In 1811, a group of textile artisans, known as the Luddites, were irritated by the introduction of power looms during the industrial revolution, and so went about smashing as many of them as possible. Their war cry has been heard ever since – the machines are stealing our jobs.
When Henry Ford introduced the assembly line, he put a few horses out of business but productivity went through the roof. Today, the body of a car is assembled by upwards of 30 robots performing no fewer than 4,000 high-precision welding operations. It takes them less than 90 seconds to weld together a typical 4WD.
A scattering of people behind computer screens – by leveraging technology and capital – are now able to build tens of millions of cars a year, the equivalent of incalculable horsepower.
This is just one example, but it's happening everywhere. Once secure jobs are being replaced by software and hardware. And that has ramifications for workers and shareholders alike.
It’s easy to see who gets the short straw – even the best factory worker in the world doesn’t stand a chance against super-efficient and mass-produced electronic employees. An Oxford University study found that 1 in 3 jobs is at risk of computerisation over the next 20 years (to see if your job makes the list, click here).
And the consequences are already here: since 1997, hourly labour productivity has grown by 29% in Australia, whereas real wages have grown by only 11%.
The outlook is better for highly-skilled and educated workers. If you’re an art appraiser, a chief executive, an app designer or Adele, you don’t have much to worry about. For this elite, technology is just a tool to leverage their skills. Where once a first class entertainer could at most sell out to an audience of a few thousand people, now software allows them to be seen, heard and paid by billions.
Finally we have the owners of the software and hardware. The shareholders. And they're likely to take a much larger slice of the pie.
Why? It all comes down to bargaining power. If Woolworths (ASX: WOW) is able to put in a self-serve checkout that’s half as expensive as employing a cashier, it isn’t difficult to work out who holds the chips.
As technology makes processes more efficient, the nature of competition means that the price of goods will be pushed down and so consumers will certainly be among the beneficiaries.
But as technology slowly replaces manual labour, it follows that the owners of the capital equipment will capture a larger slice of the produce relative to the labourers.
Have we seen the spoils of productivity going to shareholders in practice? Quite possibly. As the graph above shows, corporate profits as a proportion of national income have moved from 18% in the late 70's to more than 25% today. Income is being redistributed from wages (workers) to profits (shareholders).
And that is especially so for shareholders of companies with compeititive advantages and pricing power. If a service or product’s price is able to be increased while the cost of delivering it declines due to automation and productivity gains, margins go through the roof. It's no coincidence that REA Group's (ASX: REA) operating margin has increased nine years in a row.
To be sure, the loot garnered by the capitalists doesn’t disappear from society, but there are only so many luxury monocles and top hats one needs, so a large proportion of earnings are available for reinvestment. The natural course, then, is for wealth to concentrate at the top.
The Jetsons gave us a vision of a future where machines did all the work, while humans spent their leisurely days being served cocktails by politely attentive robots. What they forgot to mention was that the shareholders would own almost everything.
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