Certainly not California

January 28, 2010

BY GREG KUDLICK

It just amazes me that nobody in power, nobody in the “know,” actually understands what is going on. This is an enormous economic shift, one of the largest in our history, maybe the largest. I don’t say this lightly. Between the oldest baby boomers approaching retirement, meaning their accumulation years – the years they buy a lot of stuff – are over, and the advent of the mechanized manufacturing and service industries by robots and computers, we are faced with the same thing that happened in 1929. Only, potentially, worse. I kick myself for not seeing this coming sooner, but I underestimated how quickly technology would actually take over everyday life. While I have been talking about this eventuality for some time, it is happening a generation ahead of where I originally thought it would.

Massive numbers of sharecropper farmers were put out of business when the tractors took over in the 1920s and 1930s. One tractor would put 12 sharecropper families out of business. In turn, this put many stores and companies out of business that were supported by those families.

There are several shows on TV, such as How It’s Made on the Science Channel. I know very few people watch these shows, but ironically these are the most important shows on TV showing what is happening to our economy and society. They show how all kinds of products are made, from guns to tofu. What you can’t help noticing is the vast majority of these products are now made on manufacturing lines with almost no human intervention, and when there is human intervention I can’t help noticing that most of their jobs could easily be replaced by robots and computers, too. The owners of the company just haven’t gotten to it yet.

Far more jobs are being outsourced to computers and robots than to foreign countries today. Ironically, many manufacturing workers in foreign countries are now losing their jobs to computers and robots, including in China.

I just found out that even cow milking is now done completely automatically. They found that cows will come to get milked when they are ready, like going to the bathroom. They walk in the milking stall on their own, their teats are automatically disinfected, a laser system lines up the four milking cups over the teats, the milk is tested automatically for quality as it is collected and then all the equipment is automatically disinfected for the next cow. Each cow wears an electronic collar identifying the cow and the computer keeps track of how much milk comes from each teat from each cow. Next, the entire floor of the entire dairy milking operation, including where the cows hang out and poop, is automatically cleaned, disinfected and tested for cleanliness by a mechanized system. No people involved.

The garbage man has been replaced by trucks with robotic arms that pick-up the trash can and dump it in the truck. A couple of million jobs replaced. Eventually, sometime down the road, the drivers of the truck will be replaced by computer, laser, gps technology. Eventually, when I don’t know, but drivers of trucks, trains, etc. will all be able to be replaced by computers. Speaking of GPS and iPhone technology – how many paper maps are being sold these days?

Service people are also losing their jobs in mass. How many primary customer service representatives have been replaced by computers? Literally, several million in the U.S. alone.  Every bank, utility and large manufacturer has you initially talking to a computer or online at their website.

This is what makes this moment in time much different from the Great Depression. The Great Depression involved worker dislocation. Farm workers losing their jobs in mass were living far from the cities where the new manufacturing jobs were located. Not until after WWII was this fixed. When the GIs came home many of those from the farming areas with no jobs elected to stay in the cities to work. Others went to college on the GI Bill.

Right now, there are no prospectives for large job creation in the U.S. We are not even close to losing all the jobs that computers and robots will be replacing. Incidentally, they call this worker efficiency. More work produced per U.S. working person. It sounds good when the Chairman of the  Federal Reserve tells the Congress and President that the U.S. worker is the most efficient worker in the world. The problem is this efficiency gain is because of robots and computers replacing  the working people and doing their work. Unfortunately, the politicians in Washington each blame the other party for the job losses. Both parties are dangerously blind to the truth.

Ten years ago the conventional wisdom was that as the manufacturing jobs were replaced by robots this would open up more service industry jobs. However, the service industry jobs are starting to be replaced in mass also. Unlike the Great Depression when farm jobs shifted to manufacturing jobs, we don’t have new service jobs for the displaced manufacturing workers to move to. In fact, service jobs will continue to be lost as they are replaced by computers and eventually robots. I am waiting for the first fast food company to have computerized order takers. As soon as voice recognition technology is perfected this will happen.

I have racked my brain for a couple of years now trying to figure out what the answer to jobs is. What will be the new jobs for all of the currently displaced workers, as well as the 300,000-plus a month additional jobs we need to be created for the young people entering the work force?

For the first time in my adult lifetime, I can’t come up with a reasonable answer. I don’t understand what the new class of jobs will be. When computers and robots are doing the work of what the people used to do, what do the people do now? Health care is big right now, but eventually I see this also going more and more to computers and robots. Not to mention, once the baby boomers die off there is going to be an enormous drop in the need for health care workers for about 15-20 years as the much smaller X Generation hits their senior years.

The current wisdom of the politicians in charge is that the new manufacturing jobs will come from the green industry. Solar, wind, etc. The politicians still think that manufacturing is largely done by people. It is not. When a new solar panel manufacturing plant is built using $100,000,000 of venture capital, I guarantee it will be a state-of-the-art plant using the latest in computer and robotic technology to manufacture and assemble the solar panels. Very few manufacturing people needed. It will also be located in the location that gives the best mix for transportation and business tax costs. Certainly not California. The owners of the company may live in CA part time, but they won’t put their new plants or pay taxes here.

Greg Kudlick is a financial adviser living in Templeton.