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By: Oru Mohiuddin

The discourse on automation is gaining momentum as A.I. and robotics become increasingly sophisticated, emulating tasks initially performed by humans. This is transforming workplaces as more jobs get automated with strong implications for both governments and entrepreneurs. Automation will have an impact on the competitive landscape for businesses, while governments are likely to be faced with structural unemployment leading to unwelcome social, political and economic consequences. The article discusses these issues in detail and forms a part of the upcoming strategy briefing titled ‘The Future of Work’ (automation has also been covered in an earlier strategy briefing ‘Global Fight for Employment’).

Automation and implications for businesses

Business organisations are investing in automation to become more competitive by increasing speed and productivity and the improving technological sophistication of A.I. and robotics is matched with falling costs. It is reported that a typical industrial robot can cost up to £4.0 an hour to operate, compared to an average hourly wage rate of £13.8 in the UK and £19.0 in the USA. This means automation will become even more widespread going forward with strong implications for businesses:

  • Need for greater proactivity: The first and foremost significance for businesses is the need for proactive approach when it comes to introducing robots in order to avoid being outdone by competitors;
  • Avoid political uncertainty in developing countries: Manufacturing companies with plants in developing countries on account of cheaper wage rates can consider relocating their plants back to the developed countries since lack of government stability in developing countries adds to business uncertainty;

Political Stability and Absence of Violence Index: 2015

Source: Euromonitor from World Bank

Note: Higher scores represent greater stability and less violence and vice versa

  • Potential skills gap- Businesses organisations need to plan for the potential skills gap during the lag between the required and available skills in the job market. Companies would need to consider setting up training centres and proactively aim to reduce the skills gap;
  • Higher corporate tax- Higher corporate tax is a possibility as savings from lower labour costs is likely to result in a higher profit margin;
  • Reduced HR role- Human resources departments may find their roles diminished as IT/maintenance take over on account of automation replacing some of the traditional human activities, but HR is likely to find a new position in helping employees cope with structural changes that can be dampening for the employee spirit;
  • Affect Image- Using robots and A.I. in workplaces is developing a moral undertone as some are sceptical of them. Companies may need to be wary of how it can potentially damage their image. Nike’s plans to deflect criticism involves sweatshops as the company plans to increase automation to counter the impact of increasing wages in developing countries including Indonesia;
  • More health and safety- Robots come with additional health and safety requirements and need to be ISO compliant, which means more paperwork and longer bureaucratic process.

Case study: Amazon.com

Automation and implications for governments

Automation has major implications for governments too as it can potentially lead to unwarranted social, economic and political consequences and it is imperative that there are necessary measures in place to deflect the associated perils:

  • Structural unemployment and potential economic, political and economic upheavals- Although automation is yet to replace jobs that require more complex thinking, it is taking over low-skilled jobs in the manufacturing sector, affecting people in the lower income groups, but growing sophistication means that it is likely to overtake middleclass jobs that require more critical thinking. Computer driven hedge funds, which use intricate algorithms to trade, were named amongst the top 20 performers recently;
  • Economies relying on the outsourcing of low skilled manufacturing jobs at risk – There are strong implications for governments in the emerging countries, which rely on the manufacturing sector for economic growth. There is the risk of losing the manufacturing activities to countries that are automating the process;
  • Investment in education and skill building- While automation is causing job losses, it is also opening up new opportunities that involve building, operation and maintenance of the automated process. Governments in both emerging and developed countries would benefit from channelling human resources towards advanced technical skills that can cope with the flux of automation;

% of Graduates in Science, Engineering, Manufacturing and Construction: 2016

Source: Euromonitor from Eurostat/OECD/UNESCO

  • Loss of tax revenue- While automation can drive economic growth through greater productivity, governments risk losing tax revenue as more human workers get replaced by technology. This can exert pressure on public finances and governments need alternative plans including increasing the corporate tax rate;
  • Develop infrastructure to facilitate automation and productivity- Despite the perils of automation, it is inevitable given the need to drive productivity. Governments have little choice but to embrace this technology more closely, but it means investing in infrastructure that enables such developments. The UK government has pledged £2 bn to boost the technology industry.

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