The Socioeconomic Impact of Automation

July 1, 2017 | Dr. Dhananjay Samant (Economist)


The inevitability of Automation

 

The extent of automation in every economic activity worldwide is set to accelerate in the foreseeable future.  By some estimates, almost half of all globally available jobs today are expected to be automated by 2055, if not sooner. Technological prowess leading to various kinds of automation (which includes robotics, artificial intelligence (AI)[1] and digitization) will cause job losses in some sectors of the economy, but it will also boost employment in others. Those gaining most will be workers who are prepared for a future of uncertainty and those who have invested adequately in themselves (via skill development, training, education etc.). The workplace losers will be those who do not have either the wherewithal or the mental agility to adapt themselves to the new realities. This does not bode well for socioeconomic stability anywhere in the world. Both the public and private sectors need to put in place aggressive workforce development programs to ensure that the gap between the haves and the have-nots does not widen any more. This is especially relevant for India as we have a unique demographic dividend which we cannot risk frittering away into a socioeconomic disaster.

 

While few occupations are fully automatable, 66% of all occupations worldwide have around 33% of technically automatable components. Automation potential varies considerably both amongst sectors of the economy as well as amongst countries. Due to the sheer size of their labour forces, China and India together account for the world’s largest technically automatable employment potential – estimated at over 700 million full-time equivalents. Nonetheless, automation in the manufacturing sector is more likely to be adopted earlier in countries with high manufacturing wages, such as North America and Western Europe, rather than in developing countries with lower wages like India and China. Automation is now a central competitive factor for manufacturing industries globally, but it is also becoming increasingly important for the MSME sector all over the world.

 

The future of work and learning

 

The future of work is digital. With relatively low barriers to entry, plenty of online resources (many of which are free, and now contextualized to the local learning processes), a large youth population, and a sustained rise in broadband connectivity, India has a distinct competitive advantage which needs to be optimally harnessed. All over the world learning is going digital, and there is no reason India should lag behind. The key lies in correctly anticipating what tomorrow will bring and acting decisively today.

Thanks to the explosive growth in internet-enabled mobile devices, a growing number of Indians are engaging digitally with the world, and that too in their own languages and on their own terms. Indians are also globally renowned for applying their innate digital abilities to push the limits of modern technologies. Ultimately, for all the change that digital reinvention demands, it is worth noting that it does not call for a “throw it all out” approach, due to a lot of transferability in the existing hardware and software.

 

Institutional and cultural factors affecting automation

 

Maximizing the efficacy of the forthcoming scale of automation will call for the development of a more mature and proactive political leadership. Technological disruption is here to stay but its adverse effect on society and the economy can be minimized with some strategic policy actions. Populism needs to be curtailed just as rationality needs to be incorporated to aid decision-making processes. Humans and computers will increasingly need to synergize as never before if new value propositions are to be created and new markets to be tapped. These changes will necessitate an attitudinal shift in the politico-legal establishment. It would also require strengthening the social safety net in one way or the other, so that workers displaced by automation would have some source of income to fall back on. Automation usually tends to enhance socioeconomic disparities, but with proactive public policies in place it need not be so.

 

What also matters is the cultural aspect of adjusting to automation. The traditional norms of some societies make them better suited for adaptation to various kinds of automation. For example, due largely to their manga culture, robots and robotic solutions have widespread acceptance in Japan amongst people of all ages and socioeconomic groups. This has been one of the key factors responsible for enabling a rapid spread of automation in that country. In this regard, India and even many Western societies including the USA are relatively disadvantaged and still have some ground to cover to assimilate various forms of automation more thoroughly into their day-to-day activities.

