Disruptive Technology – It’s a First World Problem

 

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Picture is courtesy of Wikipedia.

With all of the discussion about how automation technology will be replacing a job near you, I had a very enlightening conversation with a couple on my recent trip to Mexico.

Now let’s start off by stating that technology is still being employed in Mexico, but the process is different, it is creating jobs where none existed as manufacturers transfer production to Mexico.

But if you take the story I was told you will see something interesting.   This is not so much a story about “High Technology”, rather a story about the employment of capital equipment vs. labor.

 

The Story

The daughter of the couple that I was talking to is doing mission work in Guadalajara, Mx. They have a traditional colonial style house, but wanted a bit of home on their property in the form of a Lawn. It so happens that her parents, the couple that I was talking to, run a residential landscaping and irrigation business in Winnipeg, Mb, and were more than happy to help.

The parents come down and start to assess the situation, and her father taking a typical “Canadian” construction management approach decides that they need so many cubic yards of dirt, and a Skidsteer. The daughter laughs, the dirt is easy, but the Skidsteer, not very likely. In the end over a week they were able to get the lawn and irrigation put in, but they never did rent the Skidsteer. It was all done with shovels and manual labor.

The story here is that there is such a price differential between the value of labor and the value of capital equipment, it is far easier to hire 10 guys at Mexico’s minimum wage than it is for someone to invest in the Skidsteer, even for a rental company, they will never earn a reasonable return on investment because labor is so cheap by comparison. You see it everywhere you walk, guys toiling in the heat were we at home would have a machine doing the work you are witnessing.

If we take this to the next level of robotics, well they are expensive, and at some level for some types of work will never be used. Way back in the 1980’s my friend’s father warned us that we had to stay in school, because if we didn’t, “Well they are never going to stop making shovels.” So if you want low pay and very hard work, it will always be available, but it will be commodity priced. Now my friend runs a Stucco Exterior Finishing company, very manual work, but also very artisan, and it is in the area of artisan’s that technology will not likely disrupt, at least not in the First World Economies.

If you go to Mexico, a large portion of the population is involved in the artisan trades, crafting unique items in very small-scale production.

In modern economies we simply have a problem of ever-increasing wages at the same time as the cost of capital equipment, high technology, is dropping and at the convergence point people lose jobs.

Disrupted – Just About Every Job

“They’re closing down the textile mill across the railroad tracks

Foreman says these jobs are going boys and they ain’t coming back

To your hometown” (Bruce Springsteen, My Hometown)

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Now I don’t want to get on the “Hate The Donald Train”, but what kind of drugs is he smoking when he talks about bringing back the manufacturing jobs.

 

The truth of the matter is that the USA has never manufactured more products, the problem is that this has not resulted in the sort of concentrated job creation that drove the industrial mid-west in much of the 20th century particularly post WWII.

 

There are two components to this problem. The first is that many large manufacturing firms left the north “Rust Belt” have closed and or relocated to other Sunbelt locations with cheaper labor and much lower organized labor rates, and rite to work states. This has resulted in structural unemployment in the former Rust Belt States of the North and Great Lakes Regions.

 

Second, the fact is that so much of industrial productivity is now highly automated allowing these manufactured goods to be to be produced by a tiny fraction of the labor that used to be required.

 

The simple fact is that as in the Springsteen song above, these jobs are not coming back, they have been gone for a very long time from the area that they left. The new and modern plants with higher outputs per unit of labor will not be relocating back to the Hometown. Placing all the tariffs in the world on goods entering the USA is not going to solve this problem and put these displaced people back to work, they do not proses the skills or knowledge to work in these newer highly automated industries. The manufacturing that does return will be of smaller and less economic scale causing higher prices to all consumers and while it will add a Made in the USA option to the marketplace, it will likely be priced uncompetitively, unless there are corresponding tariffs on the imported equivalent, thereby making everybody worse off.

 

And the international firms that have built the new facilities are not going to relocate this capital investment, they may add capacity, but they are not going to re-activate some derelict facility in Central Ohio.

industry workers people in factory

I have read countless stories of companies operating in these states that still have a hard time to find good employees because their prospective hires can’t pass a drug screen test, and the work is skilled and requires a high degree of mental sharpness. (National Geographic, Feb 2017). Yet the downtrodden economic conditions of many of these areas have led to wide spread substance abuse as people try to self-medicate their way out of despair and poverty.

