very possible, however, to persuade people living in the rest of the world to take a lower salary because their cost of living is already low – as in the example of the Indian PhDs just mentioned.  So if your Western employee wont take the pay cut it makes sense to make them redundant and hire someone living in somewhere like India to do the job instead.

This is a significant issue for young people in the West, who are getting increasingly into debt to pay for expensive educations and qualifications for law and accounting, and are finding it very hard to find a job. Why would a Western law firm or accountancy practice hire a recent graduate with no experience, for three times the cost of a more qualified, more experienced lawyer or accountant in India? Clearly, they would still want to hire some, to nurture into the partners who will have face to face contact with their customers. But for all the work that can be done without customer interaction, there is no need at all.

Eventually, enough of this type of outsourcing will result in an expanding underclass of young, qualified Westerners with no jobs. They will need social security benefits to keep them off the street and will not be paying taxes, a double whammy for government finances. Governments will be forced to raise taxes to pay for this, which means that those people who have jobs will be shouldering an increased tax burden, making them even more expensive to employ as their take home income is reduced. That will make the cost gap between them and their equivalents in the rest of the world even greater, and thus increase the incentive to make those who still have jobs redundant too.

 

Getting rid of people entirely

 

Getting rid of the Western workforce from primary, secondary and tertiary industries is clearly not going to be good for the jobs market in the West.  But this is actually only one part of a wider problem that the world is facing.

The world in the early stages of a new Industrial Revolution thanks to a simultaneous increase in the capabilities of robots and artificial intelligence to do many factory and service sector jobs. This automation of work to computers or machines can take various guises.  Many, including computerised call centres, are well known.  But other forms of automation are having an impact on jobs that people would have never guessed could be automated.

 

 

Lessons from the first Industrial Revolution

The first Industrial Revolution was not pleasant: due to a collective amnesia most people have forgotten about the disastrous, multi-generational, consequences that rapid industrialisation had for the have nots, not just in societies that were experiencing industrialisation, but also for countries that did not industrialise at all.

When the Scotsman Adam Smith was writing in 1776, co-inciding with the year of the US Declaration of Independence, he described a world that was on the cusp of the first Industrial Revolution, with references to items such as nails being produced on a production line being showcased as examples of modernity. Forty years later, in 1817, industrialisation was starting to accelerate, allowing David Ricardo to write about the comparative advantages of nations and how certain nations should engage in high value activities and other nations in low value activities.

When you read these books and novels of the time, it is clear that industrialisation was extremely painful for many people. Why? It made people who had previously been gainfully employed suddenly become unemployed. The 1811-1817 Luddite movement, now permanently synonymous with backwards thinking people, was a symptom of a serious unemployment crisis. Millions of people had moved from the countryside into the cities. In the countryside they had farming, garden farming and cottage industry to sustain them economically. While life was not easy, being evicted from your land and being forced to work in an early 19th century factory was even worse. This revolution was not quick. It was not a brief recession, followed by years of prosperity. It lasted from the late 1700s to the end of the Second World War: over 150 years.

Europe was convulsed during this period by multiple revolutions and upheavals. The French Revolution, inspired by the French backed American Revolution, set the stage for the concept of nationalism with the rise of Napoleon Bonaparte. In 1848 multiple governments across Europe were rattled by revolutions. Many of these revolutions were caused by an influx of new ideas and a drop in the numbers of jobs. This process only accelerated towards the second half of the 19th century which saw millions of Europeans flee conditions at home to lives of hoped for prosperity in America, Canada, Argentina and, eventually, Australia. Life in Europe had become unbearable and the value of life had dropped with it. 19th century European factories were inhuman and awful because their owners could get away with it. The products that they produced were so cheap that they destroyed all of the cottage industries and jobs that had previously existed, leaving people with few alternatives.

And this pain was for the successful, early industrialising countries. The rest of the world had it even worse: subjugation and colonisation.

