Why there is nothing entirely new about the fourth industrial revolution. And why we need to change the way we think of job growth in India.
Suddenly, there is a lot of debate on whether Industry 4.0 with a strong underpinning of AI and machine learning is going to result in large scale unemployment. This seems a bit odd because neither technology nor automation are twenty-first century phenomena. They are as old as humanity itself, or – if that seems to be an exaggeration – at least as old as the industrial revolution.
The battle between man and machines goes back centuries. At one point in time, the worry was whether spinning machines would replace weavers and whether steam engines would edge out horse carriages. In more recent times, we have moved on to worry about the impact of self-driving cars, automated checkout counters and other applications of Artificial Intelligence. The central theme of the debate has always revolved around whether technology is replacing humans or just easing workload.
The debate has often been lopsided and has focused on job losses induced by technology changes simply because these tend to attract more attention, and the cause-effect factor is more pronounced here.
On closer examination, you will find that most innovations in technology have been about being able to do something that could not be done before; or doing something on a scale not seen earlier. They have rarely been about completely replacing what one individual was doing. Take the case of the famous “Spinning Jenny”. Weavers went out of business as a result but this innovation helped clothe the world, to a degree that would not have been possible otherwise. The price of clothing dropped to such a low level that even the poor could afford clothing. Steam engines put horse carriages out of business but reduced the cost of transport. So much so, that along with subsequent innovations, it transformed the world into a global village. It allowed people to travel further and take up work far from their places of birth. This transformation would not have been possible with horse carriages.
Earth digging machines, along with dynamite, did not replace human labor. On the contrary, they helped humanity build dams and skyscrapers that would otherwise not have seen the light of day. Bigger projects such as the Suez and Panama canals were then undertaken and the need for human labor grew at an unprecedented rate. Banking software did not displace bank workers or clerks. Instead, it helped elevate customer experience to new heights. ERP systems did not replace clerks who maintained Excel sheets. They eliminated chaos and allowed companies to implement efficiencies that led to growth and more jobs. Most innovations in the field of medicine resulted in more advanced procedures and treatments than were conceivable earlier. This created room for the growth of super-specialty hospitals along with employment for doctors, nursing staff, technicians, and medical equipment manufacturing staff. The entire offshore services industry and the millions of new jobs it has created have been built on the back of higher internet speeds. Several startups are using technology every day to solve real problems on the ground and, in the process, are creating new jobs at all levels from delivery and warehousing to AI and Analytics.
What the apostles of doom are missing
This brings us to a very interesting point: the apostles of doom have ignored the most important variable in the whole equation, which is the elasticity of human needs. They assume that human needs are limited and the number of jobs fixed. They see human society playing a zero sum game. Therefore, if an individual is replaced by a machine, it is one job lost. The reality is that human needs are infinitely, and I repeat infinitely, elastic. When one need is fulfilled, many new needs are created. Without this phenomenon, life would be one boring affair. The other phenomenon that these apostles are missing is that one innovation spawns another, resulting in a continuous web of innovation. This web of innovation is continuously, and rapidly, enlarging the pie of goodies available to society.
However, new jobs are replacing old jobs
And new skills are replacing older skills. The risk of existing skills (and therefore professions) being replaced by new skills (and professions) has always been there. However, when one avenue closes, others open up. While there will be short term winners and losers at a micro level, at a macro level, technological advancements and innovation will continue to benefit society even when they end up creating intelligent machines and algorithms.
I am with Peter Thiel when he says that machines created by humans are most likely to complement what humans do and not replace them. This has always been the case, and I believe, will be true in the future as well.
Jobs in the Indian context: the problem with the current approach
In our quest for job growth in the country, we tend to get blindsided by lofty goals. Every so often, we come across highly publicized ‘investor-government-industry’ summits. Mega investments are announced, MOUs are signed, and job creation proclaimed.
In a 2015 issue, Business Standard reported that global and Indian companies had committed to investing a total of two lakh crore rupees and creating 50,000 jobs. At one level this sounds impressive. But if you think about it, it means that the capital needed to create one job is a whopping four crore rupees. More than twelve million youth enter employable age every year in India. If we need to create twelve million jobs through this approach, you need a capital of $7 trillion! The annual investible surplus of the Indian economy is around $0.5 trillion. So, to create employment for people entering the job market every year you need to deploy the investible surplus of 14 years!
If the annual investible surplus of $0.5 trillion is deployed through the mega investment route, it can barely create a million jobs. Viewed in a different way, if you wish to create twelve million jobs a year using the annual investible surplus, the capital available to create one job is 0.3 crore rupees (not the four crore rupees needed in the capital intensive route).
It is very evident that capital intensive mega investments have no hope of providing jobs in the required numbers for India’s youthful population. The only sustainable approach is one that is frugal on capital. We need to accept the reality that it is impossible to create twelve million well-paying jobs every year. Therefore, India’s quest for prosperity has to be about getting everyone out of poverty and helping a good number of them experience a moderately prosperous life.
It is evident that in India, SMEs (and some startups) will be the primary engines of growth. The government needs to create a level playing field for them. Currently, large companies that deploy capital intensive means of production and hence create very few jobs get the red carpet. The senior bureaucracy is almost callous towards SMEs and the junior bureaucracy openly predatory. Power connections take forever and licenses are difficult to come by.
India’s demographic dividend can soon turn into a demographic disaster unless a few policy issues are handled carefully.
The nature of work has always been changing throughout recorded history. There is nothing new about that. The elasticity of human needs will ensure that new jobs are created faster than old ones are wiped out. We will probably experiment with new models of employment. For example, micro-entrepreneurship, or the gig economy, is likely to find acceptance but it is difficult to predict whether this will be on a scale to redefine anything significantly. Closer home, our quest for prosperity in India calls for setting the right expectations and creating a level playing field for real employment creators.