T N Ninan: Job-less manufacturing

The great wave of industrialisation that has swept across East Asia over the past 40 years is about to ebb

Twenty years ago, Adidas shut down its last factory in Germany and moved all of its shoe production to Asia. Earlier this year, the move was in the reverse direction. The company was back in Germany with a new “speedfactory”— run entirely by robots.

Another robot-manned factory is planned in the US. Competing shoe brands are planning their own fully automated factories in the developed world, and pulling out of China. At the other end of the world, Apple’s supplier Foxconn has declared that it is cutting 60,000 jobs (more than half the total) in just one Chinese factory because of automation; Foxconn employs a total of 1.4 million people in all of China, so the larger implications are obvious.

These episodes fit into the picture drawn by the International Labour Organisation (ILO), which warned in a report earlier this year that more than half the factory jobs in Asean countries could disappear over the next few decades because of automation, and advanced technologies like 3D printing. The World Bank president has said something similar about India. ILO says the industry that would be affected most by the new trend is textiles and garments — in which one cutting machine could replace 15 workers. As with shoes, some of the garment production work now being done in Asia will shift to new, automated factories in the consuming countries.

It would seem, therefore, that the great wave of industrialisation that swept across East Asia over the last 40 years is about to ebb. The massive industrial employment, poverty reduction and wealth creation that was achieved in countries like China and Taiwan that capitalised on cheap labour to produce and export shoes, toys, garments and electronic goods, deploying massive assembly lines of disciplined workers, has often been called a “miracle”. Today the miracle is losing its transformative power.

The implications are obvious. Donald Trump may well be able to show a revival of manufacturing activity in the US, as industrial activity becomes less labour-intensive and dependent more on the latest technologies. Just how technology- and software-driven manufacturing has already become was demonstrated dramatically by Tesla last year: the company was able to download a technology update on all its Model S cars that, practically overnight, made what were till then owner-driven cars into virtually driverless ones!

Late-comers to the industrialisation party, like India, that have been hoping to replicate the East Asian success story with programmes like “Make in India” and proposals for “Coastal Export Zones” with special tax benefits, will have to re-configure strategy to fit the new scenario. This is especially so in a world where, for the first time in seven decades, international trade is growing more slowly than the global economy, which itself has slowed down. The anti-globalisation mood taking hold in many countries has made export-oriented strategies more difficult to pull off. Even more significantly, from a social perspective, success in manufactured exports will not produce the kind of massive industrial employment that was possible in past decades.

The great strength that India has in this scenario is that it is the world’s seventh largest market, and on its way to becoming the third largest market for a whole range of products. In other words, even as it strives to improve its standing as an export base by improving its physical infrastructure and making it easier to do business, the country will have to look at how to achieve that old goal of import substitution, especially in fast-growing consumption areas like mobile phones. This is already being attempted in defence production. Achieving it across the board is complicated by new trading rules—as the government has discovered in the solar energy industry. This may be just as well, as no one would want to re-create high-cost production behind protectionist walls. But knowing what cannot and should not be done does not amount to strategy to deal with the evolving reality.