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Wednesday 19th December 2018 -

Robots, Automation and Economic Utopia

October 5, 2018

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Type: Corporate Finance, Latest Blogs, Trending

“Isn’t that a contradiction in terms?” she asked.

 

The question caught me a little off guard.

 

You don’t expect to be engaged in a discussion on the future trajectory of our economic model of a Friday evening whilst sat in a very hot swimming pool watching your children do freestyle lengths.

 

But I had perhaps invited it because I was reading (whilst also watching the children) a book by Rutger Bregman entitled ‘Utopia for Realists’

 

The cover is bright orange with the title in pale primrose capitals – it is difficult to miss it.

 

And its title is well crafted to prompt a reaction.

 

The book is certainly provocative –  that is its purpose. And many would say enlightening also.

 

But the lady’s question gets to the nub of the issue – we struggle to believe that we really can have our cake and eat it when it comes to the economy.

 

And who can blame us – a dysfunctional housing market (whether you are an aspiring owner or renter); real wage cuts for most people, whatever their job title, over the last decade –  the IFS suggesting that it will take until 2022 before median wages reach their 2008 level in real terms; cuts in government services and safety nets; a widening gap between the ‘haves’ and ‘have not’; concentrations of wealth, which seem difficult to justify in terms of effort or skill and, of course, the emergence of what might be gaping chasms or fault lines across the entire political economy of the life which Brexit perhaps merely brought to the forefront of public consciousness.

 

The recent IPPR report (Prosperity and Justice) has some interesting analyses of these issues.

 

The book identifies some extremely interesting and possibly profoundly revolutionary changes currently flowing through societies (especially, but not exclusively, those we call economically advanced, such as our own).

 

What might these be? The rise of Artificial Intelligence and machine learning and hence greater automation of the economy.  The 4th Industrial Revolution as it is increasingly called.

 

And as Mark Carney recently pointed out, whilst such revolutions can bring the Creation of new sectors and opportunities and hold out the promise of Productivity improvements there often is an initial shock period (which can take quite some time) of painful Destruction.

 

Until now such developments have disproportionately impacted the manufacturing sector; but they will now start to affect the service sector which constitutes some 2/3 of the UK economy; and is employee heavy.

 

These developments will have a profound impact. But, I think, this could be profoundly beneficially – if it can be managed properly. But there’s the rub……

 

Many businesses, whatever the sector, struggle to recruit staff. Unemployment is now at or around 4% –  the level at which the Bank of England believes constitutes ‘full employment’.  This is somewhat different from the 1970s when a little over 2% unemployment was seen as excessive.

 

We are now just starting to see that ‘full employment’ effect manifest itself in wage rises.

 

Wage rises would, of course, encourage investment in automation. They are a necessary precondition, but not a sufficient one on their own.  There has to be a sense that the economic landscape will also , like as not, improve.  At the moment, given Brexit uncertainties, that sense is probably absent for many.

 

My crystal ball is as murky as yours but I think it is within the bounds of the probable that we may, relatively soon, pass a tipping point for many businesses which invest and automate. They may find themselves with more than enough employees – too many even.

 

But that needn’t mean redundancies. It could, and I suspect will, lead to a change in the nature of work – more flexible job sharing; freeing up human potential to carry out creative, added value tasks for all customers/clients. Possibly even leading to a flourishing of employee engagement – or re-engagement – in some businesses.

 

This will create challenges for businesses; change always does. But change, if reacted to appropriately could, with a degree of good fortune, become an opportunity as opposed to a threat.

 

But in order to react appropriately, we probably need to have given some thought beforehand to what the changes might be and how we, our competitors, our customers and the wider economy might be affected.

 

We are doing exactly this in relation to our business model.

 

Are you doing it about yours?

 

Back to the poolside… “No,” I replied “I don’t think it is. And, you know what, it may be closer than we realise.”

 

If you would like to discuss this blog in more detail please email Stephen Gregson or call us on 01772 821 021.

 

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