No. 208

SELF EMPLOYED THE NEW WINNERS IN NEW ECONOMY

 

STONE the crows! The cottage is back in industry.

There were two whammys last week for Australian workers. The first was bad news – a prediction of falling wages to compete with Asia. But it was whacked by the second. This one pointed to a fab future for the educated, innovative and energetic and an ordinary outlook for the unlucky and unimaginative.

According to economist James Mirrlees, Australian wage rates will fall as capital relocates to low cost countries and “the world moves towards economic equilibrium”. This may mean more money for workers in India and China, but definitely involves Western “wage slaves” taking a hit.

And there is sod all we can do about it – other than get used to living on less because the price of defending uncompetitive wage rates will be increased unemployment.[i]

That was whammy one. Whammy two was Michael Spence’s prediction that robots and additive manufacturing of just about everything imaginable will wipe out mass industrial employment.[ii]

Sound familiar? It should, every recession and/or horror budget the Crows can remember is accompanied by warnings that there will not be enough jobs. The latest diagnosis of what Keynes called “technological unemployment” is that digital processing power will make humans redundant not just in manufacturing, but service industries – from driving cabs to completing tax returns.

As The Economist argues, “The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers.[iii] It’s already underway – call centres are long gone and Fairfax Media newspapers are now subbed (badly) in New Zealand.

Grim indeed. But whammy two may well wipe out whammy one in the West, if only for the smart and nimble.

The argument that wages must fall does not apply in creative industries, which rely on individual knowledge and skills. While the Chinese are investing in higher education, just 20 per cent of 20-34 year olds in China have completed high scbool (the figure is half that for the 55-64 year old bracket).[iv] So high wage countries that invest in education have a generational edge.

And knowledge based industries are everything. As means of production digitalise, economies of scale evaporate, in services and manufacturing both. The Crows used to work for News Corporation, an enormous company with subs and salespeople, printers and pen pushers, hacks and HR all adding (well, maybe not HR) value to the journalism that is the company’s core business.

Now the Crows put out a product that competes against News Corp for readers interested in higher education, with a capital investment consisting of one Macintosh and some software.[v] Whether there is enough interest in my product to make it commercially viable is another question – I’ll let you know. But there is no doubting in digital media you do not need scale to set-up.

Now, the same is starting to apply to manufacturing, thanks to additive technologies which use a 3D printing process to digitally deposit material to create an object. Yes, this is very expensive to set up. But it ends the tyranny of scale, making bespoke products, from running shoes to rockets financially feasible for countries with small markets but educated workforces.[vi]

As Goran Roos, puts it:

It will be the digital designs and digital specifications and not the products themselves that will move around the world and the only physical movement will be the nano-powder and the additive manufacturing units themselves. The savings that will accrue in labour, tooling, assembly, shipping, inventory, working capital is posing a major threat for countries that have emphasised low-cost traditional manufacturing. Instead there will be a growth in all the new service related activities that will take place in digital space e.g. Digital testing, digital simulation, digital file compression, etc. All requiring highly educated individuals and sophisticated tool development where the labour cost component in the service is small as a percentage of the value provided and hence can be executed in high-cost countries.[vii]

A world where economies of scale no longer apply creates everything from manufacturing to the media a cottage industry. But it will not need that many people. As Tyler Cowen explains: “Technology is creating a boom in output for new industries – such as shale gas and internet retail – but only a modest increase in their payrolls … recent innovations in information technology tend to raise productivity by replacing existing workers, rather than creating new products that demand more labour to produce.”[viii]

The winners will, accordingly, be those with the ability to generate their own jobs – be they self-employed tradespeople or service industry workers with portable skills who can generate their own business. Critics of Victorian TAFE deregulation point to the growth in personal training courses as demonstrating market failure, equipping people to do jobs nobody needs. Nonsense – those trainers leading classes in the park you saw this morning understand the future where the best way to get a job will be to create one.

If average is over then entrepreneurs, of all shapes and sizes, are the future of work for many people. Looking for a growth field? Teaching the emotional intelligence and competencies required for self-employment is going to boom.

 

 

ENDNOTES

[i] Tony Boyd, “Australian wages to fall, says Nobel laureate,” Sydney Morning Herald, May 30

[ii] Michael Spence, “New technology makes people an optional resource,” Australian Financial Review, May 28

[iii] The Economist, “The onrushing wave,” January 14

[iv] OECD, Education at a glance: 2012, 13 @ http://goo.gl/IGzgOK

[v] check it out @ Campus Morning Mail @ http://campusmorningmail.com.au/

[vi] The Economist, “Heavy Metal,” May 3 2014

[vii] Goran Roos, “Understanding the strategic consequences of additive manufacturing,” 2014 @ http://goo.gl/TaYG5w recovered on May 31

[viii] Tyler Cowen, “Average is over,” Marginal Revolution, March 27 @ http://goo.gl/Ct7FwI recovered on May 31

'2012