Is Low Cost Labor Being “Priced Out"?

Posted: 05/25/2017

Nobody likes a doomsday scenario. But that shouldn’t stop us from being prepared, or at least being aware, and start taking proactive steps, should the probability strike.

The latest buzz out in the world is about Robots. Call it Automation, Intelligent Automation, Robotic Process Automation, … or all the way to Cognitive Thinking and AI – every day, tons of content is being published around the world, highlighting the tremendous advances being made and how they will change our lives for better.

Other stories throw a more cautionary tale, with predictions of human skills being edged out by a cheaper, more efficient robotic workforce. A great innovator of modern times, Elon Musk, has gone on record saying that robots will invariably take up most of the existing jobs and governments will be forced to introduce “Universal Basic Income” to cover the basic expenses of food and living.

Working in the services industry and focusing on back-office, service oriented businesses and their transformation, I feel this concern is very real, and warrants serious thought. We need to prepare the next generation for an entirely different way of life.

Nobody denies the impacts of automation are tremendous and game-changing. They will reshape thinking, multiply productivity and create new industries that can employ millions of people – and on top of it all, they will re-imagine products and services which were hitherto unimaginable.

On the other hand, the side-effects might be dangerous. Economists and experts point to a “jobless future” and “automation being blind to the colour of your collar” [Ref: The Economist], which may have a significant impact not only on the developed world, but could throw millions of people doing low-cost, routine work in emerging economies out of a job.

Recently, there was an article about Adidas deploying a “Speedfactory” in Germany, which would be capable of producing half-a-million shoes a year, all manufactured by robots. And some of its competitors are following suit. The same shoe would be manufactured at a fraction of the cost for the company, but at a great cost to countries like Vietnam or Indonesia, who used to provide the cheap labour needed.

Similarly, in the services industry and especially back-office processing, any conversation that does not reference RPA runs the risk of appearing out of date. Clients and companies are increasingly and aggressively testing out automation, and deployment of bots has started to become a real thing  – whereas it was just a conversation starter a couple of years back.

At the same time there has been a rise in vendors and product manufacturers producing the software and the ecosystem for the robots to live in and thrive. The likes of UiPath, Ayehu, Blueprism or Automation Anywhere may very well become the game-changers of tomorrow, growing into massive companies themselves or being acquired by technology giants at multiples of their current prices.

Who is in imminent danger?

The countries/ economies/ corporations which will be indiscriminately affected by this shift towards automation are the ones focusing solely on routine work, relying on labour cost arbitrage without adding the “human element” to it. Simply put, this is because labour cost tends to go up with time, while cost of machines invariably comes down, barring extraordinary economic situations (depressions, stagflation etc.). So, the cost of robots (physical or software) will only come down as we move ahead, giving corporations and organizations all the more reason to bring them into the workforce.

The counter-effect, as I mentioned, would be on low-cost labour doing repetitive, routine work. Just consider the millions of people doing back office, “vanilla”, work in Finance, HR, Contact Center operations (Order Processing, Accounts Payable & Receivables, Invoices, Tax Calculations, Payroll Processing, Data Entry etc.). I am not saying that these millions of jobs are at an immediate risk, as they would continue in the foreseeable future. However, the effects would be in terms of reduced growth opportunities. Maybe we have already reached the peak and are now sliding downhill.

Developed economies would be less affected and may even see a ‘net positive’ in some scenarios where they initially add up the ‘high-tech’ automation-enabling jobs because they have the talent and ecosystem to support those, akin to what happened with the Internet/ Computer revolution.

Way to the future

Optimists always say there will be newer avenues opening up with automation becoming more prevalent. As computers came in and jobs requiring manual calculations and computations became extinct, there was certainly a requirement for people who would operate those computers and build the software, hardware and ecosystem surrounding them. Who in their right minds would have thought of a job title “iOS developer” back in the 1960s? So, any automation adoption would invariably bring with it unique requirements, jobs and opportunities which we cannot possibly fathom now. The question is, whether they would be enough in number to support the large population? – and what effect they would have on the societies of the future.

It’s not an easy task. Some serious forward thinking needs to be coupled with steps at a broader level to ensure we move towards that scenario. Policymakers, intelligentsia and governing bodies in emerging markets (used to seeing tons of low-cost jobs getting created as a result of labour arbitrage) need to sit-up and plan for what’s coming. 

Simply put, a job that is taken up by a machine is not coming back.

Posted: 05/25/2017


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