Common Cents for July 6, 2018

July 6, 2018, by John Norris

Recently, I had a conversation with a friend of mine about Canada legalizing marijuana at its Federal level. Ultimately, the discussion got around to whether the stuff would ever be legal in Alabama. My thoughts were/are simply this: “at some point, it will be impossible for our state to effectively enforce its cannabis laws, and it will become legal as a matter of course if not a matter of law.” My buddy looked at me as if to say “pot will be legal here when [heck] freezes over.”

So, I asked: “have you ever bought a lottery ticket in another state or had a drink in a dry county? Stocked up on liquor in Georgia or Florida on your way back home, have you?” They had.

You see, at some point the economies of scale, the legal supply of marijuana in adjacent jurisdictions, will swamp our local law enforcement’s ability to police existing laws effectively. Heck, the current illegal supply of the stuff arguably already does. So, once Georgia and Florida legalize marijuana, and I have no doubt they will at some point, the die will be cast. Will Alabama’s troopers stop everyone coming into Alabama on: I-10, I-59, I-20, and I-85? Let alone all the Federal, state, and county roads? Do they now?

But how does Canada play into all this? Oh, it will create something of a domino effect, which will eventually make its way down South….an ounce of two at a time. It might take years, but it will come just the same.

Today, I read a really interesting article about Adidas, the sportswear company. It is making a significant investment in automating custom built shoes using 3D printing and other technologies. Currently, it has two, what they call, automated Speedfactories. One is in Atlanta, of course, and the other is in Germany, the home country.

Currently, the business model goes something like this: go to an Adidas store or outlet; have designer take measurements of your foot; run/walk on treadmill to get specifics of your gait, etc.; pick out your desired colors and style, and the software program will upload the dimensions of your sneaker to one of the Speedfactories, which will ‘print’ out your custom built shoe and ship it directly to your door. Or should I say that is the desired business model, and the direction the company will be taking for a certain segment of its market.

Moving forward, and this doesn’t require too much of a mental leap, the technology will eventually advance to the point where every Adidas store or outlet will be able to manufacture on-demand sneakers for a fraction of today’s cost. Right now, this level of customization is way too expensive for the casual shopper, but it likely won’t always be.

Why would it?

Who would have thought 10 years ago we would have mass production vehicles, like the Chevrolet Malibu and Ford Focus, which could park themselves? In fact, every major automobile manufacturer offers some type of driverless technology, whether it be lane-centering steering, adaptive cruise control, self-park steering, automatic emergency braking, and/or lane-departure steering, among others.

In fact, I doubt anyone seriously doubts the end result will be fully automated vehicles for general consumption. The questions are when and how many roadblocks related industries will throw up to delay their implementation. Still, the proverbial Pandora’s Box is arguably open, because the technology is real and here to stay.

These are just but two examples, but they reflect the changing realties of the US economy: technology is changing virtually every industry at science fiction rates of speed. At some point, the economies of scale of these technological changes will completely alter how we conduct business and live our lives. Printing out shoes? Get real…it will never happen! Cars that drive themselves? What are you smoking? That stuff you picked up in Toronto? Get real.

At some point, easily within my children’s lifetime and probably my own, much of what I buy at the store will also be made at the store, or nearby so-called Speedfactory, to my unique specifications. Everything will be shifted to greater customization and, interestingly enough, greater automation in the manufacturing process. Believe it or not, this should make a pretty major dent in our trade deficit, if I can batch (or singularly) produce items using advanced 3D printing technology. In this type of economy, the only things of real value are: 1) branding; 2) design, and; 3) access to hard inputs.

Clearly, you can argue those things are currently the only items of real value. However, moving forward, the economies which will benefit will be those with advanced technology and design, abundant natural resources, and well-developed distribution channels. Please note I didn’t mention cheap labor, as labor will shrink as a percent of the ‘factors of production’ in both absolute and relative terms…regardless of geographic borders. The costs of capital, technology, and, to perhaps a lesser extent, land will grow to a point as to nearly exclude the labor component.

This will present a significant challenge to countries and local communities with: 1) high levels of unskilled labor, and; 2) little access to capital (particularly the global financial system). If that seems obvious, it isn’t as much as you would think…as industrialization has been moving westward around the world chasing ever lower labor costs. To that end, while we complain about low cost Chinese labor, folks in China are worried about even lower cost workers in places like Vietnam and Cambodia. The same could be said of Mexico, and how it feels about the remainder of Central America. For years, many countries have been worried about the next great cheap place to set up a sweatshop. Moving forward, sweatshops likely won’t be as commonplace.