China and India had had the largest populations on Earth for a long time. In a pre industrial world, where there were few machines, there was a simple economic truth: if you had more people you could produce more things. The more things that you could produce, the more wealthy you would be as an economy.

China was a major manufacturing hub of the world and produced high quality goods that were in significant demand in the West. When the Eastern Roman Empire’s capital Constantinople fell to the Turks in 1453, closing off the silk road to China, it set off a wave of innovation in Western Europe as city states and small countries tried to find a way to get back into the Chinese and Asian markets or come up with substitute products. Early adoption of cheap guns enabled these small European countries to dominate other wealthier and more populous countries with surprisingly few people. They used this power to control markets and purchase spices and manufactured goods, thanks to Latin American silver (the Spanish empire), innovative corporate structures (the Dutch empire) and finally the sale of early manufactured goods (the British empire).

It was the final group, the British, which radically changed the lives of people living within India and China and then resulted in a military and political dominance over Africa (resources and slaves) and Asia (captive markets for industrialised products). Smith’s free trade and Ricardo’s comparative advantage crushed the economies of the rest of the world. Britain and the industrialised West could produce products that were comparatively better and cheaper than those of their competition. When China refused to import any more products, worried about the destabilising impact of cheap Western goods on their economy, the British and other Western powers first forced opium into China (the Chinese did not want the manufactured goods but became addicted to opium) and then manufactured goods with the Unequal Treaties of the late 19th and early 20th centuries, which reduced China to a semi colonial status and forced them to lease Hong Kong and Macau.

So looking back in history, it is clear that the use of the word “revolution” in the context of Industrial Revolution does not refer to something warm and benign, but rather a violent convulsion which upset the global balance of power and the societies that lived through it.

This new Industrial Revolution has the potential to be equally disruptive, and could cut a swathe out of traditional jobs.  To help explain why, lets look at the process of getting a manufactured product from a factory to the consumer.

 

Factory employment under threat

Take an item as ubiquitous as a smartphone. These are amazing pieces of engineering and are cheap enough for normal people to use them to access much of the world’s knowledge via an internet connection, communicate via video chat, email or phone, and even waste hours playing games about angry birds and green pigs.

Apple kicked off this revolution in intimately personal computing in 2007. The iPhone is designed in California but is built in China.  Apple’s then Chief Operating Officer, Tim Cook, is famous for explaining that Apple’s decision to build the phones in China was not just because Chinese labour and factory construction costs were cheaper. There was much more to it. In order to ramp up the production of iPhones an army of people were needed- nearly 500,000 in total. These workers were typically young and hungry to succeed. They worked long hours and slept in corporate dormitories and ate company  food.  The semi-automated manufacturing process was flexible enough for last minute changes to be made  – glass from Corning, for example, instead of a plastic screen. Alongside the iPhone factory, that was owned and operated not by Apple but by a Chinese manufacturer called Foxconn, were dozens of other factories that employed similarly huge numbers of other workers producing sub components for the iPhone. All in all hundreds of thousands of jobs were created that were highly desired by young Chinese workers.  Tim Cook explained that this scale and flexibility was impossible to replicate in the United States, which explains why those jobs will not be returning to US or other Western countries any time soon.

And yet even in China there is pressure to cut costs and to get rid of Chinese workers. Not to replace them with other workers from other nationalities by to replace them with machines.  In 2011 Foxconn announced that was planning to switch many of the repetitive tasks done by its labour force in China to being done by one million robots.   These robots can work 24 hours a day 365 days per year.  They need no pensions or healthcare. They do not complain about labour conditions and form unions.  Robots have long been engaged in other industrial sectors – take welding and painting of cars as an example – but many factory jobs still need assembly workers to man the assembly lines.  What is clear is that the technology exists today for robots to take over many of the nimble jobs that had hereto required human hand and eye coordination.  As these robots get cheaper, better and more ubiquitous this is going to have a very negative impact on the number of jobs that are available for low-medium skilled workers.

