The printout that started it all. Note the dust. Photo by Elisabeth Dellinger.
"Will you lose your job because of a machine?"
That's the headline on the dusty printout of an old magazine article I found on my auxiliary desk at Fisher Investments' Camas, WA office Monday morning as I settled in for a week-long stay. In all likelihood, this paper has been there for over a year and a half, judging by the date on the bottom of the printout, but it was probably buried under a stack of books-goes with the territory when you share a work area with our resident history nut and managing editor, Todd Bliman.[i] Whatever its genesis, it caught my eye this morning, because I had just finished reading tech guru Andy Kessler's latest Wall Street Journal opinion piece on the sheer illogic of calls for a universal basic income as a remedy for workers displaced by robots. Writes Kessler:
This is a false premise. All through history, automation has created more jobs than it destroyed. Washboards and wringers were replaced by increasingly inexpensive washing machines, while more women entered the workforce. Automated manufacturing and one-click buying has upended retail, yet throughout the U.S. millions of jobs go unfilled. ... The economics, which they apparently stopped teaching at Harvard, are straightforward: Lowering the cost of goods and services through automation allows capital-financial and human-to attack even harder problems. Wake me up when we run out of problems.
That's basically the story of America and Europe's economic history since the industrial revolution, when many worried the flying shuttle and spinning jenny would displace hand-weavers. The article on my desk is quite telling, too-for while Todd might have printed it out in late-2015, the actual story is from the March 1931 issue of Popular Science and written by a journalist named Michel Mok. The lead photo showed a ginormous steam shovel "doing the work of many men" in Manhattan, with hundreds of unemployed men looking on as they stood in line for work or bread (this being the depths of the 1929-1932 recession). The article leads off with the story of English textile workers rioting when cotton factories introduced the spinning jenny, then segues into A.O. Smith's[ii] opening an automobile frame factory using "monstrous machinery" in 1920, where "two hundred men [did] the work of 2,000." The snippet on my desk ends there, but thanks to Google Books, I easily tracked down the rest (click here, then scroll down to Page 20), and to my delight, here is what followed:
On the face of it, this looks like a final argument against the machine and justifies you in branding it as a man eater. But the fact is not a single man has lost his job in the Smith plant because of the new automatic machinery. On the contrary it has given work to many more men.
Eager to know if these statements given out as facts were really true I put the problem up to the A.O. Smith Company. An official of the company told me they are true and then gave me this explanation:
"The automatic frame plant was put into operation at a time when there was a large increase in the demand for frames. We, therefore, kept all of the men in the old 'hand' plant and employed new men for the automatic plant. We still operate the old plant for the 'small runs,' and use the automatic plant for the large quantity production runs."
That's part of the story. The rest, still more surprising, shows how even more men were put to work. Research by the same staff of 600 engineers that seemed bent on kicking men out of jobs led to a new electric arc welding process which, applied to couplings for joints in oil well pipes, has supplied jobs, directly and indirectly, for more than 5,000 men! In short, the Smith research gang robbed not one man of work but literally put thousands of new ones on the pay roll.
And not just at A.O. Smith! Because their manufacturing process made pipes so cheap and plentiful, America's network of gasoline pipelines mushroomed, transporting fuel easily and cheaply from Texas and Louisiana to Chicago, Denver, San Francisco and other far-flung places, driving industries and growth nationwide. The article goes on to highlight several similar stories where technology either supplemented existing workers or "displaced" a few before the overall rise in activity drove the companies to create new jobs for their former assembly line workers. Men who worked on the line at a screw factory were brought back to pack up orders. Men who packed food were displaced by a mechanical "stacker," but stayed on to finish and label the cans and crates. As goods prices plunged, demand and sales soared, requiring thousands upon thousands of men (and some women!) to work in logistics and distribution.
