How Automation Combats Stagnation
We are in the age of slow growth. According to the leading global consulting firm McKinsey’s estimate, global economic growth is set to slow dramatically, migrating from a 3.8% CAGR that we have gotten used to in the last 50 years, to a 2.1% projected CAGR. This slow growth includes fast growing economies like India, implying a 1.3% long term growth cap for the U.S. economy. This stagnation is ascribed to multiple challenges that we face right now, including demographic change and productivity cap. However, we can combat this slow growth with the introduction of automation.
Contrary to popular belief, productivity collapsed despite automation. Even though industries such as like steel or manufacturing have doubled or tripled their productivity, service industries, like health care or housing, which consist of more than 60% of the U.S. GDP, have limited automation penetration, resulting in higher prices and labor shortages. However, with the introduction of deep learning and AI, the aforementioned industries will experience a productivity jump. For example, the newly introduced Google Duplex and driverless UBERs can easily reduce the prices at a slow but steady pace, leaving the displaced workers enough time to find new jobs created by automation.
Automation can also combat the slower population growth in the world, especially in developed countries. Countries like Japan have been experiencing stagnant population growth, leading to lower productivity and domestic demand for goods and services. Fortunately, the younger generations are increasingly more educated. For example, Germany currently produces just as much steel, but much better quality, as they did in 1987, while employing only 30% of the workforce. The displaced workforce either entered the service industry or were reeducated. This reallocation of workforce increases the real wages and thus boosts the overall domestic demand. The introduction of automation will alleviate the productivity loss from slower population growth and boost the demand with higher wages.
Commonly, inflation and resource depletion are the costs of fast growth. However, according to a study published by Forbes, more and more industries are employing cost-efficient production technologies due to the introduced competition by the internet. The general trend of globalization leaves little space for protectionism, making the use of energy-efficient technologies a priority for most competitors. Furthermore, the use of big data and AI help businesses operate more efficiently. These combined efforts result in the long-term low raw material price, and, thus, lower inflation rate. This is shown in the current CPI reports across the globe.
In conclusion, the global economy is facing enormous challenges. The aging population, capped productivity, and labor shortages in service industries are hindering the long-term prosperity of developed economies. These obstacles may be overcome by the introduction of automation in both the secondary and the tertiary industries. Workforce freed from replaced jobs and the efficiency from automation will be the fuel for our next phase of global growth.
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Written by Tianyi Li & Edited by Rachel Weissman & Alexander Fleiss