Warehouse labour

Once the iPhones, or any other product, have been built they need to be packaged and distributed.  Typically they will first go through a series of warehouses on their way to being shipped to the customer directly or to retail outlets.

Warehouses used to hire a decent number of people and were used to store goods on pallets which would then be sent to retail outlets where the retailers would then unpack the pallets of goods and stock the items on the shelves.  The customer would then go and pick up the item and pay for it.  Online retailing has up-ended that process.  Now, items are sent to warehouses and somebody has to go and pick up the item on behalf of the customer, package the goods up and then ship them to the customer.  Warehouses have essentially become enormous shops where someone is paid to do your personal shopping.  This is great, but time consuming, labour intensive and not very scalable: the more orders you get, the more people you need to fulfil the orders.

Amazon recently purchased a warehouse robotics company, Kiva Systems, that has revolutionised warehouses.  When an order comes in to the warehouse instead of the worker going to the shelves to pick up the product, the worker does not move and the product, carried in one of thousands of boxes transported by robots, goes to the worker.  As orders come in the robotic boxes automatically re-organise themselves so that the most popular items are closest to the packers and the least popular items are furthest away.  This system is faster, more efficient, more accurate and more scalable.  And the warehouse needs 70% fewer people to fulfil the same number of orders.

 

The impact on traditional retailing

This improvement in speed and accuracy, combined with low cost, is now enabling the web e-commerce giant to offer same day delivery for many products to selected locations.  This same day delivery is a profound change and will strip away one of the few remaining competitive advantages of traditional brick and mortar retailers – the ability for a customer to go to a store and pick up the item that they want straight away.  Customers now have a choice – they can drive to a store, hope that the item they want is there, pick it up and then drive home.  Depending on how far they are from the store they are this could be a 1-3 hour round trip, including parking.  Or, they could order the item in the morning and wait for it to be delivered later on that day – a delay of 5-8 hours, but with no trip to the store required. If they don’t like the item they can simply return it, at no cost, which helps to eliminate the final advantage that traditional brick and mortar retailers have – to be able to physically touch the product.

I live in a rural area and there are few shops.  Of those shops that exist the selection is poor and it is time consuming to go to them.  I am the perfect Amazon customer.  However, same-day delivery, which has been enabled by a revolution in how warehouses are structured, thanks to robotics and reducing the number of people to pick products, will undoubtedly push many traditional shops to the wall.  This will not just eliminate thousands of jobs, but will also have huge implications on our high streets and city centres.

But automation in warehousing is not the final stage in the process of getting rid of workers.  The last part is delivery to your home and don’t think that more same day deliveries is going to result in a boom in courier services.  Deliveries could go robotic as well.

Self driving cars

Google has been spending a lot of money and human resources in developing autonomous, self- driving cars.  The results, so far, have been impressive.  The self driving vehicles have now clocked in several hundred thousand miles of autonomous driving on normal roads –  in cities, rural areas and on motorways.  The California Senate has there passed a bill favouring autonomous vehicle operation on its roads. If Google is lucky it will be in a position to drive its cars in California from 2013 – it can already drive its cars in Nevada.

Google’s initiative has the possibility of being a significant game changer in transport. On the positive side, normal cars may simply have a “Google drive” option, a form of autonomous driving akin to a vastly improved cruise control. This would be ideal for motorway driving and as more vehicles are fitted with “Google drive” it would improve traffic safety, increase the number of cars that could be on the road at any one time and improve average driving speeds for commuters. Gone would be the days when traffic seemed to randomly slow then stop, despite the fact that there appeared to be no obstacle causing it.

It may also have a positive contribution in making personal taxis highly cost effective by cutting out the taxi driver. If you want to go somewhere you could just call one up, and it would arrive on your doorstep and then take you to your destination. The business model could be a cross over between a hired car and a taxi service.  This sounds great, but if you are a taxi or mini cab driver, beware. The need to have a human driving the taxi is very expensive, Google taxis should be able to significantly charge less than ones that are manned and should be safer. Eventually “Google drive” will make its way into buses and trucks.

