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Protect Yourself Before You Wreck Yourself
Robots can actually create jobs — if countries get their trade policies right.
In the long run, automation might replace all humans in the manufacturing sector. But until then, there will be a fierce competition among countries for the manufacturing jobs that remain. And the first step to winning that battle is realizing the best strategy for doing so won’t be intuitive; it might not even be fair.
There are several reasons nations still compete so fiercely to grab the biggest possible share of the global manufacturing sector. First, the markets for trucks, televisions, and airplanes are much larger than the purely local markets for domestic services, such as tourism and construction. Demand for a local day spa is inherently limited, whereas a car company has the potential to sell to millions of customers abroad.
Manufacturing also contributes disproportionately to research and development in science and technology; a country that loses its factories and specializes in finance and health care is unlikely to lead global rankings in tech start-ups and Nobel Prizes. Then there are the indirect effects of manufacturing, including the many high-quality jobs in business services such as finance, insurance, and marketing that are required to support it. Unless a country is a small specialized financial center or trading post like Switzerland or Singapore, it is not likely to retain many sophisticated professional services if its factories shut down.
So leaders of industrialized countries have good reasons beyond the most obvious to increase manufacturing jobs however they can. Resisting automation obviously isn’t the answer. Yet few policymakers seem to have realized that robots can actually help, rather than hinder, their pursuit of more jobs.
To understand how, consider an example: Let’s say it takes three workers to make a tricorder — the futuristic medical scanning device in the Star Trek television and movie series. Now suppose that a new robot is introduced that reduces the number of human workers needed to one. In this scenario, output (the number of manufactured tricorders) would remain the same, but thanks to the increase in productivity (due to the robots), employment in the tricorder manufacturing industry would drop by two-thirds.
Most discussions of automation these days seem to assume that this is the way things will continue to play out in the real world: Productivity gains will drastically reduce employment, period. But that is only one possibility.
Such pessimistic predictions fail to consider what would happen if the industry’s output increased. In that case, the tricorder company could add more robots — and more humans to work alongside them. If output tripled, for example, then employment in the new, semi-automated tricorder industry would remain stable.
But things needn’t stop there; the number of jobs could even grow. If automation helped the price of tricorders go down, demand would likely go up. Electronic calculators, which were once luxury items, are now cheap and common. Were tricorders to become similarly cheap, everybody might decide they want a few of them as well. Meanwhile, even if increased output soon saturated the domestic tricorder market, consumer demand abroad could pick up the slack. Such a growing global market would allow domestic manufacturers to keep hiring workers.
The trick, of course, is that in such a scenario other tricorder-producing countries would be sure to attempt the same feat. And accessing and succeeding in their markets wouldn’t be an easy thing, since it wouldn’t be determined by merit alone; trade, industrial, and development policies would also shape outcomes and could stack the deck. Even something as seemingly innocuous as government-sponsored export-import banks, which lend money to foreign purchasers of goods made by domestic firms, can influence outcomes. Which is why it doesn’t make sense to discuss automation, and how to deal with its impact on jobs, without also discussing global economic policy.
Yet policymakers in the United States have often failed to make the connection, as various economic indicators show. In 2016, for example, manufacturing accounted for a much lower share of overall employment in the United States (10 percent) than Germany (19 percent) or Japan (16 percent). This disparity was not because the U.S. manufacturing was more efficient and automated than that of its competitors. On the contrary, in 2016, the United States used only 189 industrial robots per 10,000 manufacturing workers (a ratio known as “robot density”), compared with 303 robots in Japan and 309 robots in Germany. South Korea led the world, with a remarkable 631 robots per 10,000 workers — more than three times the robot density in the United States.
One big reason that Germany, Japan, and South Korea have managed to maintain proportionally large manufacturing labor forces despite their greater robot densities is their focus on exporting manufactured goods and their governments’ success designing trade policies to serve that goal. The United States has failed in this area, which is why it has run chronic manufacturing trade deficits since the 1970s, ceding not only foreign consumers but also much of the domestic market to the manufacturers of other nations. As a result, in 2016, manufacturing accounted for a much lower share of total U.S. GDP (12 percent) than that of Japan (20 percent), Germany (21 percent), and South Korea (27 percent).
To compound the damage, Washington’s trade policy — reflecting the power of domestic lobbies rather than any concerted national economic strategy — has tended to focus on promoting the interests of low-value-added industries, such as agriculture and energy, or service industries that earn high profits but do little for employment, such as finance, tech, and pharmaceuticals. And while America’s commercial rivals in Asia and Europe openly rely on development banks and foreign aid to subsidize foreign purchases of their manufactured exports, America’s Export-Import Bank and Overseas Private Investment Corporation have been attacked by a coalition of anti-government libertarians and anti-corporate leftists.
To sustain and promote high-tech manufacturing, Americans must overcome two contrasting illusions. The first illusion, common among free market advocates, is the idea that national trade policies or international trade treaties can force the major trading nations of Asia and Europe to abandon direct and indirect support for their industries and adopt pure free market economics. There’s little evidence to suggest that can work to any significant degree.
The United States should accept that its major trading partners are fiercely committed to maintaining or expanding their shares of desirable industries such as aerospace, automobiles, electronics, robotics, and artificial intelligence. To respond, Washington should also insist on maintaining its share of those high-value-added industries while pursuing the goal of reciprocal access to the markets of trading partners through careful negotiation, rather than unilateral disarmament. The utopian fantasy of a global rule-governed market should be replaced by open-ended, results-based, sector-by-sector trade diplomacy to gradually lower trade barriers. To succeed, such a national strategy would need to be based on bipartisan support and to take into account the interests of allies, unlike the Trump administration’s unsystematic and provocative trade initiatives.
The other illusion is the idea, implicit in the arguments of many trade hawks, that trade is a zero-sum game in a fixed global market, shares of which the United States and other nations must fiercely compete over. In truth, the world population will grow by billions of people this century. Those billions will become potential consumers for U.S. exporters and their foreign rivals alike — if only they can be brought from poverty into the global middle class.
In recent decades, global development policy has taken a back seat to efforts to promote the globalization of trade and finance. But helping to convert today’s poor countries into the export markets of tomorrow is as important as ensuring access for U.S. exporters to the developed markets of today. All industrial countries would benefit by collaborating to grow the global middle class through international infrastructure investment and the upgrading of global health care and education resources.
Were they to do so, more robots would not necessarily mean fewer manufacturing jobs. In the very long run, another bit of Star Trek technology — the replicator, a machine that can make any object out of atoms — might make the global competition for manufacturing obsolete. Until then, the more cars, airplanes, or tricorders the United States can make and sell in global markets, the more manufacturing workers — and the more robots — U.S. firms can employ.
This article originally appeared in the July 2018 issue of Foreign Policy magazine.