Friday, October 20, 2017

Why Low Skill Manufacturing Jobs Are Not Coming Back To The US

This article is about the largest producer of industrial robots in the world.  Fanuc, located in Japan, with annual sales of $50 billion has a secure position in this market.  It has 25% of the market but it also has a 50% share of the software that is used to control the robots.  This story is about Fanuc, but more importantly it tells us a lot about what is happening in manufacturing.  Between 1990 and 2007 each new robot purchased in the US replaced five low skill workers.  The ratio in Germany was only two workers for each robot because of union participation in management. 

Fanuc got a lot of help from a partnership with GM.  That partnership funded its research and development and GM was its largest customer.  However, GM did a poor job of managing its investment in robots.  It also produced unimaginative new cars which were over priced.  Its share of the US auto market fell from 46% to 33% under Roger Smith who established GM's partnership with Fanuc.  GM sold its share of the partnership back to Fanuc in 1993. 

Fanuc largest market is in China which purchases 30% of the robots sold globally.  Robots are used to provide routine tasks and some jobs are moving to lower wage countries such as Vietnam and Thailand.  Wages in China are increasing, however, because higher skill manufacturing and management jobs have been growing.

The use of robots in manufacturing will continue to grow for two reasons.  Robots are being used to produce robots.  That is driving down the price of robots.  Moreover, artificial intelligence is being used so that robots can learn from their performance and modify their own behavior.  That allows them to perform complex tasks that they were unable to perform in the past. 

The good news in this story is that the cost to manufacture many products will continue to fall.  Higher skill jobs will grow in response to market demand.  The bad news is that even small manufacturers are using robots to perform routine tasks.  Global competition for manufactured products is causing firms to reduce costs.  More routine jobs will done by robots and even some  complex jobs will be done by newer robots that are capable of learning from their experience. Robots are also capable of lifting heavy objects that once required the use of human labor.  The development and use of robots will continue to progress over time.  High wage, routine labor labor demand, will continue to decline.  Some jobs, that had been offshored  to low wage countries, will return but much of the routine work will be done by robots.  The golden age for high paid routine manufacturing jobs in the US is not coming back.  Technological development and  economic globalization will not be reversed.  The ability of national governments to deal with the consequences of events that happen outside of their national borders, many of which are determined by the decisions of firms that compete in a global market,  are being tested today and our political systems have slow to adapt to rapid economic change.  Demagogues will have more opportunities to take advantage of government failures by promising a return to a past that cannot be restored.  They will win unless our political systems show that they can adapt as fast as markets change.

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