 

Both The Canadian Department of Labor and the US Department of Commerce have gone on record recently stating that they anticipate a major restructuring of the workforce in the next decade with upwards of 40% of the jobs in our current economy at risk of becoming automated out of existence in this time frame. Yes it is true, that there are many jobs that will emerge from this transformation and we may not even now what many of these jobs will be today, but it is a sure bet that many of the new jobs will replace jobs that were low skill and had low educational requirements, and in many cases also moderate skilled jobs. If you were earing a middle class income but have not completed high school, what chance do you have for these new emerging jobs that will most likely require some level of advanced education? And I won’t even get into the additional problem if you loose your blue collar job, are over 50 and may or may not have completed high school. Ok, I will, You are economically FUBAR’d.

 

This theory is confirmed in a recent interview with Mark Cuban, who even feels that we are entering the realm of machine developed software that is superior to human developed code, so even those good jobs are not safe, though there may be a short period where coding is the new blue collar work.

 

How do we solve the Structural Employment Problem?

 

And what about structural unemployment, when the jobs are not located where the people/skills are? Many that have been left behind in the rust belt are attached to the only property that they can afford, and with the local economy, they can’t leave it behind to relocate for work, there simply is no bid on their real estate. And no bid on their skills, they have been out of work for too long and the skills that they possess are obsolete. They also may be older workers, and I think we need to have a strategy on hiring older workers, that are probably more expensive, but we need a viable way to combat age discrimination.

 

In theory, technology could and should play a role in making this viable. If skills can be introduced to the population in the former industrial heartland, and people there are willing to work in non-manufacturing jobs, then technology may allow for the place of the people to be irrelevant. I believe that this needs to be the focus of employment strategy. But at the end of the day, not everyone is going to want to code, and some simply will not be able to code, we are not all wired the same, nor endowed with the same intellectual abilities. What do we do with these people, too young to retire, and perceived to be too old to code?

Are the Saudi’s trying to disrupt the disruption of the Carbon Economy?

This article is a little more on the conspiracy theory side of things than the thoughts that I usually try to put out but I think it has some merit.

Let’s face it, outside of Sand, Heat & Oil, Saudi Arabia has little going for it in the way of economic activity other than the annual Pilgrimage to Mecca. It has been said that the major reason for their current oil production is to gain control over market share, primarily in the face of the USA energy independence, or near independence, at the expense of very costly to produce tight oil.

But could there be a longer-term goal at play here. We are at the edge of the convergence of several technologies that could see the end of the carbon economy, primarily oil. Elon Musk is building the Tesla Electric Car, and Wind and even Solar energy are coming down in cost to be on par with traditional fossil fuels. My argument is simply, nothing kills the electric car quicker than cheap gasoline. And the same goes for other forms of renewable energy, or, at least, slowing it down for a while yet. If many technological leaders in the fields of alternative energy and car manufacturers can be convinced to pull back on research and design of electric or hybrid vehicles simply due to poor sales, the Saudi’s are in fact protecting their market share.

The Saudi’s win on two levels, First expensive North American Oil stays in the ground, E&P companies go broke and there is a real potential for industrial knowledge loss if enough of these companies go broke, including the companies that have devised ways to release tight oil from formation’s. Once these employees are released to the four winds, and the knowledge is scattered it could be hard to bring back.

At the other end of the spectrum is the consumer, if oil remains cheap, the opportunity cost of driving a hybrid or electric car becomes too high, and why not just pump some cheap gasoline?   And for the car manufacturers, why invest in more efficient vehicles, we have been through this cycle in the past, now government regulations play some role in this but they are not the ends of the game.

In short if the Saudi’s can keep the price low enough, long enough, they will gain market share, through shut-in expensive to produce resources and the loss of consumer choice in transportation fuels.

Time will tell if our mindset in North American has moved on to the environment at the expense of cheap gasoline.  And if we have it is going to be a long hard road for domestic oil production companies and their workers.

Update February 25, 2016

The Saudi Oil Minister was just in Houston, Tx and advised that the Saudi strategy was to force all expensive to produce oil, all shale, fracked, tight, directional, offshore, pretty much everything we produce in Canada, off the market.

Welcome to a massive cost restructuring of the industry, that will primarily be wage focused from rig crews to administration, I would guess that we are looking at a 50% cut in salaries and wages across the board if we want our patch back.  Likewise for all service contractor equipment day rates.  If we can’t produce it profitably for $40 – $50/bbl, we are pretty much shut down according to Saudi Arabia.

Disrupted – Locally Installed Software

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In 1981, Video Killed the Radio Star with the launch of MTV.  So yes I am dating myself.

