Asia Global Institute

The Age of Automation Comes to Asia: Averting a Possible Jobs Crisis

Friday, November 25, 2016

The Age of Automation Comes to Asia: Averting a Possible Jobs Crisis

Pamela Mar writes on the consequences of replacing human labor with machines without preparing the workforce for change.

Part 1: Technology and Garment Industry: A Revolution Waiting to Happen.

In October 2016, the UN Conference on Trade and Development (UNCTAD) issued a new policy brief, "Robots and Industrialization in Developing Countries." Its findings revealed nothing new. Experts have long warned that the advent of automation technologies will be massively disruptive to traditional notions of early-stage industrialization and labor-cost advantage that currently underpin global supply chains.

The paper foresees that robotics could eliminate thousands of labor-intensive jobs in developing countries, causing massive social dislocation, exacerbating income disparities, and throwing a curve ball at developing countries that are planning to industrialize and export their way out of poverty. Given that Foxconn has already announced that it has replaced 60,000 workers with robots in its plants in China, this seems prescient.

There are strong forces driving the adoption of automation technologies in labor-intensive manufacturing in Asia. Technology offers one of the only ways for factories to deal with rising costs, demands for faster production turnaround, shrinking order volumes, and rising compliance standards, none of which factories can control. Without automation and better use of data to improve operations, these factories, many of which were set up in the age of labor-cost advantage, will continue to be squeezed, to the point where it is might be more profitable to just shut down. This has been discussed at length in a previous article.

While automation technologies clearly represent the future for individual factories, this trend could have serious impacts on job creation for entire economies, particularly for low-skill workers in key production countries.  India, for example, needs to create between 8 and 12 million new jobs per year from now until 2020.   Vietnam reportedly needs to create 1 million jobs a year as its young people are forecast to enter the workforce.

Cambodia has some 800,000 jobs in the garment industry, many of which have been created in the past decade. However, over 60 per cent of the population is still under 30 years old, meaning that its job creation needs will only grow. Bangladesh is in a similar situation, magnified by the fact that its population and economy are several times larger.

Moreover, in all of these countries, the labor force participation rate remains low - less than 60 per cent in most cases largely due to the fact that women have only really entered the workforce via the growth of the garment industry. The low labor force participation rate, signals that more jobs, not fewer, will be needed for many years to come.

The gains thus far from labor intensive manufacturing for all of these countries are clear: steady increases in GDP, which pulled Vietnam out of Least Developed Country status, and will likely do the same for Bangladesh and Cambodia if current trends continue.

The threat of technology disrupting steady progress in industrialization and job creation is real. In most cases of factory automation, the result is rising productivity, which means fewer jobs for the same output, or the same number of jobs for more output. The difference can be drastic. A frame factory in Indonesia went from 1400 workers to 250 within 18 months after installing automation equipment; a consumer goods company needs only four people to run its warehouse instead of 18 after installing robotic equipment; a production line that installs RFID or other digitization equipment produces 20 per cent more with the same number of workers, due to an increase in efficiency.

The U.S. offers an example of what this might mean on an economy-wide scale, as manufacturing was either offshored or began to automate in the early 2000s. Over a 10-year period, 5.6 million manufacturing jobs were lost, but actual manufacturing output rose significantly due to increases in productivity that ranged from 20 per cent to 80 per cent depending on industry.

Today, it is it clear that the hollowing out of the American manufacturing heartland - and the millions of workers who were displaced - formed part of the Donald Trump's core constituency in a revolt against global trade and the business elite.  For sure, the U.S. offers a poor example of how to manage the social impacts of technology in the supply chain, with scant retraining resources, few obligations on business to offer exit cushions or anything beyond "at will" employment, and so on.

The economist Ha-Joon Chang has written that economic development is all about acquiring and mastering advanced technologies, which developing Asia has already learned as it moved from largely agrarian economies to early stage industrialization. They should not stop there.

Developing Asia should approach automation, robotics, and associated technologies as a massive opportunity to upgrade its industry to be more competitive, just as Korea and Japan did two decades ago, and just as China is trying to do today. But countries should study the U.S. model to avoid a situation where doing the right thing for the economy creates major social problems. Three key measures will help ease the transition.

First, retraining and job assistance is crucial for displaced workers. They need to be equipped with skills that are relevant to a future where technology plays a bigger, or dominant, role. Business needs to be involved in this at all levels, challenging traditional notions of unemployment assistance being mainly the responsibility of government. Business has every interest to invest in workforce training, which should be clear from multiple HR surveys which show that recruiting staff with the right skills remains highly problematic across Asia.

Second, governments should redouble their efforts to accelerate the expansion of the retail and service sectors, as China is now doing, to give redeployed manufacturing workers the chance to stay gainfully employed. The worst outcome would be for these workers to end up in the informal sector - which may count as a "service" industry but often with poor conditions, unlimited hours, and few protections. Efforts to develop the retail sector will of course run up powerful vested interests, which have been seen most visibly in India. However, it offers the best hope of absorbing large numbers of displaced manufacturing workers who have limited education and few marketable skills.

Lastly, countries must adjust, or in some cases, completely revamp secondary and tertiary education to prepare youth for jobs of tomorrow, where analyzing data, making critical decisions thereon, and iterating based on new information, form the core of needed skills. Of course, one has to start from a realistic base - in some factories in Cambodia or Bangladesh, a large portion of the workforce might be illiterate or semi-literate. But we should question "education as memorization" as it currently exists across much developing Asia. Alas, this might also mean that among the first tasks will be re-educating, or re-deploying, the teachers.

No one can stop the advance of technology, and its falling costs offer a huge opportunity to low-cost manufacturers seeking a way to stay relevant, and connected, to rapidly changing global markets. With good planning and smart investments into education, training and tertiary sectors, these changes need not spell doom for Asian countries seeking to retain their manufacturing bases while continuing to promote social equity and inclusive growth.

The views expressed in the reports featured are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.

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Pamela Mar

Managing Director, Digital Standards Initiative, International Chamber of Commerce

Pamela Mar


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The University of Hong Kong
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