In highlighting all of these and more, Mok came to a conclusion: Technology wasn't responsible for the throngs of unemployed lining up every day. Global economic conditions-the Great Depression of 1929 - 1933-bore the blame, and based on his findings, technology was what would ultimately create the opportunities for these folks to go back to work. The next several years and decades would prove the thesis correct, as advancements in manufacturing, transport, aviation and later computing would create millions of jobs, many in arenas unfathomable at the time. Even more recently, hydraulic fracturing and horizontal drilling solved the problem of falling US oil production. When the fracking boom left America with a glut of natural gas at a time Japan and other nations faced a supply squeeze, firms solved that problem, too, by developing natural gas export infrastructure. Now gas is crossing the seas freely, and global natural gas markets aren't balkanized anymore-regional prices have mostly converged.
This all goes back to what Kessler wrote: "Lowering the cost of goods and services through automation allows capital-financial and human-to attack even harder problems. Wake me up when we run out of problems." Indeed: While Technology is starting to come for jobs in the service sector, that doesn't mean we are out of opportunities for it to create new ones. Yes, self-checkout machines have taken some work from human checkers, travel websites have stolen a ton of market share from human travel agents, and fast food joints are even starting to experiment with robot burger flippers. But think big-picture, and it becomes pretty clear there are vast new frontiers for problem-solving to create jobs. I live in a state-California-with one of the US's most well-documented water storage problems. My town is still technically in a drought, even after one of the wettest winters on record, because the reservoirs overflowed and most of the excess rainfall ended up in the ocean or San Francisco Bay. If Tech takes on California's water infrastructure, think of the opportunities it could open up for urban (and suburban) expansion and agriculture. The experimental farm in the middle of the Mojave only scratches the surface of what we could see. One day you could start a restaurant in a desert agricultural boomtown.
That's anecdotal and local, but think about the world. There are so many problems to solve! Water treatment, storage and distribution throughout Africa. Improving refrigerated transit and storage of fresh food, especially in the developing world. Storing solar energy for future use. Curing all manner of diseases. Education. Ending poverty, starvation and scarcity of basically everything. Reducing crime and terrorism. Getting rid of the infamous Garbage Island in the South Pacific. Saving the Great Barrier Reef. Even big, pie-in-the-sky things like terraforming and extra-terrestrial colonization.
I have no idea how all this stuff will eventually work out and create jobs, but history overwhelmingly shows it will. After all, when the spinning jenny and flying shuttle led to mass production of textiles, it opened avenues for women to not only sew their own fashionable clothing and make livings as dressmakers, but it created a whole cottage industry of handmade quilts. The washing machine and electric dishwasher saved housewives dozens of hours of household labor each week, enabling them to enter the workforce in droves. Just imagine what Star Trek-style food replicators would do for society!
For investors, there are two main takeaways. One, as job markets adapt to technology, it isn't a one-way street. Tech will probably render many jobs obsolete over time, just as it did for the entire 20th century, but it likely creates others in new areas and gives countless people the opportunity to start a new business. Blockbuster is all but dead, but Netflix employs thousands! A simple piece of technology-in this case, an automated espresso/latte machine-enabled a young guy in my neighborhood to open a café with next to no overhead in an underserved corner of town. He created a job for himself and a couple other people, and he helps people get caffeinated. If he had to buy expensive Italian machinery and train baristas to handcraft drinks, he wouldn't have been able to do it. His endeavor is capitalism in a nutshell! And second-most importantly for anyone owning stocks-problem-solving technology creates boundless potential for firms to grow, profit and deliver wonderful long-term returns to shareholders. When you get right down to it, a single invention-the Vitamix blender-is responsible for the very existence of Jamba Juice and all of the returns it has generated over time. When you own stocks, you own this technological potential.
[i] Says Todd: "For the record, it was on the border of the two desks. But either way, it's nice to see the happy collision of the old article, the Kessler piece and Elisabeth resulted in a column." (ED: So he says-it was fully on my side of the Maginot Line.)
[ii] Disclosure! My uncle worked at A.O. Smith, so this has some sentimental value for yours truly. Not a recommendation to do anything with the stock, etc.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.