In 2016, we are in the midst of another computing revolution.  Again this is a story of the convergence of technologies, most importantly high-speed access over the internet and how software vendors are choosing to distribute their software principally, but it is also changing how companies of all sizes invest in software and hardware, and may even be the demise of the traditional IT department in some companies.  There are also cost savings to the company at several levels both in the form of direct support staff and upgrade cycle of the software, no capital outlays for hardware.

Cloud-based services are far more secure than most small businesses can ever hope to achieve, they are at a level of or exceeding fortune 500 companies.  Further, use of most cloud services include data back-up and recovery, often from multiple secure sites thus allowing for another area, data systems disaster recovery, an area where many businesses are vulnerable is covered.

The prime area where most businesses already use the cloud is in the area of Web Services, Websites, and Social Media, all of this data is hosted on servers remote from the company.

Then biggest change is in the way businesses use their basic day to day software such as office suites.  This is commonly referred to as SaaS, Software as a Service.  Rather than installing your office suite on each user’s machine in your office you purchase a subscription to the software and use it through a web browser, the actual software resides “In the Cloud”.  Effectively taking the software out of the office but much of the IT infrastructure remains in the office including the servers.  MS Office 365 or Google Office suite are mature examples of this cloud technology but there are many other examples, such as practice management software for many specialized industries such as Appraisals and Optometrist clinics. Salesforce is also an example of SaaS, as it is a combination of software and databases resident on specially configures servers that are all at a remote site from the office.   Even Tax and Accounting software are moving to the cloud.  Most of these services are paid by subscription and have the benefit of always being up to date, thus, no more version incompatibility issues where different users in the same office have different vintages of software.  And the benefit is that you can access your software and documents on any connected device anywhere, anytime.  Though many small business owners have concerns about having their files no longer located in their office, the reality is that within a few years many software providers will cease to distribute their software through the much more costly physical delivery of software.  While the software resides on remote servers, there is also the possibility of easily storing the data files locally for backup and easy access, and this is often a concern for small business.

As far as hardware goes, there are substantial savings here as well. A basic netbook computer with only a browser installed can be all that is needed, these computers can be had for a few hundred dollars.  The downside is that these computers are fairly useless without an internet connection as there is no software residing on them.

The next level of cloud applications is to pull the servers physically out of the office,  the computing is done on a server at a remote location from the company, this is known as Platform as a Service (PaaS).  The cool factor in this area is that you can configure and set up a server for specific applications very quickly and without the capital expenditures that can easily run tens of thousands of dollars and can often take weeks or months to configure.  Further  in a large data center, you have scalability, if you suddenly need more capacity just spin up a duplicate server.  You can even manage your demand and scale up and down as need be hereby only paying for the service that you actually use at any given point in time.  you have now pulled major aspects of the hardware out of the office.  Rackspace and Windows Azure are prime examples of PaaS.

At this point all you need is a reliable network switch and fast internet connection, thus you have taken significant steps in simplifying your office IT  infrastructure and needs for support.  The downside is that if your internet connection goes down at either end you are effectively shut down until it is restored, but you may still be able to access things via cellular connected devices if the issue is at your end of the pipe.  You still will have more up time than typical on-site installations of software.

At the highest level of Cloud computing is IaaS  Infrastructure as a Service.  Sometimes this is referred to at hardware as a service,  IBM Cloud Services is an example, this is the heavy lifting level of enterprise cloud services that few small businesses would become involved with.  Suffice to say that everything is massively scalable, and comprises all components of hardware and software that would be found in a traditional company, but it is all outsources and virtual.

At the end of the day, “The Cloud” offers small business substantial opportunities to save money and massive restructures the hardware and staffing needs of small business.

 

Disrupted – Electrical Utilities Industry

We are presently at a nexus of Technology when it comes to the way that we power our homes, industries, and economy.

There are three components to this change:

  • Solar Panel & Wind Power Technology & Pricing
  • Storage Battery Technology & Pricing
  • Electrical Appliance Energy Efficiency Technology

There will be mass decentralization of the power grid in developed countries

Many of these trends will be highly beneficial to the developing world where centralized electrical grids are in poor shape and often non-existent in rural areas.

In just over 10 years it is predicted that “Utility Scale Photovoltaic Solar”  will become cost competitive for the majority of the world and on par with fossil fuels.  Can you say another blow to those economies that produce fossil fuels.

