A robot will take my job

“Come quietly or there will be…trouble” (Robocop)

As the world paces nervously in the foothills of the third great economic and social transformation of the last 300 years, we look at some of the lessons from history for both investors and citizens of the world. For those of us in the workforce and aiming to stay there, flexibility and resilience will no doubt be required. However, historically the world economy has tended to destroy jobs in one sector only to create them in another (Figure 1). We see no reason why this transformation should be any different. For investors, history teaches caution to those who would devote their energies to finding the single Artificial Intelligence or Robotics play that will bring great riches. The more reliable and broad based wealth creation has often been found far from the initial innovation.

The first ‘Great Transformation’ (1712 – 1973)

The advent of the Newcomen engine in the early 18th century, helping to drain water out of British coal mines, is the moment many pinpoint as the beginning of the so called ‘Great Transformation’. Although far from a technological marvel by today’s standards, it does represent the moment when humans start to be able to bend nature to their will, rather than the other way around (Figure 2). Steam power dramatically increased the muscle power of humankind and eventually, via the advent of rail roads and steam ships, it launched a proliferation of global trade. 

For society, these technological changes sparked a migration from the countryside to cities, from agricultural to factory jobs in much of the now developed world. Initially the gains from this transformation were not particularly evenly spread – the hardships of these urban migrants in the early 19th century are well documented by Charles Dickens among others. However, over the course of the 20th century, more complete social safety nets are designed and implemented, with Roosevelt’s ‘New Deal’ perhaps the most famous example, allowing for a less uneven distribution of the massive productivity gains that followed in the wake of this technological upheaval. 

The services transformation (1973 – 2016)

The seeds of the second transformation can be dated back to the early 1970s, with the advent of the computer chip. This revolution in Information and Communications Technology (ICT) had various effects on the nature of work. First and foremost, it allowed for robot hands to do what had been the preserve of human hands before. Manufacturing employment as a proportion of overall employment in the developed world declined persistently from this point as a result (Figure 3). On the flipside, this new technology created huge numbers of office and service sector jobs. Hitherto science fiction became gigantic global industries such as telecommunications and software.

As the technology advanced, previous hindrances to international exchanges, such as the cost of moving people, ideas and goods across borders, melted away. The improvements in communications technology in particular had seismic implications for the spatial organisation of factories. Internationally coordinated supply chains suddenly became both cheap and reliable, resulting in the further de-industrialisation of advanced economies – workers in the developed world were now competing directly with low wage workers of the emerging world. Inequality again widened as the economy tended to reward brains over brawn.[i]

.The third transformation (2016 –

We are obviously left guessing at which human traits will be rewarded by the nascent economic transformation. The potential for vast swathes of previously invulnerable service sector jobs to be wiped out in fairly short order is understandably worrying many. If the developed world political systems appear to be struggling to cope with the disgruntlement of the victims of the last great transformation, how will they cope with much wider societal upheaval? How will we all earn a living? There are thankfully still areas where the new frontier of technologies will struggle to go, where humankind will surely retain relevance, particularly those areas where empathy, persuasion or E.Q. are required. However, we can’t all be teachers and nurses surely?

Past transformations suggest that flexibility will be required. This will not just be a requirement of the victims of this sea change in the jobs available, but also in the social systems that help catch us and retrain us for the new industries, services and jobs that history tells us will continue to emerge.

Investment conclusion

This current industrial revolution is in its infancy. From our current vantage point, we can know very little about which companies, sectors and technologies that will be the winners. The greater the confidence you hear someone touting some particular basket of artificial intelligence focused companies, for example, the warier you should be. Thematic investing can be particularly dangerous in this sphere.

The story of the humble shipping container is illustrative. Transporting goods in pre-packed locked containers, easily transferable onto a lorry or a train, yielded breath-taking savings relative the crates they replaced. Some have estimated that the combined savings on labour costs, time at the dockside and insurance for breakage and theft reduced the price of a tonne of cargo nearly 40 fold. Furthermore[ii], others have calculated that this led to an eight-fold increase in bilateral trade between countries with container ports. Whilst related employment fell, the measured productivity of the remaining workers increased nearly 20 fold.

Interestingly enough, this was not a transformative or even massively disruptive technology for the shipping industry itself. Trade patterns changed and the industry did become more concentrated and ironically less profitable[iii]. However, by reducing the cost of trading, containerisation opened up the possibility of new supply chains and trading arrangements that were previously too expensive to exploit. The resulting trade flows spread economic activity and wealth widely. The point being that the real impact of containerisation didn’t occur at sea or on the dock side. This may well be true of robotisation, artificial intelligence and many of the other areas where humankind is currently advancing into uncharted territory.

Benefiting from technological transformation has tended to be a matter of casting a much wider investment net and focusing on those companies that would benefit from adoption rather than invention. Our best thinking globally diversified funds and portfolios are designed to do just that. 

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[i] Globalisation, automation and the history of work: Looking back to understand the future – Baldwin, R - 2019

[ii] Estimating the effects of the container revolution on world trade – Bernhofen et al - 2016

[iii] Robot Macroeconomics: What can theory and several centuries of economic history teach us? – Lewis, J - 2016

*This article is for information purposes only. It is not intended as an investment advice