The Robots Are Coming. Don’t Panic.
The writing is on the wall: jobs are disappearing. For the past fifty years, industries have been exporting jobs to countries with lower wages and lax employment regulations. A $20 per hour job in the United States could be done in China for $2 per hour. Initially, it was manufacturing jobs that were shifted overseas, followed by low-level customer service jobs facilitated by cheap telecommunications. When jobs are outsourced, it doesn’t prevent the industry from existing in North America; it simply undermines the economic viability of running it with higher-paid workers.
China is currently facing economic challenges as companies move jobs to Vietnam and India due to rising wages and an unstable political climate. Businesses continually chase the lowest wages and most favorable conditions.
Telecommunications costs once made overseas phone support nearly impossible, but advancements in technology changed that. Long-distance communication has become so affordable that phone bills are now negligible compared to wage differences. While technology has reduced communication expenses to almost zero, the environmental impact of industry is becoming increasingly important. Cheap shipping has made overseas factories economical, but carbon pricing and fluctuating oil prices could significantly increase these costs.
Industry constantly evaluates various factors: labor, infrastructure, shipping, regulations, and more. Currently, these variables favor manufacturing in Vietnam, India, and similar locations. But what if these calculations change? What if manufacturing closer to consumers becomes the most cost-effective option?
All eyes are on OpenAI and its competition in the use of ChatGPT to solve cognitive problems. It’s driving another revolution: robotics. Before OpenAI, robotics were common in manufacturing, but they were an expensive prospect with narrow applications. In recent years there has been an explosion of humanoid robots nearing market readiness. The price points range wildly from $100,000+ to as little as $20,000 per robot. They have the flexibility and capacity of human workers and lean on GPT to solve problems and execute actions.
With a $100,000 robot plus its downtime and operating expenses, it’s an expensive prospect to replace a worker– especially a worker from overseas who may only cost less than $5/hr. to work the factories. Robot manufacturers are not aiming to create elite novelties. They are looking to drive down the cost of robots. They want robots to operate longer, nearing 24x7 operation. They are looking to make the cost per robot less and use economies of scale for profit. Their near term goal is for a robot to cost $10/hr. to function in lieu of a worker. That supplants North American workers, but it doesn’t change the overseas worker math. Their longer term goals is to get robots down towards $1/hr. for labour. That does change the value of overseas workers. Could offshore factories start rolling out robots? They could, but they have other issues to contend with: developing countries have spotty electrical grids with 1 to 16 hrs. per month of downtime. Human workers can be sent home or given manual tasks until the lights come back on. Robots without electricity shutdown. North American grids have very close to 100% uptime. While it’s cheap to ship goods from Asia to North America, the supply chain shock showed the hidden costs associated with relying on goods from 10,000km away that have to choke through local ports. Onshore robot labour would create goods that can ship inside of the country and bypass the lead time. Likewise, by taking the shipping out of the formula, onshore manufacturing can be much more nimble and reactive to consumer demands.
While robots will take jobs, it makes manufacturing viable onshore. The taxes and operating costs from the onshore industry would go into the local economy, not a foreign economy. The wages from those factories did very little for local economies. If those factories come back and they’re largely devoid of workers, it’s still a net win. Lean industries with lots of profit, can deliver inexpensive goods and healthy dividends to investors. Less shipping means less greenhouse gas emissions. Factories in our jurisdiction can be held to account to adhere to environmental standards and potentially tap into a clean power grid operating from hydro, wind, solar and nuclear power.
Great. How does onshoring relate to the UBI headline?
The robots are still coming for your jobs. Spoiler: technology has been stealing jobs for decades. There are so many points of automation in our day-to-day lives already. That trend will continue and we’ll eventually see devices and humanoid robots all around us. There will be plenty of resistance, but that will fade when comparing an apathetic $25/hr. teenager who doesn’t show up when hungover vs. a $2/hr. robot that doesn’t go home– it just cleans the restaurant after everyone else goes home. What happens when the teenager is left to sleep it off while the robot dutifully works away? That business is more viable by factoring down their labour expenses. The teenager is left at home. If the wages don’t grow, there’s one less trigger for products to increase in prices. It does deflate the economy a little as workers stop working, but that means some consumer goods could drop in prices and remain profitable to deliver.
Hospitals practice long shifts for doctors: 12, 16 and 24 hr. shifts. The long shifts are meant for the continuity of care– tracking the progress of a patient over a long period of time. Potentially, robots can accomplish the same: they don’t have to put away their tools after eight hours. They could keep working for maybe 23 hours before needing to reset and recharge. Imagine construction where the labour continues for 23 hrs. from each worker? Applied to home construction, a house could be delivered in a fraction of the time. The financing needed to cover the construction phase may only need to fund one month of construction instead of three or more months. The workers, being robots, are not dedicated specialists. They get their knowledge from a prompt to their AI source. Monday’s carpenter is Friday’s plumber. For that matter, a robot construction worker could shift gears mid-task, framing a wall and pausing to wire it and route in plumbing as it goes.