It is estimated that PV solar power will make up 1/3 of electricity infrastructure investment globally in the next 25 years, a 3.7 trillion build.  But this build will be incredibly disbursed, on the rooftops of homes and small businesses, and mostly funded by the home and business owners.  The driving force behind this will be the fact that electricity that doesn’t have to be transported long distances on the grid will be cheaper than grid feeds in virtually all major economies.

This is the point in which battery technology comes into place.  As we all know PV electric works fine as long as the sun is shining, but when it sets; no power.  Tesla is bringing high tech battery storage technology developed for its cars to the home front, and they won’t be the last for long as Tesla is on record saying that it wants to develop much of its technology open source.

Lastly, the technology developed for all of our mobile devices will creep into almost all of our other electrical appliances.  Again Battery technology is part of this but so are all of the technologies that make these devices power misers, as energy saving technology infiltrates the broader spectrum of household appliances, the power requirements of households are expected to drop.  Just think LED lightbulbs, even in the last year these bulbs have taken a 50% price drop and can be picked up at major retailers for $4-10/unit.  Even cooler, many of these bulbs are paired with smart chips that allow you to integrate them with home automation tech, forgot to turn off you light, that is consuming 80% less energy,  no problem, turn it off with your smart phone.  Even with the developing world becoming more affluent, global electrical production should remain fairly flat.

So, What about Wind and Natural Gas Electrical Generation?

Most countries in the world do not have an over abundance of Natural Gas.  The continental (North American) oversupply appears to have minimal impact on the switch to renewables, the cost is just dropping too fast, and inertia is building.  Within 12 – 15 years it is expected that Wind Power will be cheaper than utility scale gas generation.

Where is the proof?  Enmax Energy, an Alberta Based Energy company has recently launched two initiatives, one PV Solar, and one Wind Power.  They have contracted to build individual PV and wind systems on private residences, with a financing arrangements that for most people will be revenue neutral when the excess power is sold back to the grid.  Payback is still 15 years, after which you are making your own free power, but the economics of this break-even point will continue to decline…apparently very rapidly.  The largest problem that we face however is that our current centralized electric energy system is encumbered by massive regulations that are probably not as flexible as the timelines for this tectonic shift in how we produce electricity.

One of the most interesting things that I find is how technology is scaling everything down to the individual.  A relevant book, though dated is “Small Is Beautiful

This shift will happen over the next 25 years. (Reference Bloomberg.com, June 2015)

Disrupted – The Traditional Work Week

The connected world is not something new, back in the day, I had a Palm Pilot for work, the coolest feature is that it kept you organized with your other team members and assisted in coordinating activities.  It was also cool that outside of the work environment and periodic syncing, it didn’t bother you after hours.

Team of business people working

Next came the CrackBerry – the name says it all as so many business executives became addicted to being connected.

Part of my mantra is Any Device, Any Time, Any Place; but make no mistake this does not mean that I am working 24/7.  It does mean that you can get a hold of me all the time, just don’t expect an answer back right away if you happen to send me something while I’m on my off shift time.  In fact I would say that about 90% of my work is done in an asynchronous fashion.  There are very few matters that are life or death emergencies in business that can’t wait a couple of hours for attention, and in most cases, once you put your attention on them a couple of hours later, they have somehow resolved themselves.

In a 24/7 connected world it is important to set boundaries in your life, one of the main reasons that I am now working in this fashion is to have more time for family and personal matters.  During the work day it can get very blurry as to what I might be doing at any given point in time, but there are times when I simply won’t answer my phone or respond to text or email.

The one thing that is important is to ensure that you do have some core hours, whatever they may be, that customers and colleagues can contact you during.  Then when you are outside of those hours, clients and colleagues know that they may have to wait on you for a bit.

If you work across many time zones you may want to have a couple of times a day

Disrupted – How We Earn A Living

I am wondering if I am the only one who has noticed that there seems to be a disconnect in the employment/unemployment stats that we are seeing in North America & and other developed nations.

Companies are claiming that they can’t find qualified candidates.  The unemployed are saying they can’t get jobs or interviews.  While there is a general amount of structural unemployment (jobs are not where the potential employees are located) or vice versa, much of this can be overcome by technology if both companies and individuals are willing to step back from the the traditional 19th century paradigm of what constitutes an employee, being someone who works at a specific place, during specific hours, with a specific job description or duties to perform, under direct on-site supervision of someone.

