Monday, 31 March 2014

The New Industrial Revolution: What Will the Job Market Look Like in the Near to Distant Future?

Although it is never wise to try to predict the future, because you just inevitably end up looking like a fool if those predictions don’t come true, there is something to be said about making well-reasoned predictions based on past history and current trends. It is precisely this second foresight that Alan S. Blinder of Princeton University engages in in his essay “Fear of Offshoring,” December 16th, 2005. I came across this essay in my research for the last blog post, but the reasoning brought out in the paper warranted a post all of its own.  

Don’t worry, this actually isn’t another post about offshoring – well not entirely – this is a post about the future of the North American economy in a larger sense which includes some discussion of offshoring’s role in that greater picture. This discussion is actually quite prevalent because forewarned is forearmed is it not? Having an idea of the way in which the workforce will change can give us a better idea for how to equip and educate ourselves to ensure that we can participate in it.

Blinder’s essay is an investigation into shifting industrial platforms. Just as the capital “I” capital “R” Industrial Revolution (1760 - 1820/1840) saw drastic changes in industry that dramatically reshaped society, so too, argues Blinder, are we in the midst of similar changes, or as Blinder boldly proclaims, in the middle of another industrial revolution. The historicised Industrial Revolution between the 18th and 19th century saw a shift from the farm to the factory:

The shift off the farm was massive. It has been estimated that in 1810 some 84% of the U.S. workforce was engaged in agriculture, compared to a paltry 3% in manufacturing. By 1960, the manufacturing share had risen to almost one-quarter and the agricultural share had dwindled to just 8% (today it is under 2%).

This major shift from an agricultural lifestyle to a highly manufacturing lifestyle changed the way that people coexisted: it changed “how and where people lived, how they educated their children, the organization of business, and the forms and practices of government” (Blinder).

Blinder’ discussion about offshoring, then, is much deeper than those voicing immediate concerns about offshored manufacturing jobs that have been gone for decades now. It is a discussion about offshoring as more than “international business as usual” and as a “routine extension of the realm of international trade” (Blinder); instead, Blinder sees offshoring as a “broad, powerful, and disruptive historical force that may transform societies.”  

Before we can get into this rather large declaration, we must first further analyse the changing nature of trade. Of course international trade began before the Industrial Revolution, but it was reduced to those goods which could withstand lengthy travel on sale ships. With the rise of the steam powered engine came more convenient and faster methods of transportation: steam powered ships and trains. Faster methods of transportation increased the kinds of goods that could be traded. Trade has always been reduced to two major groups tradable and non-tradable. These distinctions haven’t changed, but the amount of tradable goods has jumped from one category to another: in short, more and more things have become tradable.

Offshoring is an extension of this increase in tradable goods: the ability to trade in labour and production. This is why some economists view offshoring as a mere extension of the realm of international trade, as was stated above. For Blinder, the discussion of offshoring is not that cut-and-dry, and he finds this view to be quite limited and underestimating the true potential of offshoring. Unlike tradable objects that can be tangibly put in a box and quantified, trade now is occurring with services that are much less tangible: “packets of digitized information can now play the role that boxes used to play, many services are now tradable and many more will surely become so” (Blinder). It is this realisation, that the “key distinction for international trade will be between services that can be delivered electronically over long distances with little or no degradation of quality, and those that cannot,” which brings Binder to his “broad historical perspective”: that we are in the midst of what he calls the Next Industrial Revolution.

This second industrial revolution that Blinder believes we are in and which is currently still in progress is the shifting dynamics of jobs once again, but this time away from manufacturing and towards services. Offshoring played a major part in this second industrial revolution, because moving manufacturing jobs overseas shifted the workforce ‘at home’: “new service sector jobs have sprouted up in far greater numbers than old manufacturing jobs have disappeared” (Blinder). Like the first industrial revolution, this second brought about drastic changes in the work forced, education system, and governance of business. It has also brought with it television and the internet, and the decline of physical labour (Blinder).  

Obviously this major shift in what North American jobs look like and the way we do business qualifies as a major industrial shift, a revolutionary one if you will, and therefore to classify this as another industrial revolution is not a far reach. Blinder doesn’t stop there, however, because it seems that things are already shifting again, and in a way that he believes will determine another overhaul in world industry and international trade. According to Blinder:

We are now, I believe, in the early stages of a Third Industrial Revolution, which has been called the Information Age. The cheap and easy flow of information around the globe has vastly expanded the scope of tradable services. And there is much, much more to come. Like the previous two industrial revolutions, the Information Age will require vast and unsettling adjustments in the way we work, the way we live, the way we educate our children, and so on.

Blinder acknowledges that this shift will be an adjustment, but not detrimental to societal prosperity and economic development. So, ultimately his discussion of offshoring, unlike most of what is currently being circulated on the subject, is one of not fearing offshoring as an enemy to North American jobs, but rather embracing it as part of a more significant shift in human development.  Just as the first two industrial revolutions did not spell the end for agriculture or manufacturing in North America and unprecedented unemployment, neither will “massive offshoring […] produce massive unemployment” (Blinder). Blinder also suggest that we should not view offshoring as “a long-run threat to our standard of living,” but as a shift to the development of something progressive. “The world gained enormously from the first two industrial revolutions,” notes Binder, “and we are likely to do so from the third as well.”

