/ 12 May 2017

Eish, robot: Automation is eating jobs

(John McCann)
(John McCann)

With two-thirds of its jobs at risk of replacement by robots, the South African economy is shifting towards services. But some say this deindustrialisation is premature: an economy trying to run before it can walk.

United States President Donald Trump’s sweeping promise to the US electorate that he would bring back 25-million jobs to American shores was arguably what helped him to victory. But, as many analysts have pointed out, his promise failed to factor in one key thing: automation.

Even if Trump makes good on some of his threats to achieve his aims, automation is still expected to outstrip the number of jobs that might be replaced by an aggressive “local only” trade policy.

According to one report, 47% of employed Americans could be affected by automation. The report, released late last year by the Barack Obama administration, found that up to half the jobs in the country could be replaced by robots by 2036.

This figure is negligible compared with the proportion of jobs at risk in South Africa. A 2016 study by Citi and the Oxford Martin School at the University of Oxford found that robots could replace two-thirds of jobs in this country. South Africa’s higher risk level stems from the fact that our job base is less skilled than that of the American population.

Michael Mendes, a business owner at technology firm IRESS said: “Automation will have a bigger impact in SA when compared to our developed market counterparts as our economy has a larger number of unskilled labourers, who may not have an alternative means of work. Meanwhile, skilled labourers with degrees can potentially move into other sectors quite fluidly.”

The US has lost about five million manufacturing jobs since 2000, a fall of about 30%. Trump blames trade with China and Mexico. But there’s a strong argument that this attrition is largely part of a skills evolution that is reacting to automation.

“Call it the Great Shift,” wrote Heather Long for CNN. “Workers transitioned from the fields to the factories. Now they are moving from factories to service counters and healthcare centres. The fastest-growing jobs in America are nurses, personal care aides, cooks, waiters, retail salespersons and operations managers.”

Automation will largely dictate the direction in which jobs swing.

South African manufacturing has followed a similar trajectory. In 1962, it accounted for 15% of gross domestic product (GDP) and had peaked at 25% in 1981. By 2011, it was down to 18%. Labour federation Cosatu’s chief strategist, Neil Coleman, said the combined industrial sector (mining, manufacturing, utilities and construction) has shown a similar pattern, declining to 29.9% of GDP in 2008 from more than 40% in 1980. According to Statistics SA, the fourth quarter of 2016 saw it decrease by 3.1%.

And, just as in the US, the bulk of South Africa’s output has been taken over by services. A study by the Industrial Development Corporation shows that, in 2015, 69% of economic output comprised services including finance, business and real estate; transport, storage and communication; trade, catering and accommodation; government services; and community, social and personal services. Of this, the finance, business and real estate services sector made up the largest portion at 20.9%.

In the US, the shift was part of a natural progression, following a “healthy” economic evolution of jobs moving from a strong manufacturing base to a services base over time. But here the shift is arguably based on a shakier foundation. Harvard economist Dani Rodrik has called it “premature deindustrialisation”.

“Mention ‘deindustrialisation’ and the image that comes to mind is that of advanced economies making their way into the post-industrial phase,” wrote Rodrik on his blog. But “the more dramatic trend is one of deindustrialisation in developing countries … appropriately called premature deindustrialisation as it means many [if not most] are becoming service economies without a proper experience of industrialisation.”

The growing services sector provides higher paying jobs and is arguably what sustained South Africa in the worst of the financial crisis. So is our economy’s shift such a bad thing? In Rodrik’s opinion, yes. “Premature deindustrialisation has serious consequences … It reduces the economic growth potential and the possibilities for convergence with income levels of the advanced economies. Deindustrialisation removes the main channel through which rapid growth has taken place in the past.”

Economist and Manufacturing Institute founder Jerry Jasinowski shares a similar sentiment. “History teaches that a strong economy begins with a viable manufacturing base. Africa must find a viable path to prosperity without passing through an industrialisation phase [and jump to a services phase]. This is not likely to happen. It is by no means clear that it is even possible.”

But Ryan Beech, head of Ryonic Robotics, said the shift could produce more jobs if it is leveraged in the right way. “The migration of human labour to a technological and robotic workforce is inevitable, even in Africa. Goods produced locally with expensive labour will cost much more than imported alternatives produced with robots internationally. Trade deficits will increase and jobs will be lost due to reduced demand.

“However … the potential negative impact can be managed if countries can adapt to create these technologies locally. In doing so, countries will be able to move away from labour-intensive production methods, enabling them to become more competitive in global markets.”

Beech said increased automation could mean less reliance on overseas labour. “It’s less compelling for business owners to relocate production facilities to cheaper labour markets such as China, stimulating the growth of local economies.”

South Africa’s private sector should thus “create replacement jobs by stimulating the development of technology locally as we migrate to a more autonomous world”, he said.

Not everyone would agree with Beech. Professor Erik Brynjolfsson, of the Massachusetts Institute of Technology’s Sloan School of Management, has observed that, for the first time, productivity is no longer tracked by jobs. Historically, when jobs have increased, so has productivity. But from 2000, productivity continued to climb while the job graph stayed stagnant.

“Today productivity is at an all-time high and, despite the great recession, it grew faster in the 2000s than it did in the roaring 1990s — and that was faster than the 1970s or 1980s,” said Brynjolfsson in a TED talk. “Productivity is doing alright, but it has become decoupled from jobs. And the income of the typical worker is stagnating.”

These phenomena have led some to predict the end of innovation. But, in Brynjolfsson’s opinion, “it is actually the growing pains of what I call the new machine age”. Other eras, such as the industrial age, also went through “growing pains” before the existing workforce adapted to the changes and productivity soared.

What does this mean for South Africa’s workforce? Mendes said it all depends on the speed of our adaptation. “The difference between looking at past experiences and present is that technological advances are occurring at a much faster rate, meaning a larger number of displaced workers.” he said.

“Given that automation in one sector may result in additional opportunities in another sector is promising for future changes. However, the ability for our economy and laws to adapt to the fast-changing environment will ultimately determine whether South Africa will stay abreast of automation changes.”