Adventures In Cyberspace

WHO NEEDS PEOPLE?

The danger of letting machines replace workers.

by E.J. Heresniak

The garbage can mandated and provided by my local sanitation company is about 50 percent bigger than any can at Lowe’s or Home Depot and takes more space in the garage than I care to spare. It came with explicit instructions for curbside positioning, well away from any obstruction. Part of the deal in moving to a new planned community includes getting the garbage picked up as part of the monthly homeowners- association fee. The reason the receptacle is so big is to accommodate the garbage truck designed to make pickups a one-man operation. Rather than hearing garbagemen clanging and banging cans at 5:30 in the morning, we hear diesel and hydraulics as one guy drives through the neighborhood and the articulated rig automatically picks up, dumps, and returns the oversized receptacle to the curb.

Garbage collection used to involve a truck driver who often got out of the truck to help one or two other guys who’d be hanging onto grab-irons in the back until they came to someone’s garbage — in cans, plastic bags, or piled on the curb. No more. There has been a lot of engineering and money invested to put some unfortunate individuals in the more unfortunate position of entirely being out of jobs, albeit lousy ones.

One of the more prominent issues littering the airwaves is, in fact, jobs. During the election, both sides tossed around blame, boasts, and bluster about losing jobs, creating jobs, saving jobs, moving jobs overseas, while promising to keep and grow the most, the best, jobs in the U.S. of A. Missing in all of that was the fact that technology is killing jobs in ways that even the wild promises of politicians probably can’t change. Macroeconomists don’t worry about this because from ten thousand feet, it’s hard to see individual effects. The numbers they study are so abstract and obscure that they are subject to any interpretation, but on the ground, where people are, the effects can be devastating. Most large retail stores I’ve seen have already introduced self-service checkouts in which systems of computers, scanners, and disembodied voices costing tens of thousands of dollars are aimed at replacing minimum-wage checkout people. Sometimes they work OK, but many of them are slow, stupid, and not as good as the person usually posted nearby to help wayward customers, not realizing that training shoppers will eventually render him unemployed.

Technology has always directly impacted jobs. For a long time, folks operated under the assumption that people displaced from one job could find another if they were smart and got some training. There was never a good answer for displaced workers who weren’t smart. On a grand scale, I think economists thought of jobs as matter — you could change them, move them, revamp them, but never destroy them as an idea. If people got enough education, had enough grit, and were flexible, there would always be a job. I’m not sure that’s still true.

If it ever were true, with technology reaching down to even the most pedestrian jobs and enabling more demanding jobs to move to lower-cost environments worldwide, it’s surely less true now. Technology trumps people. Machines are technology; people aren’t, so anything that applies machines to tasks that people do (or did) is a good thing.

At least that was the theory. The other part of the theory was that whenever jobs got automated, displaced workers could move up to other jobs, many of which could be making the technology that displaced them in the first place. That part was bunk, but it sounded good at the time.

I’ve had the chance to watch housing construction recently, amazed by the speed at which crews, usually Latino, put up houses. The homes get a foundation, framing, drywall, roof, and siding in about three weeks. A lot of the speed is brought about by nail guns that make the term “swinging a hammer” obsolete and pre-constructed trusses that replace not only labor but the big expensive beams that used to make up floor and roof joists. (You’d think that with shortened elapsed time, fewer person hours, inexpensive materials, and the low wages for which immigrant Latinos will work, new construction ought to be really cheap. It’s not. Wherever the savings are going, they’re not reflected in what the customer pays, even with the crash of the housing market. I wonder if subcontracting, which is so popular now and eliminates fulltime workers and the cost of benefits, puts in place too many layers of profit-taking and eats up any possible customer savings.)

House foundations are poured nowadays, not built by masons and helpers mortaring layers of cement blocks that might take three or four days to finish. Now foundations are finished in a day, by using big metal forms that assemble like Legos and pouring concrete in a continuous stream. A concrete pumping truck with a forty-meter articulated arm can reach anywhere as it scoops gulps of premixed, liquid concrete from three or four conventional concrete trucks, the kinds with the rotating barrels. I watched a nattily dressed pumping-truck operator run his truck’s pump and boom using a wireless remote that did everything but drive the thing to the job site. Big concrete pumping trucks are expensive: $350,000 to $1,000,000, depending on capacity and boom length. They rent for up to $5,000 a day. The trucks, the pumps, and the reusable foundation forms eliminate a lot of people who used to have decent jobs laying block at maybe $22 an hour.

There is something going on by which big capital costs for all sorts of equipment somehow save enough in labor to make a positive business case. Investments in technology and equipment are tax-advantaged in a way that workers are not. While employees are an expense, nobody generates cash for a business through accelerated depreciation of people. If we’re not careful, we will be depreciating people in a way that jeopardizes everything the economy counts on. The idea in a consumer economy is that the consumers have enough money to keep buying stuff. The money for that comes from having enough people with well-paying jo"s.

The Econoiic Stimulus Act of 2008 providedan outstanding incentive to buy equipment to do work instead of using people. One pRovision allmss a company buying expensive equipment to take first-year depreciation equal to 50 percent of the equipment’s cost. So a $1 million purchase of a pump truck, for example, not only eliminates block masons but, more importantly, generates a half-million dollars of depreciation and can substantially reduce tax liability. Perhaps substituting expensive equipment for people trying to earn a living is more about taxes and accounting tricks than anything else.

On top of that, most stuff is manufactured outside the United States these days, so the idea of a displaced worker moving up the food chain to work on what displaced his job is kind of nuts. The people cashing in are the ones who own the equipment- making companies.

Two years ago, Coors (now Molson Coors), the fellows who built a beer-brewing business based on Rocky Mountain water, decided that Virginia’s Shenandoah Valley water was plenty good enough and opened their second brewery near me in Elkton, about two hours from Washington, D.C. The good news is that they invested in a new 100,000-square-foot plant that produces about seven million barrels of beer a year. The less-good news is that they do this over three shifts with only about two dozen people, using equipment made in Germany. So these days, even with what might otherwise be a huge boon to a local economy, an operation the size of a Coors brewery offers deceptively little employment growth because of high-tech automation. The people not hired to run the brewery have little chance of moving into the kinds of high-tech jobs that make the equipment that displaced them — unless they emigrate to Germany. Actually, the beer in Germany is pretty good, I hear, and they’ve got a decent healthcare system. Except the same thing happening here is also happening there.

E.J. HeresniakE.J. HERESNIAK consults for a variety of businesses, drawing on more than thirty years of experience with IBM, McGraw-Hill, Standard & Poor’s, and academia. Visit his website at www.gatestreetpartners.com or e-mail him at edheres@aol.com.