Summary: By now everybody sees that a new industrial revolution has begun, but few clearly see its dynamics. This post looks at one example: the debate about wages. Raise wages or lower them, it makes little difference compared to the new technology that does jobs both cheaper and better. {1st of 2 posts today.}
Funny but false, showing a deep misunderstanding of how automation works…
Mike Konczal demolishes fantasies about a post-work world in his rebuttal to Derek Thompson’s article in The Atlantic (discussed here yesterday): “The Hard Work of Taking Apart Post-Work Fantasy” at the Roosevelt Institute. However, he believes several false elements of consensus thinking, such as this: “If wages are stagnant or even falling, what incentive is there to build the robots to replace those workers?”
Economist Gregory Clark gives an example showing why that’s false in A Farewell to Alms: A Brief Economic History of the World
There was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle.
But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.
Horses then, people now. New technology allows machines to do their jobs cheaper and better. McDonald’s shows how this works as they install kiosks allowing people to enter their own orders. They’re already used at “McDonalds in Switzerland“. In the US they’re being tested where “The McDonald’s of the future lets you customize your burgers“.
Are they doing these because automation is cheaper or better than people? It’s both, as explained by Gretchen Gavett in “How Self-Service Kiosks Are Changing Customer Behavior” at the Harvard Business Review, 11 March 2015…
McDonalds isn’t the first fast food chain to consider giving customers more control over their orders using technology … Many of its competitors have been experimenting with self-service apps and kiosks, finding that when customers use them, they tend to spend more money. Taco Bell recently announced that orders made via their new digital app are 20% pricier than those taken by human cashiers, largely because people select additional ingredients. Chili’s, after installing self-service tablets, reported a similar increase in dessert orders. Cinemark theater’s new self-service kiosks have “had concession spending per person climb for 32 straight quarters.”
… To start, four researchers at the Rotman School of Management, Duke’s Fuqua School of Business, and the National University of Singapore did a study where they found that, when a liquor store changed from face-to-face to self-service, the market share of difficult-to-pronounce items increased 8.4%. The researchers concluded that consumers might fear being misunderstood or appearing unsophisticated in front of the clerks. Changing to self-service removed the social friction.
… McDonald’s {has} been experimenting with kiosks for a while. At one store, 10 or so years ago, they found that the average check size was a dollar higher — a 30% increase at the time. And they found that 20% of customers who didn’t initially order a drink would buy one when it was offered. Kiosks, of course, never forget to upsell.
In addition to all of this, there is some research from 2011 showing that a seven second reduction in service times in fast food restaurants can increase the company’s market share by 1% to 3%.
Automation can deliver a better product more cheaply, hence its irresistible advance (in waves) during the past few centuries. A new wave of automation has begun — slowly — affecting both services and manufacturing, manual and cognitive workers. It will reshape our world, painfully if we do not manage the process.
To see what lies ahead read Three visions of our future after the robot revolution.
No friendly faces at the McDonalds of the future
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- Journalists reporting the end of journalism as a profession.
- The next step of computer evolution: becoming bloggers.
- Experts see that the 3rd Industrial Revolution is upon us. How many jobs will be lost?
- Automation hits the professions. Most remain delusionally confident, so far.
See these books to better understand what’s coming…
- The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies
by Erik Brynjolfsson and Andrew McAfee.
- Average Is Over: Powering America Beyond the Age of the Great Stagnation
by Tyler Cowen.
- Rise of the Robots: Technology and the Threat of a Jobless Future (2015)
by Martin Ford.
FM is once again exactly correct. The real driver of automation in business is the Darwinian ratchet applied to American-style capitalism. Any American firm that automates its workforce gains a marginal advantage which allows it to undercut its competitors on price and beat its competitors with superior productivity. Any American firm which refuses to automate will either get bought out by the firms who do, or driven out of business by the increased productivity and decreased prices of the firms who do. Either way, U.S. capitalism as it currently exists generates increased fitness for the firms that automate and hobbles firms which refuse.
Alternative versions of capitalism, such as the Mondragon collective in Spain’s Basque enclave, does not suffer from this predisposition toward the automation Darwinian ratchet. The Mondragon cooperative is a network of state-owned worker collectives which view the public as their primary responsibility rather than corporate shareholders. Thus the Mondragon cooperative corporations can voluntarily decide to run a loss subsidized by the rest of the worker-owned cooperatives in order to generate marginal utility for the public as a whole.
Not-for-profit corporations in America include credit unions, K-12 public schools, research labs like the NIH and the Bell Labs, and state universities. So the Darwinian ratchet toward automation is not a basic feature of all capitalism, but only a feature of American capitalism as it is currently orgnaized.
Thomas,
Thanks for reminding us that there are alternative versions of free market economies that offer solutions to the promises and perils of the new industrial revolution. A lack of perceived solutions accounts, I suspect, for much of American’s political passivity.
Fear not! We can all just get jobs by becoming the hamburger.
Johnny,
Your comment must win Best of Thread for its echo of Jonathan Swift’s “A Modest Proposal For Preventing the Children of Poor People in Ireland from Being a Burden on Their Parents or Country, and for Making Them Beneficial to the Publick” (1729).
Some insights are timeless. In some future presidential campaign, after the total victory by the 1%, a future Mitt Romney will speak to his peers about the burden of supporting the “takers” — and propose Swift’s solution.
Resist the robots!
Junk,
The robots are great! We need to have them working for us, not against us. It’s a question of ownership.
So, we’re heading headlong into a world where product support is left to volunteers on message boards, customer service is handled via self-referencing menus and flowcharts or–if you can find an email address for the company–three day waits while our query is processed. A few years ago my credit union fired all the tellers “to improve (my) banking experience”–leaving me to handle deposits, withdrawals, transfers, and so for on my own–and the local grocery stores keep reducing the number of lanes operated by actual people in favor of brusque machines who harp if I take too long “Please put the item in the bag” or buy too much “please return your items to the scale”. Now I’m supposed to get my food from a machine. Retailers profit, consumers do the work that used to be accepted as standard service, and entry level jobs are lost so corporate stockholders can buy bigger yachts and spend more time sailing them around St. Barts.
Junk,
In my experience customer service has improved at many companies. Inline chats with customer service people having good tools — AT&T, utility companies, Bosh, software companies — is greatly superior to the long and usually futile telephone calls of even a few years ago. And vastly better to the only alternative of a my youth: writing letters.
Which is the point of the self-service kiosks. Properly done they provide *better* service than trying to explain your order to someone else, who then key punches your order in. Better AND cheaper is irresistible.
The industrial revolution now starting can create a better world if it’s fruits are distributed, not hoarded by a few.
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