This means, unless something happens pretty quickly, many of today’s undeveloped countries, if not all, will remain undeveloped, as production chases capital and technology as opposed to labor. After all, why chase labor when your production factors are overwhelmingly capital and technology.

If you read this to suggest the US will increasingly ‘onshore’ manufacturing moving forward, especially on that which it can more easily and completely automate, you would be right. Unfortunately, this will not necessarily be a boon for our blue collar workforce, particularly if it is as unprepared as it seems to be.

To me, this is as clear as a blue sky or as sure as the nose on my face. This IS the future, the advancement of technology will progress to a point where labor is simply not a meaningful factor of production in a host of industries. Frankly, I would argue we probably crossed that tipping point a few years ago here in the US, and the remainder of the global economy will follow suit over the next decade or two (at the most).

As such, the only sure way to alleviate both economic and societal ills is to train the absolute [dickens] out of our workforce to perform tasks which cannot be easily automated, or at least automated cost effectively. This would/will require a SIGNIFICANT investment in vocational and technical training. As an example, we need MORE trained electricians, plumbers, and masons than we have currently…and those numbers are only going to grow. Further, and this is just me talking here, we need far fewer students who sleepwalk through some nondescript college before graduating with a C average (in whatever major) and a mountain of student loan debt. No….therefore, I would argue tooth & nail, the US education system needs to shift from an overriding focus on so-called college preparedness for all students, and focus increasingly on workforce preparedness….at all levels of educational attainment.

Whew.

At this point in time, as I type, this lack of workforce preparedness hasn’t necessarily reached crisis levels. After all, according to the Employment Situation release for June, the Unemployment Rate in the US is currently a relatively miserly 4.0%. Basically, there is work to be had if you want to want, for all intents and purposes….perhaps. It might not be the work you dreamt about as a child, but it is still a paycheck.

Even so, and I am getting windy here today and will try to wrap it up here, consider what Manpower wrote in its 2018 Talent Shortage Survey (caveat Manpower is a recruiter and labor market consultant):

In the digital age, technology is transforming how work gets done, creating new roles that require new skills. At the same time, organizations are increasing headcount in 42 of the 43 countries and territories that we survey and many markets are nearing full employment.1 As a result, talent shortages are more acute than they have been for decades.                                                                       

TO UNDERSTAND THE IMPACT ON COMPANIES, WE ASKED 39,195 EMPLOYERS IN 43 COUNTRIES AND TERRITORIES:

  • How much difficulty are you having filling roles compared to last year?
  • Which skills – hard skills and human strengths –are the most difficult to find, and why?
  • What are you doing to solve talent shortages?

We found that more employers than ever are struggling to fill open jobs. Forty-five percent say they can’t find the skills they need, and for large organizations (250+ employees) it’s even higher, with 67% reporting talent shortages in 2018.

Every industry is impacted. From manufacturing to mining, transport to trade, employers cannot find the people they need with the right blend of technical skills and human strengths. Keeping pace in this Skills Revolution demands faster, more targeted upskilling and talent management than ever before.

And…

While artificial intelligence is fast-expanding what can be automated, technology is redefining rather than replacing ‘indemand’ roles. Skilled trades – electricians, welders, mechanics and more – as well as sales representatives, engineers, drivers and technicians have ranked among the top five hardest roles to fill for the past ten years.

Most of the top ten in-demand roles today require post-secondary training and not always a full university degree. Midskilled roles like these and others represent 40% of all jobs across the OECD3 and demand for them is growing.

In the digital age, employment will not always require a college degree, but will rely heavily on continual skills development as even the most traditional roles are augmented with new technology.

That is a fine way of wrapping things up, isn’t it? With another page of prose?

In the end, this has all the makings of a graduate or doctoral level thesis. However, this is a free newsletter/commentary on a sultry summer day in central Alabama. All I can say, and in closing for real this time: the next recession will usher in even more changes to how business uses technology and automation. We need to put our workers/students to adapt to the upcoming changes, and they are upcoming.

What’s more, we have to really get after this before that domino effect from Canada starts building up a full head steam. If you think it is hard finding skilled labor now, just think what it will be like then.