November 21st 2015

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Articles from this issue:

COVER STORY Gender variety has no basis in science

CANBERRA OBSERVED PM's political capital may be tax-reform casualty

EDITORIAL IPCC and the media: Last Tango in Paris

FOREIGN AFFAIRS Poland's election sends shock waves through EU

THE ELECTRONICS REVOLUTION Create infrastructure to bridge coming robo gap

LIFE ISSUES Keeping a straight face with Andrew Denton on euthanasia

LIFE ISSUES With Nitschke out of death industry, Exit must go next

EUROPEAN AFFAIRS Euro banks were lending like there's no tomorrow

INTERNATIONAL AFFAIRS Polls show conservative resurgence at grassroots

RELIGION IN RUSSIA State control, Slavophiles prepare way for apostasy

CULTURE Mankind needs to work; and mankind needs work

PUBLIC POLICY Drug substitutes used as treatment are lethal

CINEMA The man who stands back up: Bridge of Spies

BOOK REVIEW We're getting better all the time


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Create infrastructure to bridge coming robo gap

by Patrick J. Byrne

News Weekly, November 21, 2015

An Australian infrastructure finance corporation could boost economic growth and jobs as smart machines increasingly replace workers in many industries.

Foxconn, which produces Apple iPhones and other consumer electronics, recently announced plans to replace much of its Chinese workforce of more than 1.2 million with robots over the next decade. This example is just the tip of the iceberg.

Bank of America Merrill Lynch predicts the electronics revolution will transform the global economy over the next 20 years, cutting the costs of doing business but exacerbating social inequality, as machines take over everything from caring for the elderly to flipping burgers.

The 300-page investment bank report has recently been analysed in The Guardian (November 5, 2015) and Fortune (November 6, 2015). [1][2]

The report says annual global sales of robots reached a record $US10.7 billion in 2014 and by 2020, investment in robots and intelligent machines could be $US153 billion.

Robots are becoming cheaper and more powerful.

A welding robot cost roughly $US182,000 in 2005. In 2014 it cost $US133,000, and it was nimbler, better able to comprehend its environment, and able to do twice as much work as the earlier model.

China, the biggest buyer of robots, has 35 industrial robots per 10,000 employees. It still lags behind Japan and Germany, which have around 300 to 385 industrial robots per 10,000 employees, according to the report.

Manufacturing and low-skilled workers are no longer competing with low-wage countries, but with low-cost technology. In Japan’s most advanced manufacturing areas, robots can work 24/7 for 30 days without needing supervision or maintenance.

An assembly line spot-weld robot cost $US8 per hour to run, while its human counterpart cost $US25 an hour. The automotive industry is the biggest buyer of robots, for work that is heavy, dangerous or repetitive.

But it is not just low-skilled labor-intensive work that robots will do. According to the McKinsey Global Institute report, Disruptive technologies (2013), globally smart machines could replace labour worth $US9 trillion. [3]

The array of jobs that are likely to be replaced is staggering, according to Fortune.

A San Francisco-based start-up called Momentum Machines has designed a robot that makes hamburgers: from mincing meat, to cooking the burger and serving it up on a bun.

Offshoring manufacturing jobs to low-cost economies can save up to 65 per cent on labour costs; replacing human workers with robots saves up to 90 per cent.

Financial advisers will have to compete with smart investment and financial planning software using increasingly sophisticated algorithms that can tailor their responses to an individual’s circumstances.

Even doctors compete with “robo-surgery” – some 570,000 “robo-surgery” operations were performed last year. Medical applications of computer technology involve everything from microscopic cameras to “robotic controlled catheters”.

Care workers may soon be competing with so-called “care-bots”: robots that help look after people in age care, those needing assistance in rehabilitation, and the disabled.

How many will not find a job, or will go to a lower-paid job, or through training and education find new equally paid or higher-paid jobs in new industries created by innovations? There are a lot of unknowns.

However, experience to date suggests that many workers will go backwards and middle-income wages stagnate unless the economic system is reshaped.

First, Nobel laureate in economics Michael Spence says that as the economies recovered after the last three global recessions, U.S. employers replaced many workers whom they had laid off with smart machines and robots.

Subsequently, about three-quarters of those who lose their jobs don’t find comparable or higher-paid jobs, but end up in lower-paid jobs in retailing or food and catering.

Second, according to the United States Bureau of Labor Statistics, in 2013 workers in the U.S. business sector put in 194 billion hours of labour, the same as in 1998, but produced 42 per cent more, $US3.5 trillion more after adjusting for inflation. Meanwhile, the U.S. population has increased by 40 million and middle incomes have stagnated in real terms. [4]

Third, Martin Wolf of the UK Financial Times (November 3, 2015), says many American workers have given up on finding a job and dropped out of the workforce since the onset of the global financial crisis.

Although the U.S. boasts that unemployment has halved to 5 per cent since 2009, if the 4 million who have dropped out of the workforce are included, then unemployment is still close to 10 per cent. [5]

There are two lessons for Australia.

First, if robots can save labour costs more than offshoring an industry, then there should be incentives to move some of Australia’s lost manufacturing industry back on shore.

Australian manufacturing has fallen to 6.4 per cent of the economy. In Greece it is 8 per cent, in Turkey 14 per cent, U.S. 12 per cent, Russian Federation 15 per cent and Italy 16 per cent.

Second, the Turnbull Government can boost economic growth by creating an infrastructure investment corporation.

Former president of Harvard University and leading economist Larry Summers says that the only way the global economy will grow in the next few decades is by large public infrastructure investment.

He says the International Monetary Fund has calculated that if a government spends just 1 per cent of GDP on infrastructure, the government’s debt-to-GDP ratio will be reduced by 6 per cent after just five years as economic growth boosts tax revenue and reduces welfare payments. (Lecture at Princeton University, February 19, 2015.) [6]

If Mr Turnbull did create such a finance corporation, it could save the government $50 billion by taking infrastructure investment out of the federal budget.

Alternatively, it may be the opportunity to make the 1930 prediction of John Maynard Keynes come true – that technology would enable the working week to be reduced to 15 hours, with the rest of the time devoted to leisure.



[1]Robot revolution: rise of ‘thinking’ machines could exacerbate inequality”, The Guardian, November 5, 2015.

[2]5 fascinating facts about the booming robot market”, Fortune, November 6, 2015.

[3] Disruptive technologies: Advances that will transform life, business, and the global economy (2013), by James Manyika, Michael Chui, Jacques Bughin, Richard Dobbs, Peter Bisson, and Alex Marrs, Mckinsey Insight and Publications, May 2013.

[4]Machines getting too clever for our good”, by Colin Teese, News Weekly, November 7, 2015.

[5]America’s labor market is not working”, Martin Wolf, Financial Times, November 3, 2015 (subscription required).

[6]Reflections on secular stagnation”, Larry Summers, speech to the Julius-Rabinowitz Center, Princeton University, February 19, 2015.

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