INSIGHTS: DON’T BLAME TECHNOLOGY!
Ever since English textile workers (known as Luddites) protested against the power looms and spinning frames that brought forth the Industrial revolution in the early 1800s,people have blamed “technology” for killing jobs. Over time, the Luddites’ arguments have been proven to be false, but every time unemployment rises, it’s easy to point fingers at technology and its ability to increase productivity.
While technology is usually employed to reduce costs and to save on labor, firms in Japan, where the unemployment rate sits at 3.6%, look to embrace the wave of innovation in new technology, albeit for different reasons. By 2050, Japan’s population is expected to decrease by 25% to 100.6 million, from 126.93 million in 2000. In fact, with more Japanese entering retirement then entering the labor market, unemployment is actually set to decrease.
An ever increasing number of elderly places a major burden on each new generation. The healthcare and pensions of the old depend on the young and working. But with less and less people to cover these costs as fewer people enter the labor-force, Japan is looking to technology for assistance. Companies are designing new products or reinvigorating old ones to better cater to the needs of the old. Car manufacturers are testing out “back seat driver” systems to inform drivers when they are going too fast. Seeing that cars have become close to silent, Nissan is developing a warning noise to be projected outside the car itself so that elderly pedestrians can hear a car coming. According to a 2012 article in The Squeeze, “A Japanese company has developed a fire alarm that alerts people with little or no hearing by emitting the pungent smell of wasabi.”
With a certain labor shortage on the horizon, firms are beginning to utilize robots to do the jobs that were previously done by people. A number of trains in Japan now run by themselves. Certain stores use robots to care for children while their parents shop, and nursing homes are beginning to use robots to deliver food and medicine to their patients. Although robots may become more and more important in a number of different sectors, they can’t pay the necessary taxes to fund retirees’ pensions and medical costs. Thus Japan is increasingly looking to bring in foreigners in both the low skill jobs where they are needed, and more importantly in high skill and high paying jobs. “In terms of growth strategies,” noted Jeff Kingston in the Japanese Times, “the potential benefits of attracting resourceful immigrants are significant, since — just as in the U.S. — they could be engines of innovation and employment.”
A number of critics point to Japan’s weakness in creating an environment where creativity and innovation result in more output. If there was a large culture of entrepreneurship and an encouragement of start-ups, productivity issues might not be a big problem, but Japan ranks low in this arena. According to InternationalEntrepreneurship.com, a group that measures the proportion of the working population involved in entrepreneurship, Japan has ranked amongst the lowest of the leading nations for over a decade. In 2012, this proportion was a meager 4.0%, the same as both Russia and Italy. The US, however, saw their proportion at 13.0% in 2012.
While policymakers in most countries consider unemployment their biggest issue, those in Japan are more worried about an ageing workforce. Will the help of immigrants and hopeful gains in productivity through new technology be enough to pay for an ever-ageing society? The answer is uncertain, but we can be sure that a neo-Luddite revolt is nowhere in the picture.
Many Americans may wrongfully target technology for increases in unemployment time and time again, but with a society and government that encourages innovation and productivity, it will be quite some time before we need to worry about an ageing population and how best to deal with it.
ON THE ECONOMY: HELP ME
“Help me, I think I’m falling in love again. When I get that crazy feeling, I know I’m in trouble again. I’m in trouble.”
The lyrics from Joni Mitchell’s 1974 top ten hit could be describing the US economy. Today the Bureau of Economic Analysis (BEA) released its second estimate of 1st quarter GDP showing that it declined by 1 percent. We knew that the economy was in trouble when the preliminary 1st quarter estimates came out last month showing that the economy went into a virtual standstill during the first 3 months of the year. When we looked at the data, we saw that the underlying story was even worse than the headline number. In fact, based on the early estimates, spending on services drove the economy into positive territory during the 1st quarter, and of that spending, 56 percent was from higher health care spending. In other words, based on how the BEA reports GDP, 1st quarter figures would have been down by 1 percent save for increased spending on health insurance as a result of the Affordable Care Act.
GDP was only growing because the government was making people buy something that many did not want. The Administration could have mandated us all to buy 1000 bags of sawdust in order to make the economy appear to be growing.
Delving deeper into the newer data on GDP, the results have hardly changed. The items that really matter to the economy – net exports and investment – are down markedly over the prior month, with private investment in business structures down 7.5 percent and equipment down 3.1 percent. Investment in housing was off by 5 percent from the 4th quarter of 2013.
While many pundits have suggested that these results were due to bad weather, that is unlikely. Winter weather conditions may impact housing construction in parts of the country but would hardly lead to a decline in equipment purchases. Net exports are down 6 percent from the last quarter of 2013, and even though imports are relatively flat, during the first quarter the country’s international trade balance greatly weakened. Even though personal consumption spending was up by $82.9 billion, $40 billion of this was due to higher health care costs. Much of the remaining increase was due to higher spending on utilities (here the weather increases GDP!). Inventories were also way down reflecting large reductions in petroleum stocks.
Overall, both the demand and supply sides of the economy appear to have gone into negative territory during the 1st quarter. Since demand is pushed up by bad weather and supply likely pushed down, the excuse that snow and cold is leading to lower GDP is a weak one. Rather the economy is showing continued strains brought about by poor economic policies and after 4 years of modest growth, the business cycle may be starting to top out. Since the end of the Second World War, the average business cycle–the period between economic peak and economic peak–has been about 5 and a half years. Since the economy last peaked in 2008, we are right in line with the end of the cycle.
This suggests that the economy should begin to falter and move back into recessionary territory over the 2014-2015 period. While this does not imply a shrinking economy (like the 1st quarter), it does suggest a slowdown to what has already been lackluster growth. At a time when monetary policy is tapped out, government borrowing is near all-time highs, consumer credit is tight and wages are hardly budging, I think that Joni Mitchell would not be singing about falling in love in 2014 but rather falling off the rails.
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