A
little over two years ago Terry Gou the CEO of Foxconn announced that over the
next three years his company was going to begin phasing in up to 3 million
industrial robots with an eye towards increasing efficiency and reducing labor
costs. This announcement, from the world's largest electronics contract
manufacturer, sent waves through the media and business community. Foxconn
employs over 1.5 million people in China, in hundreds of plants and facilities,
scattered around the country.
The
prospect of Foxconn shifting towards robotic labor has enormous implications
for the future of not just the Chinese, but also global labor markets. This is
primarily because of the type of work that the robots engage in is the assembly
of complex electronics, an area previously thought beyond the capabilities of
commercial robotics and left presumably to human hands. So far, the robots seem
more than up to the job.
While
the headline grabbing prediction of "millions of robots" does not
seem to have panned out in the time frame that Gou predicted, Foxconn has
nevertheless managed to deploy significant numbers of its new robotic workers.
Over the course of last year, Foxconn managed to install 30,000-50,000 new
robots in its factories, and is aiming for 300,000 more by 2014.
What
is astounding about this information is the impact it already has had.
According to Liu Kun, a spokesman for Foxconn, "We have canceled hiring
entry level workers, a decision that is partly associated with our efforts in
production automation." Moreover according to the International Federation
of Robotics the growth of industrial robotics in China has been exceeding 40%
to 50% a year, an unprecedented level of growth. The question that springs to
mind is: What would happen if Foxconn actually had 3 million robots?
The
advent of truly sophisticated and relatively cheap industrial robotics and
automation technology is beginning to change the global economic landscape. The
fear in China is that the Lewis Turning Point, the point where rural laborers
moving to urban manufacturing loses its value, is being accelerated by the mass
adoption of industrial robotics that reduce the value and efficiency of new
human labor. This is precisely the pivot point that American manufacturers are
starting to seize upon.
Driven
by changing economic realities in China, American industries are looking toward
the boon provided by new technologies to "reshore" back to the United
States. Breakneck advancements in 3D printing, artificial intelligence,
robotics, and industrial automation are bringing us close to a factory floor
that is more sophisticated and advanced than ever before. The result is home
grown industries capable of producing complex and high quality products with
greater efficiency and economy than ever thought possible.
According
to the McKinsey Global Institute, the cost of advanced robots has fallen by
almost 50% since the early 1990s, and seems set to continue falling. This
startling fact is being put on dazzling display by companies like Rethink
Robotics. The company is perhaps one of the most famous in the field of
robotics in the world today due to their development of Baxter, the US$22,000
industrial robot. It is precisely kind of advancement that American
entrepreneurs are looking to harness. Designed with an eye toward small and
mid-sized manufacturers, Baxter allows business owners to eliminate the human
element in repetitive, costly, and time-consuming tasks. This allows companies
to keep the labor they actually need instead of sending it offshore.
This
is just the tip of the iceberg. For example, the increasingly fast arrival of
3D printing has begun to spur an overhaul of some of America's largest factory
floors. Boeing and Lockheed Martin have both begin mass experimentation with
regards to producing niche materials and parts using 3D printing factory lines.
As other companies have begun to take notice, 3D printing using advanced
polymers has the potential to totally restructure global supply chain. Take for
instance Boeing's now grounded 787, an aircraft that was built, component by
component, around the world. 3D printing has the potential to eliminate the
need to such supply chains, with raw materials and composites being shipped
from their country of origin to one production facility.
The
results are already starting to become measurable. According to the
Manufacturers Alliance for Productivity and Innovation, a trade group of
American manufacturing executives, 17% of companies with production overseas
had brought back some of that work to the United States since 2011. This is
underscored by a Boston Consulting Group survey which covered 106 companies
worth $1 billion or more and with manufacturing overseas. Some 37% were
considering bringing production back to the United States, a percentage that
rose to almost half, when companies over $10 billion were asked.
US
President Barack Obama was wise to focus attention on these economic frontiers
in his State of the Union address. However his prescriptions for accelerating
their development leave much to be desired.
For
example, the decisions to block the Keystone-XL pipeline and the extraordinary
pressures applied to American coal have placed a great burden on the country's
ability to generate efficient power, a key ingredient in an anticipated
manufacturing renaissance. It not only leaves the US poorly footed in the short
term by pushing aside cheap coal producers, but also in a worse position in the
long run, when natural gas inevitably rises in price as domestic demand
increases. This energy story is critical, as so much of the American industrial
revival is reliant on consistent and low electricity prices.
According
to the MIT Technology Review natural gas could both "…significantly lower
costs for manufacturers who use a lot of energy, such as steel makers" as
well as revitalize our chemical industry". Just five years ago, natural
gas prices were so high that some chemicals manufacturers were shutting down
operations. Over the last 18 months, low US gas prices have prompted plans for
the construction of new chemical plants".
Furthermore,
dramatic structural changes to economic efficiency are being pioneered in the
United States. These will lead to a fundamental redetermination of the value of
labor. Human capital will, inevitably, be far more important in its ability to
innovate, create, and decide outcomes, than in carrying out remedial tasks. In
the world of low-skill labor, for nearly a decade valuable resources and energy
were wasted attempting to fight a pointless battle with other developed
economies. As a post-industrial economy, the policy imperatives for the US now
lie in creating an environment conducive to innovation, and that begins with a
reduction in regulation across frontier industries.
A
good place to start would be a dramatic overhaul of the laws that prohibit
American companies from attracting and retaining top innovators and thinkers.
The H1B visa program is a travesty of tremendous proportions, but other
regulations, such as the lack of a territorial income tax, preclude creative
people from living and working in the US. If the US wants to be prepared, it
must start by allowing innovators and thinkers to come to its shores, and then,
just as importantly, provide them with an environment to spur further
innovation both in home markets and abroad.
Policymakers
should also begin to assiduously examine and reduce the hurdles and impediments
in the way for nascent industries and ideas. For example harmonizing driverless
car regulation between US States would create a far more promising market
environment for an exciting new piece of American innovation. While examining
the impact that 3D printing will have on government revenue streams,
intellectual property, and licensing concerns are practical steps that will
save headaches later.
The
21st century will be a world led by ideas. These ideas promise to usher in a
new era driven only by the limits of scientific possibility. It is the frontier
economies of the coming century that will generate newfound prosperity and
heighten the limits of the human condition. Yet there is no law of nature that
ordains American supremacy in this new era. A new industrial revolution is not
on the horizon, it has already arrived. Unless the United States takes the
necessary steps to seize these emerging opportunities, they may very well pass
by.
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