Balancing the effect of automation on workforce
5 July 2016
In the spirit of the recent Brexit discussions, I would like to shed some light on another matter of broader economic and social significance that will have repercussions for the financial services and capital markets in the long run as well. The ever-increasing emphasis on automation and use of artificial intelligence will help companies streamline their operations and economize on scarce resources. But there is a flip side to the coin that is possibly getting sidelined in the rush to 'robotize' the workplace. I am referring to the need to retrain and absorb the workforce that is getting replaced due to automation.
There has been some mention in the media recently of the lack of relevant skills in the Spanish workforce at a time when the rate of unemployment is above 20%. Companies are struggling to find workers with the right training. Similarly, in emerging markets such as India and Indonesia, the high rate of population growth and the high proportion of younger people means that there is an urgent requirement for jobs, and before that for the right training to make the youth employable. Spain's example shows that emerging markets cannot take employment creation for granted. The rate at which the population of India is growing means that it needs to create employment at a rate only China has been able to match in human history. China grew on the back of a manufacturing boom over three decades. India is mainly a service economy that is now dealing with the after-effects of the global financial crisis and growing automation. Its struggle to encorage the manufacturing sector and provide employment opportunities has been evident in the last year. Other emerging markets such as Nigeria, Indonesia and Pakistan are in a similar quandry.
From a financial market point of view, automation obviously has benefits, and Celent has always been a strong advocate of the same. But in the long run, there is a need to provide alternatives to the workforce both in mature and developing economies, without which there would be a dampening effect on economic growth and market performance. Jobless growth can only take us so far.