Thursday, July 15, 2010

Goodbye Human Capital You Are Obsolete

Joblessness has been a stubborn stain on the fabric of the world economy. No matter how hard you rub it just keeps reappearing. Now the fabric is so stressed it's in danger of tearing. Let's face it a patch on this garment, is well... a patch, much like the "Toughskin" jeans budget conscious Moms with ruffian boys that wore out knees in two days flat bought. Heck it took about a month before you could even bend those pants at the knee, and the only thing left of the jeans after full use was the patch. OK... well I digress.

Joblessness is pervasive and it's not going to get better, and we better figure out a better way to deal with it or, it will undo the us humans. When you think about the reasons it is so prevalent I always hear the symptoms, but the public debate on the disease is non-existent. We've heard over and over again everyone lament the arrival of the personal computer in the mid 80's and how it was going to make humans obsolete. Then when the 90's came it was wow they are actually creating more jobs. It's the new economy, things are going to be grand our future's so bright we have to wear shades. Well Sunshine the last ten years in case you haven't noticed technology has been hard at work making jobs, or human capital obsolete, and in this next decade I predict that we are going to lose even more.

Several years ago perhaps even a decade ago I took a very personal interest into learning about Japan. It's customs, history, the present and it's likely future. It is still a subject and a country and people I admire and follow with great interest. Many things struck me about the Japanese culture and the prophecies about its future, which ten years ago were relatively dire. One in particular caught my eye. If you know anything about the culture, know this they have 120 Million people in a country roughly the size of California, of which less than 1% can be described as resident immigrants.

Japan has also been in a state of zero to negative population growth, for at least 15 years perhaps even more. With a rapidly aging population and a dwindling younger work force, Japan was heading for a reef in a gale. An article I read at that time posited, with grave concern, that at some point the Japanese would have to open up their borders more and allow more immigrants into it very insular society in order to keep their economic engine going. I was intrigued as this represented a huge opportunity in seeing a culture assimilate diversity, something it really didn't have to do even with the arrival of "The Black Ship" as it is referred to in their history. Although, outside looking in it might have well been the "good ship lollipop". This was no doubt the makings of a grandiose anthropological social study of sorts. Although five years ago I after waiting for this impending disaster I began to see a different outcome. It has been ten years, since I read that doom and gloom on the Japanese and I'm still waiting, but I know now that it will not happen.

The reason why you ask was strangely prophecied in the Styx song Mr. Roboto, and the phrase Hello Arigato Mr. Roboto. This song was popular in the eighties, and strangely the lyrics fit so well to our current situation and Japan. 
Non human automation is permeating our world.
When I call on a new company or companies I am amazed that 85% of the time (anecdotally of course) I don't get a real person I get an auto-attendant. Before I even get to a real person I have to go through an auto-attendant. I'm not complaining, I can't really, because my home phone system has one too available with either a French, Spanish, British, English or Japanese language menu and voice to choose from. I paid $400 for mine and I don't need a receptionist. The idea of a secretary today is obsolete, now it is best to describe a personal assistant as an executive assistant and they are required to do a lot of things and one of them isn't short hand. A great deal actually requires that they spend a lot of time looking and gathering readily available stuff on the internet and synthesizing it so that I can consume it quickly and easily, without having to do it myself. However, once it was done I had to make up stuff to justify the salary I was paying. When business got slow I found I had more to keep up and could get along without the help. It was a luxury not a necessity.

I don't have to go through the thousands of examples but technology and yes robots are building cars, fixing and dispatching people, i.e. wars (drones), oil drilling, exploring, mapping, trading, manufacturing, acting and mining. We have probably already retired the last human fighter ace as unless a big war breaks out the next generation fighters will be pilotless. The pace of change and impact to our world is accelerating and is already moving faster than are political and financial systems can react.