Google-drive equipped delivery trucks could also be used to deliver same day delivery products from online retailers like Amazon.  Specially configured vehicles could have a series of lockers in them that can only be opened by a passcode sent via email to the customer – essentially a mobile locker which is not too dissimilar to physical lockers in local shops that Amazon currently uses to deliver goods to people who cannot receive their goods at home.

All of these changes in the physical world have been enabled by software.  Factory robots are smarter and smaller and thus can now work alongside human labour on assembly lines and out of their safety cages where they have typically been located.  Warehouse robots use a form of chaos theory to relocate boxes containing products. Self driving vehicles on normal roads has only been possible due to improved sensors and increased computing power to make sense of all the incoming data to move the vehicle safely.   But while this will result in more jobs working on software and hardware enhancements to these innovations, software companies employ relatively few, highly skilled, people.  The people that these innovations will affect most are lower and middle income workers.

And the numbers affected could be huge.  According to the UK Office for National Statistics, in December 2012 there were 32 million people employed in the UK.  Of these, 2.6 million were employed in manufacturing, 1.5 million in transport and storage sectors and 4.8 million in the wholesale and retail trade – those that will be most affected by same day delivery of goods.  That is 28% of the labour force.  But these are just the people who are directly involved in those sectors.  On top of this lies an army of construction companies, designers, engineers, lawyers, bankers, accountants and the like that provide products services to the manufacturing, transportation and retail sectors.

But another technology has been developing over the past 20 years is on the cusp of becoming mainstream.  If it becomes widespread it has the potential to wipe out the entire value chain from manufacturing to final distribution to customer’s homes. The technology is 3D printing.

 

3D printing

3D printing has been getting a lot of press recently with journalists breathlessly describing the latest and greatest thing that 3D printing can do: print human organs; print beautiful prosthetic legs; print complex parts for jet engines and so forth. The range of items and materials available that can be printed is astounding and is getting better over time.

Prior to the Industrial Revolution manufacturing was done at home or in small workshops. Many household items that we now purchase were made at home by the home owner. As a result no money exchanged hands. Other items were made in small workshops and were sold locally, nationally or internationally. Manufacturing was a skilled activity and required the manufacturer to have a full skill set to make the particular item. It was the industrial revolution that brought about specialisation of work activities and the monotony that accompanied that specialisation. Given the fact that these items were manufactured by hand, output was directly linked to the number of people doing a particular task. More people meant more products. This is why India and China were the world’s economic powerhouses – they had more people to make more things than anybody else.

The first Industrial Revolution, which took place first in England and Scotland, before spreading to Northern Europe and the United States, was revolutionary because it was so disruptive to so many industrial sectors over a period of half a century. The disruptive part was not simply that hand made products were now made by machines but the entire society and culture devoted to making those products changed, at home and abroad.

The cotton industry provides one good example. The combination of mechanical cotton gins, which radically enhanced the output of raw cotton per person, and cotton mills, which could process ginned cotton into threads and then weave into cloth and slave labour in the southern US producing cheap raw cotton crushed households and workshops that had previously been engaged in these activities. Socially, people migrated from cottages into cities and the sale of cotton made the early industrialists incredibly wealthy. The balance of power shifted in the world as Indian cotton output was wiped out by the sale of cheap British cloth, ruining the Indian economy and destabilising the area politically, enabling the country to be picked apart bit by bit until it became a British Imperial possession. Early industrialisation brought the West political, economic and military advantages over the rest of the world that are only now beginning to fade.

Getting in early on an Industrial revolution helps. Being late can set you back hundreds of years.

So how does 3D printing fit into this story? Many people think that this will bring back manufacturing and innovation to the West. In this story China, whose low cost of building, low cost of capital, low cost of labour and ability to mobilise entire armies of young workers has made it so successful in the past decade, is a loser. The West, with its fabled ability to innovate and create disruptive new products will be a winner.

