Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
More on this topic that we’ve been circling around a lot of late – that of automation and the rise of the robot class. (hopefully a “people” that the Supreme Court can bless in time so they too, can contribute to SuperPACs) Ironically I watched an episode of the Twilight Zone this past weekend entitled ‘The Brain Center at Mr. Whipple’s” which actually was right up this alley.
In the year 1967, Wallace V. Whipple, owner of a vast manufacturing corporation, decides to upgrade his plant to increase output by installing a machine named the “X109B14 modified transistorized totally automated machine,” which leads to layoffs. Some former employees try to convince him that the value of a man outweighs the value of a machine, but their protests fall on deaf ears. Eventually, the board of directors find him neurotically obsessed with machines and retire him. Whipple joins his former plant manager at the bar opposite his factory and expresses deep sorrow at his misfortune (“It isn’t fair, Hanley! It isn’t fair the way they…diminish us”). A robot now runs his office.
This time we head over to the WSJ:
- In no other U.S. recovery since World War II have companies been simultaneously faster to boost spending on machines and software, while slower to add people to run them. Part of this is the old story of substituting capital for labor. But a combination of temporary tax breaks that allowed companies in 2011 to write off 100% of investments in the first year and historically low short- and long-term interest rates have pushed that process into overdrive.
- Instead of hiring, companies such as Sunny Delight and chain-saw maker Stihl Holding AG are investing in technology or other ways to make existing operations faster and more productive. History suggests that investment that increases productivity eventually will create jobs and raise living standards. The mechanization of the farm and the automation of the factory both raised fears of permanent unemployment that were unrealized, as efficiencies in production of basic commodities created jobs in all sorts of services. Most economists say today’s surge in productivity will have the same beneficial effect—in the long run. (is it “different this time”?) In the short-term, however, this burst of efficiency allows companies to delay hiring.
- Spending on gear and hiring usually are more synchronized. Since the economy began growing again in 2009, spending on equipment and software has surged 31%, adjusted for inflation. In the postwar period, only in the wake of the 1982 and 1970 recessions has such spending grown faster. Private-sector jobs have grown just 1.4% over the same span. Only recoveries following the 1980 and 2001 recessions saw slower job growth.
- The trend toward using labor-saving machines and software isn’t limited to factories. W. Brian Arthur, an economist at Xerox Corp.’s Palo Alto Research Center, says businesses are increasingly using computers and software in the place of people in the nation’s vast service sector. (that’s where it gets scary for the labor force considering services dominate employment) Many companies, for instance, use automation to process orders or send bills. “It’s not just machines replacing people, though there’s some of that,” Mr. Arthur says. “It’s much more the digitization of the whole economy.”
- The U.S. today is second only to Japan in the use of industrial robots. Orders for new robots were up 41% through September from a year earlier, according to the Robotics Industries Association trade group. That has helped fuel a larger boom in productivity. Output per hour worked in nonfarm businesses has increased 6% during the recovery. Hours worked are up only 1.5%.
- Peter Mueller, executive vice president of the U.S. arm of Germany’s Stihl, says he would buy robots and other machines even if they were far more costly. In Virginia Beach, Va., he recently opened the company’s most advanced factory for making chain-saw guide bars, the metal frames that hold the chains in place. The plant has 120 robots that run around the clock every day, with only seven workers on each shift. Next year, the company plans to spend $10 million for machines and software that will allow the plant to double its output. It will only need six more workers to do that.
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