Long-term unemployed face a whole other problem, even with retraining and other government sponsored programs and a good education, the prospects can be bleak.  One article that I read stated that it will take you 2 months plus 1 month/$10,000 in annual salary earned to find a replacement job, so as an example a person who earned $70,000/year would take about 9 months to find a new comparable job, likely at a lower salary.  If you are unemployed for over 12 months your chances of finding another job in your old career path drop by about 75% and approach zero should you be unlucky enough to find a job after 18 months.

Here are a few of my observations:

Companies want to hire experience…but seem not to want to pay for experience or pay very little for training, if this was not true we wouldn’t have a youth unemployment rate, Canadians 15 – mid-20’s of over %15 officially, and unofficially as high as 25% if you start counting the under employed, people not working in their credentialed professions and often working multiple jobs that still don’t approach a traditional full-time work week.  In the USA and much of Western Europe the stats for youth are similar.

At the other end of the spectrum are those that are experienced been in their profession for 10 – 20 years, age; 35 – 45, and thus have made some amount of salary progression.  I have read several articles that suggest that age discrimination in hiring decisions is happening to candidates as young as 40 in some industries and in general has moved lower from 55+ to the late 40’s for certain.  In an era where life long employment situations are non-existent, it is a death sentence to be layed off in your 40’s if you are not prepared to radically shift your idea of employment and work, and I have first hand experience being unemployed at 43, (4 years ago) when my employer went broke with a high skill set but missing one or two certifications that people normally have working at the level that I was working at.

Just who exactly are companies hiring.  From my observations it seems to be an extremely narrow demographic.  They don’t want to train so they aren’t hiring the under 25 group, and they don’t seem to want to pay the salary expectations for the over 40 group or they will hire in this group should the individual be able to consider a significant reset in salary progression, hard to do when you have committed to long term things like Children, Mortgages, and Car Payments.  No wonder companies can’t find the employees that they say that they desire.

Don’t even get me started on Job Board sites, in my opinion, its just like when I was younger and got involved in online dating sites,  looking at hundreds or possibly thousands of profiles, but there was always the possibility of finding something better so I kept looking…and wasting my time where there were so many wonderful datable women available and all I had to do was take a chance with a few of them.  I believe that many employers are effectively doing the same thing, looking for perfection that may not exist.  I have seen so many jobs in my local area come up time and time again, through one head hunter, then another, then another, then back to another job board as the company looks for that perfect fit rather that hiring close and training for the balance, they do nothing but recruit for months and months…gee I guess having an HR manager isn’t really so crucial to your operations after all.

All of this while we see the rise of the contract service economy, currently growing at an estimated 25%/year.  I believe the verb that has recently been used is “Uberization” of the economy.  At any rate it is the rise of the technology enabled freelancer, the individual as the value added link in the chain, just brows Fiver where I had a fantastic logo for my business designed for $5 in only a couple of days.  You can get almost any task, even fairly complex things done by boundlessly creative individuals for only $5 bucks.  By some estimates I have read that by 2020, 50% of employment will be generated by freelance contractors, many of these contractors will be doing freelancing as a sideline, but many more are graduating from part-time to full-time E-lancers, Electronic Freelancers.  This is nothing really new, Thomas L. Freedman covered this in the third edition of his book ” The World is Flat”

Technology is also bringing great benefit to the ability for individuals in developing nations to earn an above subsistence income.  From the Indian and Philippine Call Centres to my brother-in-law’s company in Nepal, Cloud Factory, millions of people are being given the opportunity to rise out of poverty through a convergence of technologies.

But what about the person who truly wants to work in a traditional “Job”, as many in their forties would like to, and I would say most in their 50’s & 60″s would prefer the traditional work arrangement they have been accustomed to.  I would like to share the story of one IT professional who was downsized a few years ago,  He lived and worked in Ontario, Canada, His name is David Gay.  As much as technology is, I believe freeing the average worker, his story is troubling and disturbing.  I am sharing this story without his permission but as the link is to a public profile & blog chronicling his ordeal, I believe he wants his story to be shared.  One would also think that as an IT worker, he would be more prepared for the disruption that technology is putting on the traditional work arrangement, but he was truly unprepared.

He has only ever worked for a couple of companies but by all accounts he was a good and effective employee, but had worked for too long in one place and by that virtue was likely expensive in terms of re-hire after being laid off.  Perhaps some of his IT skills were somewhat dated, but again he went out and did some upgrading.

If you are unemployed; you do have an expired date, a date after which you are likely to become permanently unemployed; David is till looking for a traditional job, doing almost anything, and now homeless.  All because he does not want to “Contract or Freelance”  which is the new reality of a “Disrupted World of Work”