If necessity is the mother of invention, then crisis is the mother of transformation. COVID-19—one of the greatest crises ever to hit the world economy—should therefore give rise to massive transformation. Don’t think for a minute that sidelined CEOs and innovators have decided to put their feet up and take a long-delayed break. Crisis is doubtless driving hosts of them to reimagine a future that insulates them as much as possible from unforeseen future shocks. What are they thinking?
Probably lots of thoughts. Let’s focus on one that is coming up over and over again: the topic of automation, or mechanization of processes. Why is this such a large, current issue? Here are some key points to ponder on the subject:
- Pre-pandemic labour supply was very tight. There was still a lot of demand in the economy, but the ability of labour to keep us supplied was getting extremely thin. Mechanization helps to alleviate that pressure, and economize on and optimize the labour we do have. By the way, this isn’t just a Canadian or developed-economy problem; there are far fewer places on the planet with long-run population growth.
- Machines generally enable greater social distancing. There may only be a temporary need for this, but we’re all aware of the key role of digital systems in keeping many businesses functioning through remote provision of goods and services. Some of these processes are sure to carry on post-pandemic.
- Machines generally cost the same everywhere. That may be a bit overstated, but it’s true that price differential for equipment vary less than country-to-country wage costs. As such, machines shift the playing field in a lot of ways, reducing the advantage of cheap labour for a wide swath of goods and services, and adjusting the inter-country competitive balance. Given revived talk of reshoring, near-shoring and so on, mechanization may enable Canada to attract more investment.
- Machines are more location-agnostic. As long as the operating environment is good, machines don’t mind excessively cold or hot climates, altitude, darkness, remoteness, congestion, or a host of other human-needs-and-preference factors that weigh on the choice for location of current production. Cost profiles and available infrastructure will still be locational imperatives.
- Machines can work 24/7. Sure, they need to be maintained, but they have far fewer physical limitations on their stamina.
- Machines do more than they ever have. Technology’s exponential rise has increased machine-capability, and driven us ever-further into automation and artificial intelligence constructs than could possibly have been imagined. Expect that COVID-19 has raised questions about leveraging existing or developing new machine applications for current processes.
- Machines enable scaling up. Expansion of population-constrained economies like Canada’s has often been limited by low availability of labour—present and future. Higher machine-intensity makes that less of a constraint.
- A shift to greater machine-based production can greatly enhance productivity. Together with constrained labour, relatively weak productivity growth is one of the key factors holding back Canada’s potential. Boost it significantly and we face a much brighter economic future.
Are there risks to a wholesale shift of the business model? Absolutely. Any scale of industrial revolution has its downside. Labour displacement is a critical worry, as the mismatch of skills needed in the new construct could create temporary labour logjams, not to mention high social anxiety. Concentration of wealth is already an unsettling techno-reality, with few agreed remedies. Competition for investment of this sort is likely intense, and unfortunately, comes at a moment of neo-protectionism. And depending on the scale of investment required—it’s likely to be large—there are questions about the role for small- and medium-sized companies, and the resources available to them. But perhaps the greatest risk is the inevitability of the shift, and the possibility of being left behind.
The bottom line?
Business is having lots of big thoughts right now, and the benefits of mechanization is one of them. If COVID-19 touches off a wave of capital-intensive investment, Luddites are sure to abound. But if history is a guide, technology generally wins. Like any good game, it’s important to scan the environment and how it’s changing, and to take time to think out the strategy not just for the offence, but also the defence.
This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.