 

Man and Machine …

 

The human element in the workplace is not likely to get obsolete anytime soon. People will be needed to develop the complex systems that lead to various kinds of automation. Also, only humans can provide the common sense, social skills, judgment, and intuition in decision-making processes that the world’s most advanced AIwill always lack, and which will always be required at various levels for certain key professions like education and healthcare. Besides, work involving any degree of dexterity or nimbleness will invariably necessitate the human touch. Even if repetitive tasks get automated, people are surely going to stay in the loop for the foreseeable future. After all, it is hard to imagine any technocratic solution which can do away completely with the necessity for work and human intervention. Tomorrow’s businesses will need to focus on developing innovative win-win collaborations of man and machine.

 

Automation, Employment, and the Student Community

 

Successfully adapting to workplace automation will require a new set of attitudes and skills. India is predicted to be particularly affected by this transition. According to World Bank research, automation will threaten 69% of the jobs in India and 77% in China. It is estimated that 66% of the jobs Generation Z will perform do not even exist today. While it seems that low-skill jobs face the most risk of being replaced by automation, a lot of repetitive work in complicated jobs also faces the same risk. The only way out is to boost the creativity and critical thinking skills of the workforce through the development of appropriate education and training programs and integrate them thoroughly into the school curriculum. After all, only well-trained and educated people can improvise knowledge in ways that the most advanced AI cannot.

 

All students, regardless of their areas of specialization, will need to be reasonably comfortable with computers and have at least some elementary knowledge of coding in standard industry languages. However, this does not necessarily imply that science students are more likely to have an edge in the workplace of tomorrow. With widespread automation, it is soft skills like communication, adaptability, and getting along with (all kinds of) people which will make the biggest difference to students’ future prospects. AI is touted to be the single most disruptive technology the world has seen since the industrial revolution, but no matter how much it progresses; there will always remain distinct areas of interaction where humans will want to deal only with other humans and will pay adequately for doing so. The education and skill development system should be geared towards attempting to fill those spaces, with students being counseled and mentored accordingly.

 

Robotic Solutions and the Economy

 

Even if some robotic solutions may not seem amenable to India from a purely employment perspective, there could still be valid arguments for them from an environmental and/or socio-economic viewpoint. For example, in the agricultural sector, automated robotics can help minimize the use of pesticides, reduce water consumption, and enhance crop productivity. All this will ultimately benefit the farmers and the entire rural economy. After all, increased productivity (in any economic activity) will lead to a multiplier effect of more wealth, cheaper goods, greater spending power, and ultimately, more job-creation throughout the system. Around 40-45% of the Indian economy is still informal in nature, and hardly any reliable information pertaining to it is available. Strategically planned automation will enable it to join the mainstream, with all of its attendant benefits. At the macro level, that will include boosting the accuracy of the calculation of the GDP (in all its myriad forms) as well as the allied socio-economic indicators.

The number of industrial robots deployed worldwide is expected to increase to around 2.6 million units by 2019. That is about a million units more than in the record-breaking year of 2015. Broken down by sectors, around 70% of industrial robots are currently at work in the automotive, electrical/electronics, and metal and machinery industry segments. In 2015, the strongest growth in the number of operational units recorded was registered in the electronics industry, a rise of 18%. The metal industry posted an increase of 16%, with the automotive sector growing by 10%.

 

Should robots be taxed?

 

A recent global debate revolved around whether robots should be taxed as they are becoming increasingly responsible for job-losses in the economy. The argument was that a robot tax could be used to subsidize specialized jobs taking care of senior citizens or working with juvenile delinquency, for which demand usually outstrips supply and to which human abilities are particularly well suited. Such a “robot tax” could also be used to finance a welfare concept like the Universal Basic Income (UBI), which is today gaining traction all over the world.

However, the counterargument (to which the author subscribes) is that the advent of robotic machines which have never been operated by humans means that there will be no prior human income to act as a reference salary for calculating the taxes these machines would need to pay. A lump-sum tax on robots would simply induce their producers to bundle AI with other “dumber” machinery doing routine work-related tasks. This could also dampen the overall spirit of technological innovation in the economy. Rather than move into avoidable fiscal complications, it is better to legislate to improve the conditions of all those currently in employment. To begin with, more effective unemployment benefits and innovative pension schemes for the workforce could be devised and implemented.