We are drowning in inflation. Broad automation could deliver more for less. If the labour costs drop, the production lags shrink and the speed of delivery improves it’s a win-win that leaves more room for profit and removes the justification for price spikes. Consumer goods could drop in price and leave breathing room for… taxes.
Having fewer and fewer people are in the workforce full time offers two paths.
Option A: We’re all destitute. Large scale unemployment means we are scraping together enough for rent and meager groceries. The aimless population gets bored, rangey and upset. The ranks of have-nots explode and society starts to fracture. The wealthy are better off than ever before living off of robot driven dividends.
Option B: Ice cream for everyone. We change taxes and how the government coffers work. We collect more money for the Good and Services Tax (GST). We get the government into the financing game. We pay everyone a universal basic income to give them money to buy the basics and pump money into the economy at their discretion.
The Option B Approach
Decommodification
With labour costs dropping in importance in the cost of production, the prices should drop. This could be a price drop throughout the supply chain as everyone from the raw resources up to the last link in the supply chain is replaced by $2/hr. labour. At the same time, technology can do a better job tracking the production process: taking out duds from the production; estimating the most efficient use of materials; right-sizing production quotas to meet demand with little waste. Profits can improve while prices drop. If shipping distances shrink, the fuel costs and the externalized environmental impact can shrink. If this all turns the tide on climate change, the impacts of runaway climate events can become less of a factor.
Tax Base
Onshoring so much industry stops the bleed out of income to other countries. That industry satisfying the needs of the national economy expands the tax base. The property taxes and company taxes from industry can fund what the government does. Some of the government’s biggest line items like healthcare could shrink as the workforce demands in health care are augmented with robotic workers who will do all of the necessary menial pieces of health care. More dollars going further.
GST
The goal is to find a way to fund the lifestyle of the population. Some people will always live large. Wealthy big spenders will always be there. Their consumption can help to fund UBI for everyone. If the GST were taken up to 25% it would cause a massive uproar of negative sentiment but if it came in step with falling prices, it could be sold.
If Canadians paid 25% GST for everything except rent and groceries, it could create a rebate of approximately $6000 per person. It would also cost more than $6000 per person, but if prices fell, consumers may notice no difference in outlay.
Government Financing
Banks are cleaning up on financing. Over the lifetime of say a $500,000 mortgage, mortgage holders will pay in excess of $500,000 in interest to the bank. That’s a lot of money ending up in the bank’s pockets. That money does go back to their investors. What if the government ran a mortgage business?
The government of Canada would loan funds– usually for mortgages and sometimes for other low risk investments. They would collect the interest. If people defaulted, the debt would be attached to their tax bill forcing them to eventually settle up their debt. Government could put in price controls by offering only so much financing at a good interest rate, leaving high price point mortgages and high risk mortgages to private banks.
If there were 10,000,000 Canadian homes holding Canadian government mortgages, they would yield approximately $96 billion per year of interest on those mortgages. That would pay about $2700 per year per person. If home ownership replaced home rentals, it means people could pay down a 30-year mortgage from ages 30 to 60, then see diminished housing costs at roughly the same time they would stop working and earning employment income.
Universal Basic Income
Using an altered GST and a government based mortgage company, would create $8700 per Canadian– child and adults. It means that a family of 4 could get almost $35,000 per year. One of the parents could be the breadwinner and the other parent could be the homemaker because there would be enough money to survive without only one worker in the family. One worker working in a world largely worked by robots.
UBI would free up people’s time. Their UBI would flow back into the economy. For some people, it may be enough to allow them to live quiet lives with no work whatsoever. It may allow people to stay with aging relatives or disabled family and offer support. For some people, it may just be a baseline to keep them housed and fed.
Summary
Onshoring manufacturing with robots could revitalize local economies by reducing shipping costs, adhering to environmental standards, and utilizing cleaner energy sources. Even if these factories are largely devoid of human workers, the economic benefits of local taxes and operations would remain significant.
As robots take over jobs, the question of Universal Basic Income (UBI) becomes crucial. With fewer people in full-time employment, society faces two paths: widespread destitution or a restructured economy supported by UBI funded through GST and government-run financing initiatives.
UBI could stabilize the economy, allowing people to maintain basic living standards and injecting money back into the economy. This transition to a more automated society could ultimately deliver more for less, reducing production costs, and prices, and alleviating inflation.
While automation and robotics will continue to transform the job landscape, thoughtful economic restructuring, such as implementing UBI, can ensure a stable and equitable future for all.