Are we beyond paving the cow path?
In my view 90's, particularly from 1988-2000 was more or less paving the cow path, and the decade since was straightening the meandering path and making it into a two lane road in either direction. We can expect the next decade to be eight lanes in either direction, i.e. the proverbial technical super highway. By way of cow path's, we had these great pastures of green fields, i.e. mainframes, pc's and the introduction of the early internet from which we had to rely on a cow path of human and technologically less convenient ways to connect and reach each other through communications and commerce. With the advancement and "ubiquity" of the internet and robust adoption and lower cost of entry we have made great strides at eliminating the inefficiency in the cow path and we have paved an eight-lane super highway.

In many respects we could probably do better to recognize this advancement for what it is worth, a great potential for social upheaval and re-invention. Case in point, at another critical time in our financial history, e.g. the Depression of the 1930's we were embarking on a similar trajectory the beginnings of the industrial revolution. Its promise was sold during the roaring twenties, but with it came a huge displacement of worker resources the likes we haven't seen until now. It took nearly a decade and a half for the newly available human resources to be soaked up, but it also relied on the heavy intervention of Uncle Sam and a major world war.

The promise of the technological age and the fears of the computer displacing jobs as was predicted in the mid- 1980's and roaring nineties is now upon us, and the pace of technological impact is increasing in velocity and breadth. We are well past the point of having paved the cow path. For the last ten years road crews have been straightening and widening the path to carry commerce and services to new places. Remember that with every new highway, built or augmented for higher speeds and more traffic a town or cottage is threatened while new ones rise to become the new stop to commerce.

Back to Japan
Of course the pundits had it wrong, they commented on Japan without really understanding its culture. Japan will at all cost avoid the scenario of having to open its borders to more immigrants, they have staved this off to some degree by moving manufacturing offshore to other countries to find cheap and plentiful labor, however at the same time they poured amazing amounts of energy and resources into robots. Robots are Japan's answer to their cultural zero-negative population growth, and it's beginning to show. Toyota, recently announced plans to reduce the cost of their cars by 30% in the next three years. Their admitted strategy was to eliminate this cost by redesigning 165 components that can be shared across platforms. However, reading between the lines the bigger advantage is looking for common components that can assembled easily and reliably by robots. Believe that this is an effort to completely eliminate the need for human assembly. They recognize this and rather than come out and say it they are likening it to single sourcing components.

We are a victim of our own success...
I marvel at the ability of anyone with an idea for a product or services to start a cottage industry, be it blogging, or an online store like which sells new money saving ideas like making your own commercially viable cigarettes or home use soda for one tenth of what you would pay at the grocery store. Making cigarettes for $.80 a pack certainly has it's cachet, especially when the recent tax increase made a pack of smokes $11 in NYS( not the city). Soda another targeted health hazard in NYS for taxes can be had for .10 a glass, once again. These two ideas alone if you drink two glasses of soda a day per family member and smoke a pack a day can easily save a typical American family a substantial amount of money equivalent to a luxury car payment a month.

I know I appear to be meandering here but what I wish to point out is that the companies selling these products are on the internet and they are not mom and pop stores, they are one person shows. The video production and editing featuring the products on this site may not be standard commercial quality, but if you looked to do the same task ten years ago it was very much a commercial endeavor most likely requiring a budget in the tens of thousands. It can all be accomplished now in an afternoon with a small investment of just a few hundred dollars. A whole studio of equipment for recording, the how to create rich and informative content and the conduit for distribution to your target audience can be had for free, via you tube and your free web store with PayPal.

A published brochure as slick as any company can put together can be accomplished with the barest literacy skills and technical know how. We are in the age of commoditization. Nothing is now sacred everything can be mass produced and done with a particular target market segment in mind. Even down to the individual. We were striving for cookie cutter, which we accomplished. The next challenge was making my cookie with sprinkles and Susie's with chocolate chips, that day is here. What used to take ten people to accomplish 25 years ago now takes one.


So now that we are here now what.
Well this is indeed a conundrum. We are now faced with jobs the most highly skilled and coveted jobs are being targeted and annihilated at a radical breakneck pace, and its going faster. Our local hospital just announced its new addition to the surgical team, a robot. Making simple to even complex surgeries cookie cutter, repetitive, unremarkably consistent and cost effective. Look at this video of the Da Vinci surgical system from 2007, I dare you to tell me that three years later that we aren't even further along.

