0.7 21st century technology, digital displacement, and the role of  (Page 2/17)

Since the late seventies there have been two distinct waves in the evolution of manufacturing technology, especially digital technology. The first, covering the period from about 1980 to 2010, allowed substantial economic activity in manufacturing, design and research to move from wealthy to those poorer countries that had then investment in human capital, adequately trained labor forces available at low wages relative to the U.S. and Europe. Over that period, many emerging nations such as Korea, China and Malaysia, first acquired manufacturing technology from industrial nations and then forged the capability to develop the technology within country, and so become increasingly competitive in international markets for goods. Tassey, op. cit, p.29. Without doubt, this first wave led to notable, and in some cases (China), even marked improvements in per capita incomes and consumption. Across the earth billions of people in China, India, Vietnam, Indonesia, and Brazil were lifted out of poverty. Indeed, by 2014, China possessed the world’s largest manufacturing sector.

And it should be stressed that even by 2014 countries that feature cheaper labor remain, for now, attractive destinations for foreign investment by Japanese and even Chinese firms. For example, Japanese firms in 2013 have made substantial investments in such relatively low-wage nations as Laos, Cambodia, Vietnam and even Thailand, where workers salaries have increased by 40% since 2012. Warangkana Chomchuen and Mitsuru Obe (2014, September 30), “Japan Inc. Goes Deeper into Southeast Asia”, Wall Street Journal, p.B-8. Japanese companies invested about $10 billion in Thailand in 2013. Vietnam has attracted almost $3 billion from Japanese firms. Chinese companies have invested heavily in low wage Cambodia where wage costs are one-third of that in China. There, Chinese firms invested 10 times more than did Japan between 2005 and 2012. Investment by Chinese firms in Laos was 4 times that of Japanese firms. Ibid, p.B-8.

The second wave of innovation in digital technology promises to be much less benign for low skilled and low-wage workers everywhere. This wave will allow firms to steadily reduce the use of labor in performing complex tasks.

The implications have been succinctly described by Nobel Laureate Michael Spence, with obvious implications for emerging nations.

“The process of labor substitution has been underway for some time in services sectors… such as ATMs, online banking, enterprise resource planning, mobile payments systems and much more. The revolution is spreading to the production of goods, where robots and 3D printing are displacing labor… In other words, unlike the preceding wave of digital technology, which motivated firms to gain access to and deploy underutilized pools of valuable labor around the world, the driving force in this (second) wave is cost reduction by the replacement of labor.”

As Spence notes, an extreme form of this shift away from use of labor may be coming in the form of 3D printing, also known as additive manufacturing. See Michael Spence (2014, May 22), “Labor’s Digital Replacement” in Project Syndicate , The World’s Opinion Page. See also Martin Baily and Barry Bosworth, (2014, Winter), “US Manufacturing: Understanding Its Past and Its Potential Future,” The Journal of Economic Perspectives , 28(1): 20. A subsequent section of this chapter portrays some on the implications for 3D printing for labor utilization in emerging nations and the future of international trade generally.