Automation in China?

Automation in China

Interesting blog post from Tim Worstall at Forbes entitled, “Foxconn to Automate: Be Careful What You Wish For“. You should click through to read the whole thing, but the money ‘graphs:

I think we’re all familiar with the regular cries that Foxconn, over in China, should pay its workers more? …

The thing is though, higher wages are not something that happen in a vacuum. Or if you prefer, there are no answers in economics, only trade offs. Foxconn wages have gone up and here’s the trade off coming:

Taiwanese technology giant Foxconn will replace some of its workers with 1 million robots in three years to cut rising labor expenses and improve efficiency, said Terry Gou, founder and chairman of the company, late Friday.

The robots will be used to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers, said Gou at a workers’ dance party Friday night.

Higher wages means that automation becomes, relatively, more profitable. And it is to automation that most jobs go to die, not trade or international competition.

These robots are being used at Foxconn for the same reason that self-service checkout counters are being used in supermarkets, for the same reason that self-service yoghurt shops proliferate. The change in relative prices between labour and machines means the machines are being used in place of the people.

Those who have been agitating for higher wages can pat themselves on the back for those who keep their jobs will indeed be getting higher wages. But there will be fewer of them as a result.

Manufacturing jobs, minimum wage jobs, service jobs, whatever, the result is always the same: raise the price of labour and more automation will happen.

Years ago, I had a friendly debate over dinner on the subject of automation in China. At the time my dinner partner, an old Taiwanese friend, said that automation would never take off in China, as there were too many people, the cost of labor would never get high enough to make the cost curve, etc. We were dining in Dongguan, and what started the conversation was our visit to a huge stamping plant earlier that day. I grew up in the stamping business in the States, and I’ve been in some big factories in USA, Mexico, Europe, and Asia, but I’d never seen so many presses in one place.

And I’d never seen so many idle presses. More than half of the machines I saw were either sitting empty or were having dies changed. Normally the die changes would’t concern me, but we were there for several hours and the same crews were changing the same dies the whole time we were there. There was either no urgency at all or they had no idea what they were doing. Or both.

While quick die change equipment is not exactly automation of the scope or scale being discussed by Foxconn, it is indicative of the fact that even low cost employees still have a recurring cost. The last set of quick die change clamps I bought is still working fine seven years later and has not cost me a thin dime in maintenance. And they save money every day by making die changes a fast, one-man operation.

My counter-argument at dinner was that if a visionary factory owner embraced efficiency and labor saving equipment before the labor costs jumped, he would be miles ahead of his competition. My dinner partner responded that I might be right, but it would be politically riskyto eliminate jobs with automation in China.

As PassageMaker is primarily a contract assembly company, I will be watching this closely, because Foxconn will be the test case to see how Beijing reacts when workers inevitably start losing jobs to the robots. I’m betting they react poorly.

What do you think?

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