Fri, Nov 11, 2011 - Page 9 News List

How automation could cause wide-scale unemployment and sink the global economy

In many modern nations, job automation continues to accelerate, causing more workers to lose their jobs and perhaps never find employment again. The result? Less consumerism and the downfall of economies

By Martin Ford

However, if automation is relentless, the basic mechanism for putting purchasing power into the hands of consumers will break down. Imagine a fully automated economy. Virtually no one would have a job or an income; machines would do everything. Long before we reached that point, mass-market business models would become unsustainable. Where would consumption come from? And, if it is still a market economy, rather than a planned economy, why would production continue if there were no viable consumers to purchase the output?

In developed countries, the most disruptive impact to the job market would come from substantial automation of the service sector, which now employs the majority of workers. In developing countries, the impact will be greatest in manufacturing and factories there already are rapidly putting in place labor-saving technology. For example, Taiwan-based Foxconn, a major electronics producer and employer in China, recently announced plans to introduce huge numbers of sophisticated manufacturing robots.

Unemployment resulting from automation in the Chinese manufacturing sector could ultimately complicate China’s efforts to rebalance its economy toward increased domestic consumption — an objective that most economists agree is critical for the country’s long-term prosperity. If consumers see only an economy in which jobs are relentlessly automated away and if it appears that additional education or training provides little protection, they will adjust their discretionary spending accordingly. Given their concerns about long-term income continuity, traditional policies like stimulus spending or tax cuts would be ineffective.

So, are we approaching the “tipping point” where automation fuels structural unemployment?

Most economists object that the very assumption that such a point exists is speculative. However, when one considers today’s advanced-country malaise — years of stagnating or declining wages for average workers, growing income inequality, increasing productivity and consumption supported by debt rather than income — there certainly seems to be ample reason to speculate.

Let us hope that a rigorous analysis of historical economic data does not arrive after the tipping point has been reached.

Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.

Copyright: Project Syndicate

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