The shifting dynamics of industry that have lead Blinder to declaring three separate industrial revolutions are as follows:

The Shifting Dynamics of Industry
First Industrial Revolution
Farm      →      Factory
Second Industrial Revolution
Manufacturing      →      Services
Third Industrial Revolution
General Services      →      Personal Services

These changes in industry dictated a “large-scale reallocation of labor” (Blinder), at first from farms to factories, then second from manufacturing to services. The shift to services was and still is dependent on three aspects, according to Blinder: 1. Rising productivity in manufacturing, 2. Change in consumer taste (preferring to spend income on restaurant meals and vacations instead of clothing and refrigerators), 3. Changes in international trade (Blinder). The final point that Blinder makes is what he also has heralded as the benchmark of the second industrial revolution: “We now import a much larger share of manufactured goods than we did, say, fifty years ago. All told, the share of manufacturing in U.S. GDP has declined from a peak of 29.5% in 1953 to just 12.7% in 2004” (Blinder). What Blinder is noting here is that the share of the American Workforce engaged in manufacturing has shrunk – more manufacturing is being done overseas, and so more manufactured goods are now being imported. Still, he is quick to point out that the number of manufacturing workers in the American workforce has “declined only modestly” and that this shift has, once again, “not led to massive unemployment” (Blinder).

The reallocation of labor that Blinder expects to see with this third industrial revolution is one from general services to personal services, as “many impersonal services are now or are destined to become tradable, just like manufactures, and thus potentially subject to offshoring” (Blinder). But just as with the first two industrial revolutions, Blinder argues that the “job categories that will move offshore as the Information Age progresses will not disappear entirely from the U.S. and other rich countries,” instead, their shares in this workforce will drastically shrink. As I stated above, the second industrial revolution saw a decrease in physical labour jobs, as manufacturing jobs were moved overseas. It has been a consensus that the jobs that were being offshored were ‘lower-labour’ or jobs that required less skills and education. The service jobs that were created in their wake were then seen as ‘high-labour’ or jobs that required special skill sets and educations. The shifting job force in the third industrial revolution will not be that easily differentiated. So being able to forearm this shift will not be a simple matter of more education. Blinder gives the example of jobs that are already being offshored that compromise the above determining factor: 

typing services (a low-skill job) and security analysis (a high-skill job) are already being delivered electronically from India – albeit on a small scale so far […]Most physicians need not fear that their jobs will be moved offshore, but radiologists are beginning to see this happening already […]The work of policemen will not be replaced by electronic delivery, but the work of some security guards will be. (My home burglar alarm is monitored from somewhere in Indiana. Why not from somewhere in India?) Janitors and crane operators are probably immune to foreign competition; accountants and computer programmers are not.

This is all well and good to say, but what does this really mean about the future of our job market? Obviously as technology improves and as developing countries modernize and progress, the line between jobs that are capable of being offshored and those that aren’t will continue to be pushed. Jobs that are already offshored include “call-centre operators, customer service and back-office jobs,” and those that are in the process of being offshored are “information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services” (Roberts).

So what are classified, then, as ‘general service’ jobs and ‘personal service’ jobs? Below is a list of the current services sectors and some predictions for their economic development (to be offshored or remain onshore). Even though these still don’t offer a black and white differentiation between personal and general services, hopefully they do shed some light on the topic.

1.       Health services:  which seem destined to be delivered in person, but have already seen some offshoring potential in radiologists, laboratory testing, fiber-optic robotic surgery.
2.       Education services: also best delivered face to face, but are becoming increasingly expensive. There are also already online college and university courses, but for now it seems that high school and elementary education will remain in the personal services sector.
3.       Professional and Business services: It seems that a lot of these jobs are potentially offshorable. Future technological developments may dictate how much law and accounting stays onshore and how much comes to be delivered electronically from countries with much lower wages.
4.       Leisure and Hospitality services: although reservation clerks are and can be located anywhere, the beach boy, maid, hotel hostess, and restaurant waitress must all be physically present.
5.       Financial services: today the United States probably ‘onshores’ more financial jobs (by selling financial services to foreigners) than it offshores. But, improvements in telecommunication and rising education levels in countries like China and, especially India (where many people speak English) may change the status quo dramatically.
6.       Wholesale trade: other than the personalized retail trade, wholesale trade stands a greater potential of being offshored.
7.       Transportation: requires personal delivery.
8.       Information services: these services comprise the quintessential types of jobs that can be delivered electronically with ease. The majority of these jobs are at risk.
9.       Utilities: very susceptible to offshoring
10.   Other services: such as maintenance, laundry, etc., all require personal delivery.