What would likely take two or three doctors working together and a bevy of support personnel now takes 1/3 the resources and with very consistent outcomes and extremely positive and quick recovery scenarios.



What is next?
Clearly we are at an inflection point in human history where humans are rapidly approaching a point in time where we have more leisure hours than work hours, all the drudgery of work is being replaced, by the skillful application of technology. That was the end result of the last ten years, which resulted in the displacement of the support staff surrounding high skilled and trained resources. The next seven years the focus is on replacing highly skilled jobs the jobs with the higher wages and costs. This is clearly the cartoon of the ladder burning up to the top rung, before the character teeters onto the ash of what was once a sturdy structure. Corporate profits have been surging as technology has trimmed the costs dramatically in all aspects of productions and services. CEO's have taken the credit with a few as being in the right time and place have been compensated quite well. Even shareholders have benefited as dividends has been robust save for that scary period of 2008.

But now the dawn of realization is upon us. We have created a huge issue not just for ourselves, but for even countries like China with rich resources of human capital which are on the verge of being made obsolete. This is a huge issue for China as they are already struggling to transition from a rural feudalistic mindset to that of an industrial powerhouse. Goods no longer can be produced cheaply and reliably with high quality with human labor as cheaply as a robot. So do they themselves invest in robots or do they continue to keep throwing people into the mix. The trend of the manufacturing assets being located in third world countries is past. The manufacturing assets coming on line in the last five years require mature and robust infrastructure. This is great news for the US. With a more reliable infrastructure and access to highly technical industrial complexes, than most up and coming emerging markets the manufacturing will likely start to drift back to western shores. Unfortunately it doesn't help the jobless, but it does help the economy.

Razors edge…
The balancing act required now centers on what to do with a persistent and chronic idle workforce. Twittering, You Tubing and Facebooking are keeping them engaged now, but how long will this last. The new industries (green energy, education and healthcare) as part of Obama's vision will take at least five to seven more years to make a meaningful commercial impact, the natives are restless now.

What is left but to expand social programs to fill the gap, but where does the money come from. We have a deficit of which didn't exist in the last Depression. This is increasingly looking like some really hard decisions will be coming down the pipe. For instance, think about how in the Depression, that era called for the outlawing of private citizens owning and exporting meaningful quantities of Gold. Could this even happen today? If the government were to attempt to do this we would have a civil war.

Today, the US has the largest gold reserves of any one country in the world, this is quintessentially a direct result of a seemingly dictatorial, authoritative and socialistic move made by FDR. We are much better off for having done this and secured the nation's future as a bedrock of financial stability.

The alternative that we will tax the companies more and close loopholes and fund these expanded government programs to provide for the idle working class, this is a really bitter pill one that could also result in a pretty unsavory outcome.
Perhaps this is the medicine we must now take to get better.

Another alternative is to stay the course. This sounds draconian but I'm betting as it seems the US government is too, that infrastructure is the trump card, as is a stable political system and a robust means with which to defend itself and the interests of its citizens (companies included). We have that, and no one else in the world has what we have. The robots and high technology need this or they are useless. We have the edge and will continue to expand this edge, but it's not the companies role to do this, it is the governments role.

Another alternative is to shrink government drastically and declare everyman for himself. Which will be translated to take to the streets and let's fight it out. Either solution has it's hair on it, either side is an extreme, and middle ground is a razors edge. This is evident in the debate permeating our financial and political commentary. No one side is happy, as there are now good alternatives, more socialism or more unbridled capitalism. This is an inflection point, there is no good room with a view. We must remember that united we stand divided we fall is a concept that made us impervious to ruin and right now we are divided. What we need is for everyone to pitch in and do their part to make this a collective effort.

What are the hard choices now. We can't go on spending, we can't increase taxes and we can't decrease spending. We are what is commonly described in sailing vernacular as being stuck in "irons" heading into the wind waiting for the wind to make the decision for us as to which direction to go. We need to pick a direction with which to move forward and stick with it for more than "ten minutes" and if we are wrong we can double back at least we will have eliminated what we shouldn't do.




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