Overview
Karl Marx’s theory¹ was that labor was in a struggle with capital providers and that laborers should unite to obtain a fairer share of the benefits created by their efforts. Our view is that because of converging technological developments, for better or worse, labor will increasingly be replaced by capital, with massive implications.
Premise
Capital has continuously and subtly been replacing labor. For example, on a trip through Grand Central Station you may overlook the dozens of empty ticket kiosks. The task of selling tickets has been replaced by a mobile app. However, changes are set to become much more pronounced.
With rapid developments in the artificial intelligence (AI) field, it is only a matter of time before robots become more effective at numerous manual labor tasks. In fact, the shift is already happening on warehouse and factory floors, where special-purpose robots are operating side by side with humans to increase efficiency and reduce costs. The paradigm shift occurring is in the development of general-purpose, intelligent robots that can perform a variety of tasks with little intervention.
Like any development, the cost of a general-purpose robot (GPR) will decline significantly over time as acceptance becomes widespread. Assuming the cost of a GPR is $25K and the useful life is 5 years (the actual life would likely be far greater, but rapid advancements will probably render prior models obsolete), the cost is effectively $5K per annum plus energy and support services. Assuming a total cost of $7K per annum, the benefit is greater than the typical American employee cost of at least $50K per annum. However, since the typical robot can work nearly around the clock, the cost advantage becomes shocking, that is $200K for human labor versus $7K for the GPRs. Even if some of the cost estimates are off, the difference is so substantial that it is hard to argue against the change.
Impact I
Regarding the areas that will be impacted, here are a few thoughts:
- Retail: stocking, bagging, cleaning
- Warehousing: nearly every task
- Manufacturing: nearly every repetitive task
- Services: likely working alongside service personnel due to some complexities
- Agriculture: many repetitive tasks
Impact II
If our premise is accurate, the GPR can operate for 7,300 hours per year (i.e., 365 days times 20 hours per day). With an annual cost of $7K, the hourly cost is less than $1 per hour. At that rate, few humans can compete. After including transportation costs, even the cheapest source of labor will face significant challenges.
Impact III
The world will change, and perhaps we are already seeing the early stages of it. The market is viewing AI firms in a highly favorable light currently, and perhaps it is because of the massive benefit stemming from the technology.
Impact IV
As mentioned numerous times in prior installments, rarely do the current market leaders remain leaders during a paradigm shift. Time will tell which firms emerge, but our view is that the aforementioned developments create significant opportunities and risks.
Sources
[1] “DasKapital” and “The Communist Manifesto”