Ultimately, personal services are those that “cannot be delivered electronically, or that are notably inferior when so delivered” (Blinder); these are services that either require face-to-face contact, for example your family doctor who performs your annual physicals, or wherein face-to-face contact is highly desired, for example meeting with a psychiatrist or psychologist (Blinder). It is impossible to even consider these jobs being done by a robot controlled from India. Alternatively, when you book your plane ticket online or set up a conference call, you do not require a physical person to complete these services; in this sense “distance does not degrade the quality of service” (Blinder). Obviously these are still not cut in stone, as was stated above, a lot of work for radiologists is being outsourced to specialists overseas, and it can be argued that there are psychiatric sessions that do occur over technological mediums.

So how are we really able to combat this? According to Blinder, there are no set solutions, because no one is really talking about it yet. One thing is for certain, though, it cannot be responded to by going on the defensive against offshoring, and indeed the attempt to traffic trade once it becomes the trade of digitized material will be even more difficult to police – something we can already see with the difficulty involved in trafficking pirated files such as music and videos.

Ultimately, Blinder notes that society hasn’t yet caught up from the first industrial revolution, let alone the second, and the third is not even being considered. There is still way too much attention paid to manufacturing and that which is past, instead of the present and the future of industry; it is a focus on where we have been and what we have lost instead of what we have gained and where we are going. “The societies of rich countries seem to be completely unprepared for the coming industrial transformation” says Blinder, “Our national data systems, our trade policies, our educational systems, our social welfare programs, our politics, and much more, all must adapt to the fundamental movement from impersonal to personal service jobs. None of this is happening now” (Blinder). So, first things first then, we must generate a discussion.

A few proactive measures that Blinder does suggest, however, are that we re-think and re-educated. The first response that this Third Industrial Revolution demands, according to Blinder, is that “we keep better statistical tabs on services, but that we start collecting systematic data on which service jobs are deliverable electronically over long distances and which are not.” Blinder suggests that rich countries will have to “recognize the nature of work to exploit their big natural advantage in nontradable services: being close to where the money is,” which will mean, in part, “specializing more in the delivery of services where personal presence is either imperative of highly beneficial” (Blinder). Second, Binder suggests that rich nations must “transform their educational systems so as to produce workers for the jobs that will actually exist in their societies” (Blinder). Ideally this means training more workers for personal services, but as was mentioned above…this is not a clearly defined category. For now, this means focusing on steering youth away from “tasks that are routine or routinizable” and towards work that “requires real imagination” (Blinder). Although, we can never assume that creativity will win over all, because creativity and imagination are “notoriously difficult to teach in schools” and there is wild imaginative thinking involved when considering a future where “truly creative jobs […] constitute anything close to the majority of employment” (Blinder). While those few who can be imaginative and creative will be successful, the remainder need to focus on something slightly more tangible within personal services, whatever they may be. Blinder doesn’t pretend to have all of the answers, and obviously neither do I; the intent here was to start a discussion in which other brilliant minds can participate and which will hopefully lead to some reasonable solutions.

The main flaw in Blinder’s argument about personal services, which he also fully acknowledges and points out, is the matter of Baumol’s disease – or the cost disease of personal services. This is the notion that within certain personal services, “productivity improvements are either impossible or highly undesirable” (Blinder). Ideally, if we were to think of let’s say teaching from a production point of view, the more children you place in a classroom that can benefit from a single teacher’s educational output would increase productivity. However, when it comes to this personal service, this increase in so-called productivity deteriorates educational quality; i.e. children benefit more educationally when given more specialized attention. So, the idea behind Baumol’s disease, then, is that with “little room for genuine improvement, and with the general level of real wages rising all the time, personal services are condemned to grow ever more expensive (relative to other items)” (Blinder). There is evidence of this in the rising costs of post-secondary education. As history shows, when the price of a commodity becomes too exorbitant, the demand for that commodity decreases. In this historical perspective, then, it would seem that the personal services that Blinder is basing the future of the North American economy on, may see a decrease in time with the increase in prices.  Perhaps, then, this is the first area that needs some re-thinking and adjusting.

In the end, I believe that Blinder brings out some very pertinent points that should be a general topic of discussion right now. I also agree that there has been too much discussion villianizing offshoring and that in general it does not have to be viewed as “as an impending catastrophe” but instead can be seen as “a looming challenge” that will bring about exciting change; as Blinder notes, “the world as a whole cannot lose from global increases in productivity” (Blinder). Like the first Industrial Revolution, we can expect a great deal of change, which will necessitate some uncomfortable adjustments, but in the end progress is progress. If indeed Blinder is correct about this shift towards personal services, then the social change that may awaken in the wake of this third industrial revolution is one where “people skills will become more valuable than computer skills” and where “creativity will be prized” (Blinder). Indeed this shift towards an emphasis on human interaction as opposed to a technological one gives me hope that the current social state of reducing human interaction to as little as possible will actually be reversed. What a pleasant thought, that maybe in the near future we will have actual human beings answering our questions instead of some automated system. And, again, perhaps this will not change, but it’s a nice thought.   

Amanda Labelle

Blinder, Alan S. Fear of Offshoring, Princeton University, Dec 16th, 2005. Print (pdf)

Roberts, Dr. Craig Paul. “The Offshore Outsourcing of American Jobs: A Greater Threat Than Terrorism,”
Creators Syndicate and Global Research. 18th of April, 2010. Web.

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