The Future of Work: What Impact on Whom?

By Frank-Jürgen Richter

September 19, 2019

One of the prevalent trends observed globally over the past few decades has been that of developed nations passing on substantial chunks of their manufacturing activity to developing economies where labor and land have traditionally been cheaper.

In doing so, the developed nations have sought to consolidate their national wealth by allocating resources towards their services industries. Over time, as many developing economies have prospered and moved up the manufacturing value chain, a frequently asked questions is: “Who will assume the mantle of executing manual work?”

Automation and Robots

One common argument is robotics and automation will replace numerous jobs, especially in repetitive, high-volume production activities. In fact, an estimated “14 percent of jobs in OECD countries are highly automatable and another 32 percent will be radically transformed by technological progress.” With an increase in robot usage coupled with rapid developments made in computing power, software-development techniques and networking technologies, robot assembling and maintenance have become less expensive, and more common. However, this has an implication that is contrary to erstwhile economic trends.

Developed countries mostly outsourced their manufacturing to developing nations but if enlisting the services of robots is cheaper than even labor wages in developing countries, there is the obvious possibility of reverse migration of manufacturing industries. For instance, Bangladesh is a fast-developing South Asian economy and its garments sector contributes about a fifth of its GDP. It has firmly positioned itself as a leading garment exporter, second only to China and far ahead of its economically sizeable neighbor, India. However, if manufacturers figure that manufacturing garments using robots is cheaper elsewhere, they may choose to relocate to a developed country because not only is capital cheaper but there may be greater access to skilled ancillary service providers such as automation experts. 

The Curious Case of India

The Narendra Modi-led government in India has prioritized its manufacturing sector since 2014, when it was elected for its first term. Prime Minister Modi launched the ‘Make in India’ program amid much fanfare and traveled far and wide to encourage global companies to establish manufacturing bases in India. Considering the population behemoth India is, a staggering 95 percent of its workers continue working in the informal sector and manufacturing as an organized sector is yet to deliver noteworthy results.

In fact, in what is being increasingly seen as ‘bucking the trend,’ India seems to have a robust services sector comprising its software, finance, online services, tourism, logistics, media and healthcare services, among others. It is likely that growth in these spheres has enabled it to sustain faster growth than its manufacturing-driven neighbor, Bangladesh.

Despite India’s efforts to provide its manufacturing sector a jab in the arm, it continues to exhibit only middling performance, compelling one to ask whether India is an example of a country that has leapt straight from being an agrarian economy to one that is post-industrial?

What about the Future of Work?

Typically, the manufacturing sector enables the creation of mass employment and therefore, as each nation progresses towards it journey of attaining developed nation status, it has almost always served as a manufacturing hub for a certain period. Cases in point are Japan, Taiwan, South Korea. China then became the ‘world’s factory’, and much as India endeavors to follow the same lead, the situation observed is vastly different, if not an anomaly.

Here’s an interesting thought. Could India have inadvertently set an example for other developing economies? Given that countries such as Bangladesh that have started doing well due to their manufacturing sector could be faced with a challenging future if we start to see more ‘reshoring’ as a result of increased automation, is it possible that countries that are at the beginning of their development journeys may choose to allocate their resources towards strengthening their services sectors and supplement it with manufacturing, rather than making manufacturing the bulwark of their economies?

While contemplating what path to economic development is most likely to succeed is a long-term endeavour, in the short- to medium-term, developing economies need to take steps to adapt to the implications of technology on the manufacturing sector. One, if manufacturing in the future is indeed going to be automated—and it looks like that is going to be the case for several types of jobs—then the developing sector can start preparing for the increasing demand for more complex finished goods such as electronics and hardware (read robots) in developed countries. Two, developing countries (as well as developed ones) need to invest in re-skilling and upskilling their workforce so they can adapt to the changing nature of work. Three, governments must endeavour to match the output of the education system with the demands of the manufacturing sector. In India, for instance, the bulk of its college and university graduates are mostly pursuing general courses, and therefore, despite boasting the world’s youngest median population, there is a severe mismatch in skills provided versus the skills demanded. It is one large factor responsible for the increasing level of unemployment in India.

The manufacturing sector globally is on the cusp of great change, and we are seeing the implications of some of the changes brought about by technology. It is hard to tell how these developments will pan out in the long run, particularly for developing countries that have only now started seeing their manufacturing sectors begin to flourish.

The Way Forward?

If we do indeed start seeing de-industrialization in some of the newly developing countries and a move back of industries to the developed economies owing to lower costs resulting from automation, the question that will come up again is whether developing countries can successfully transition from being an agrarian economy to a service economy. One could argue we are seeing that to some extent in India. But whether this will yield satisfactory results remains to be seen, particularly given that the manufacturing sector globally provides the most jobs.

Globally, robotics and automation are starting to replace repetitive tasks. Manual work is going to be increasingly replaced with automation, but it is quite possible the onus of manufacturing automation hardware will again fall on developing countries. Developing countries must start preparing for this future and look to move up the manufacturing value chain. That requires a substantial investment in education, and preparing the right kind of workforce for the kinds of roles that need to be filled.

No amount of crystal-gazing can tell us exactly how the future will look, but that does not mean we cannot start preparing for it.