 

Automation and Financial Sector Reform

 

An important economic outcome of digitization has been the global tendency to shift to a cashless society. For India, this transition is especially significant. A cashless (or less-cash) economy is generally more transparent and less prone to the accumulation of black money, both of which pave the way to a more egalitarian society. Currency demonetization will also lead to greater digitization of the economy and will eventually benefit the poor more than anyone else.

Automating financial services and embracing digital transactions facilitates the movement of the masses into the formal economy, thereby increasing financial savings, reducing tax evasion, and leveling the playing field between tax-compliant and tax-evading individuals (and firms). According to a global survey by Accenture, seven out of ten consumers are content with computer-generated advice for banking, insurance, and retirement services. Robot advisory services are now making inroads even in India. Needless to say, mindless automation is not a panacea for the myriad issues facing our financial sector, and it should be done carefully as it may turn out to be not only unproductive but counterproductive.

Adequate digitization will not only ease the inevitable pain of currency demonetization but it will also aid GST compliance, which India is soon going to need on an unprecedented scale. Compliance requirements will rise substantially under the GST regime, and the Government is putting increasing emphasis on electronic filing of returns for all taxpayers. Under the circumstances, both the business community and the public at large will need to be more techno-savvy or opt for user-friendly automation software to enable them to meet this challenge. Public policy will need to finely balance the costs and benefits arising from automating the new financial system.

 

 

Some Concernspertaining to Automation

 

  • Lowering independent thinking ability

People tend to have worse recall when they know that what they need is stored somewhere online and can be retrieved whenever required. If information on any topic under the sun is freely available at the click of a button, there is little incentive to engage in the laborious process of building up the extensive knowledge base necessary to become a deep and deliberate thinker. Like an atrophied muscle, the brain’s ability to carry out heavy intellectual lifting gets gradually compromised. When we opt for the convenience that much of today’s technology offers, we may unknowingly be denying ourselves the opportunity to think independently and develop our innate cerebral talents. This is especially important for the student community to be aware of.

 

  • Identity Theft and Data Abuse

As big data becomes increasingly available to Government and public departments, many citizens (legitimately) believe that their personal information is being compromised. The issue of identity theft has become a major concern in many developed countries today, and there is no doubt that large-scale digitization – and its concomitant data breaches – have contributed much to it. In its extreme forms, the authorities need to recognize that identity theft is nothing short of organized white-collar crime, and deal with it accordingly. In general, as Against power and ubiquity, people need to ensure that Orwellian regimes do not misuse it, either to centralize power or to willfully target select socioeconomic groups.

 

Conclusion

 

Many people see automation as a disruptive process leading to the displacement of labour. However, that view is not entirely justifiable. Automation can also be visualized as a unique opportunity to unshackle (well-trained and educated) people in the workplace to focus on higher-value economic activities and thereby boost the growth of businesses and entrepreneurship. Automation could thus become a blessing in disguise to many emerging economies like India, by enabling them to leapfrog standard development models and allowing them to experiment innovatively with their growth options, for example, by resorting to a strategic currency demonetization.

Although it will not occur overnight, widespread automation in a large number of industries and economic activities is no longer optional. Automation can prove disruptive when it changes the nature of supply or demand or both, and it is undoubtedly going to reshape our world in ways which are presently unclear. For the better or worse, much of what passes off as science fiction today will be tomorrow’s reality. All responsible institutions will soon need to figure out how the people and machines they employ can leverage mutual strengths and weaknesses as intertwined players seeking to maximize workplace productivity while simultaneously minimizing the larger socioeconomic inequality.

 

---------------------------------------------------------------------------------------------------------[1]AI is not just one technology but rather a variety of different kinds of software that can be applied in numerous ways for different applications.

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