This is wishful thinking. People need to stop thinking about the particular widget that can be printed and must start thinking how that act can disrupt the entire global economy.

Think of a simple manufactured product. It is manufactured in China. Workers are involved in building the factory and operating the factory. There are workers involved in transporting the raw materials to the factory. There are workers who transport the products from the factory to warehouses. Workers are involved in building and operating those warehouses. Workers take the product from the warehouse and load it onto a ship. There are workers involved in building and operating the dockyard. There are workers involved in building and operating the ship. The ship arrives at a dock in the West, having stopped off at other ports along the way. Workers take the product off the ship and into a warehouse. There are people involved in building and operating the port and the warehouses. Workers take the product from the warehouse and transport it to another warehouse – Amazon, for example. There are people involved in building and operating the heavy goods vehicle. In the meantime, the product was designed by a few people, who developed a marketing and a sales strategy. Other people made deals with wholesalers and retailers to hold and distribute their product. Online, the product is ordered. It is shipped from the warehouse and arrives at your door. You open the box and are thrilled with your purchase.

Or you could go to your home office, find the design of what you want, press print on your 3D printer, wait a few hours and return, thrilled with your product.

3D printing has wiped out all of the jobs previously involved in the supply chain of that product. Those jobs will not be replaced. That is why 3D printing has the scope for being so disruptive. In our current supply chain there are a lot of jobs. Each step results in a sale and a purchase, numbers that are picked up as part of GDP statistics and are subject to taxation. 3D printing could result in millions of jobs being lost and a sharp decline in taxable revenues. This will impact not just the West but the newly industrialised world.

Clearly, not all products will be or can be made using 3D printing. Mass production is so good and so effective that it will take decades before 3D printing is in a position to really challenge the status quo. But it will change the manufacturing and supply chain of many products.  It has already started with personalised products, which cannot be mass produced. It has already started with complex and hard to build components – GE is using it for airplane engine components. Over time, as it gets better it will not just revolutionise the workforce but will also revolutionise our concept of what is valuable from a material perspective.  If anybody can print almost anything is there any value in things?

Which brings us to the final change in the jobs market, the concept of virtual jobs.

 

Virtual jobs

But not all products result in physical things. There are many products and services that are almost pure information and can result in virtual work.

Ten years ago people began to talk about telecommuting and hot desking. This trend started sluggishly because the communications infrastructure was not fully there. Today it is. My small company, for example, has employees scattered all over Britain and works with suppliers and contractors from as far afield as Canada. We all work from home, but are connected virtually through Skype video calls, Google Apps, FileMaker and Dropbox. The system works very well and saves time and money for both the company and its employees.

It is still not good enough for all of our needs. We still meet physically for meetings with customers and suppliers and a have a monthly team meeting where we are all in the same place.

Computer games point towards a future whereby people may be even more comfortable working together virtually. Massive Multiplayer Online games like The Lord of the Rings or World of Warcraft enable people who live thousands of miles away to interact in real time with each other. They can talk, move around and interact with their virtual environments. While it might be odd working with a colleague who choses a troll or a muscle bound warrior as his avatar, using a computer webcam to create a 3D image of your head that can be attached to a customised body might be more acceptable.

This type of virtual working can also enable virtual emigration. Historically, if you wanted to go and work in a particular country you would need to physically move there. You would have to leave your family and friends behind. You would need to get immigration papers and eventually may become a citizen of the new country. You would get paid in local currency and would local pay taxes.

Virtual emigration may be a better option. If you go to university in the United States, for example, you could make friends with a cohort of Americans. On graduation, you could return to your home country and maintain those relationships. You could work with those people in a virtual workspace and get paid a US level salary but live in your home country. If you come from an emerging economy the arbitrage between a Western salary and an emerging economy’s cost of living could make you significantly better off than if you were to go down the historical route of actually emigrating.

