Automation only decrease the Input cost but does not increase the consumption and demand.
27 Jun 2019
Life always moves forward, new inventions come and generations embrace them. These inventions result in redundancy of old jobs and creating new jobs.For example with arrival of computers ,jobs of type writer became obsolete but type writers' gradually upgraded their skills and slowly started working on computer. A new labour work force was getting job based on this skill or in simple terms in Informstion technology industry came into being.
Now consider the latest scenario where due to advancement of AI ( Artificial intelligence) where the machines are replacing human without the new opportunity in other domain.For example now machines are writing the code which humans were writing...Without creating any other job opportunity for humans.
Now let's try to understand the business scenario for any Organization in any country.
Any organization has the ultimate aim to maximize the profit( bottom line). To increase the profit organization do 3 main things
1.Increase the per unit profit
2. Increase the sale of number of units
3. Decrease the input cost
Now let's try to understand all the above 3 scenarios
I am taking example of two industries . First, one which is manufacturing Air Conditioner implements the automation ( replacing the human with robots).
Second, a bank ( replacing the humans with robots in each branch)
Let's say there were 100000 (1 lakh employee) initially in both the company and 10 % of people are Removed out of job due to this automation.
Now the AC manufacturing company is on cloud 9 as it has not to pay salary for 10000 people.lets say that each people was paid 500000 per annum.Then per annum saving is 500 CR .This is a very big saving .Same thing also applies for the bank which has done the cost reduction.
But there is a catch which the organization are not giving a thought in today , that is as follows
When the jobs in refrigerator company were cut they also had an impact on the bank.Those 10000 people who lost job there will slowly stop interacting with bank.They close their account in bank, stop taking loan with bank , will not have FD and credit card with bank. So loss in refrigeration company has impacted growth of bank.
An wise versa loss in bank will impact the sales of refrigerator company.Bankers who lost the job also lost the buying power to afford the AC.Now if we extrapolate the same example across all the sectors and all the organization we will see a multiplier effect.Also when people lose job their capability to pay tax also comes down , this impactes government spending and overall deceleration of the economy
Now the intresting thing to notice here is that even after the automation (decrease in input cost) profit margins are not increasing .It's nither increasing for bank nor for any other organization (this is because the purchasing power of the community has over all come down.
So this type of Automation has only decreased the Input cost ,so profit per unit of item has increased but the over all sales has decreased thus decreasing the net profit as count of labour force has decreased.
There is a difference between the usage of computers and Automation.With the usage of computers there was not much loss of the jobs as people learned the new skills and started working on high skill jobs . Example person who driving Bullock cart started driving Car / Truck. Teacher who was using black board and chalk for reaching started using PPT and Projector for teaching .Doctors started using MRI machines which helped them in better detection of diseases and it's treatment. But none of these technological usage resulted in job loss.
But the automation which the organization are currently pursuing is totally focused to reduced the labour force.Example, Chat Bot , where machine chats with customer thus replacing the humans from the back office support job. Machines are being build which will write the codes which was previously done by a highly skilled Techie. And more over as the machine keeps on learning it will get even smarter and a single machine will be replacing N number of people.
Government and Organization's across the Globe need to start thinking on this because if we see the trend for last five years where in the Automation has increased multi fold but the pace at which the economy is growing has infact slowed down and rate of employment growth is also at snail pace.This is because AI ( Automation) only decrease the Input cost but does not increase the consumption and demand.