Virtual emigration has a knock on effect on people in developed countries. You are not only competing with people in your own country for jobs but also with people who live thousands of miles away whose living expenses are significantly lower than yours. That means that they will always be able to undercut you in terms of salary. In order to keep your salary at a higher level you would need to show that you are significantly better than a virtual immigrant. Eventually, this could result in significant unemployment for people in developed countries whose jobs do not require a physical presence and could be done in a virtual environment. The smart thing for people who come from developed countries to do is to emigrate to lower cost countries and maintain your old job in a developed country virtually.  Emigrate to where the cost of living is low, rather than where income is high.

But your colleagues may also be virtual humans:  a computer programme. Watson, a computer developed and built by IBM famously beat the two best Jeopardy! TV show champions. Watson’s involvement in the Jeopardy! challenge was both a marketing and a technical triumph. Watson was able to listen to and then process through a database millions of facts to come up with a natural language response to the quiz master faster and more accurately than his human counterparts.

IBM’s goal is to enable Watson to be used as a virtual colleague in the healthcare, finance, legal services, and customer services sectors. Watson will be able to absorb all of the latest scientific and medical journals and should be able to provide better answers to many questions faster, more accurately and more cost effectively than its human counterparts. As with virtual emigration, those who are in more routine parts of the service sector are at risk of losing their jobs.

Virtual presence is another area that is becoming increasingly widespread, using remote controlled robots. Basic models already exist and are nothing more than Roombas (a robotic vacuum cleaner) and Segways hooked up to a webcam and a smart phone. This allows people to interact remotely with the physical world. If you are a specialist oil reservoir engineer based in Houston Texas, for example, you could help your colleagues on an oil platform in the Gulf of Mexico or on an oil platform in the Caspian Sea. From the perspective of your employer you would not need to spend unproductive time travelling and getting a work visa. The US military is already a massive proponent of virtual presence – unmanned aerial drones are all remotely operated by teams of pilots and engineers thousands of miles away.

Virtual working, in its variety of guises, will be very disruptive to the jobs of millions of people all over the world. If you are in a job that could be outsourced to a computer like Watson you are vulnerable. If you are smart and live in an emerging country you could benefit from a developed world salary and your home country’s expenses. If you want to save money and time by skipping your commute then virtual working can help. And finally, if you are a specialist whose main requirements are eyes and ears on the ground you could work on the other side of the world during the day and still be home for dinner with your family.

 

Summing up the modern job market

This article has looked at the changes that are taking place in the job market today, which will have a huge impact on employment in the future.  On the one hand manufacturing and service sector jobs in the West are being taken over by cheaper labour in developing countries.  This is stretching the social fabric of the West and it will undoubtedly tear at some point.  On the other hand, this loss of jobs in the West is not a zero sum game where the West loses and the rest gain.  Changes in manufacturing and distribution, computer software and 3D printing will have a huge impact on jobs for people all over the world as well.

As we have established, without jobs there is no income.  With no income there is no possibility of providing taxes needed for social services which help to make a civilised country nor the possibility of providing for your own personal and family needs.  Taxes on those who have jobs will go up and the level of services that all members of society now enjoy will drop.  We will look at what this means for society in the West in a later article.

History Future Now, ebook edition, is now available from the Apple iBookstore!  So if you have a iPad or iPhone click on this link to download it.  It is currently on at a special offer of 99c.   The Kindle version has been submitted to Amazon and should be available shortly.
  • urbananchorite

    Put these well-stated comments together with the article on the human urge to emigrate. I know many Americans, young and old, talking about leaving the United States for good. For some, especially retirees and laid-off middle-aged women, it is a strictly financial decision: move to a less developed country with a significantly lower cost of living or become impoverished in the United States. With so much global travel and reporting today, the fear and mystery of living in another country has disappeared. For the young, another country sounds like an adventure and a place for greater opportunity. Now that the USA is becoming a more divided, mean, unpleasant place to live, emigration seems like a rational choice.

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