Robots vs. The Surplus Labor Army

Apparently Foxconn is beginning to look at getting out of China.  Foxconn is one of the largest companies in the world, best known for manufacturing Apple devices.  It is certainly possible that the main move here is concern about supply chain disruption and making sure it is less affected by the Japan-China tension over the Senkaku Islands, as Forbes says.  However, I don’t think that stands up to even casual scrutiny – any world in which Japan and China go to war over the islands is not one where Foxconn, based in Taiwan, continues to hold up as a profitable enterprise.

I think it is much more plausible that the real answer has to do with the more prosaic aspects touched on in the article – skyrocketing wages in China.  And indeed, ZDNet reports that Foxconn’s recent China hiring freeze is connected to its desire to replace people with robots.  This seems a lot less far-fetched.  It also better explains Foxconn setting up more distributed manufacturing plants, because if wages are less of a concern, why not set up your plants closer to your customers?  It’s why Foxconn setting up in America is much less crazy than it sounds – it’s cheaper to transport goods to American consumers than from China, and they don’t have to worry (as much) about competitors stealing their technology.

For all the reasons that robots scare American policymakers, it should scare policymakers in low-wage  countries even more.  Increasing automation will increase the returns to industrial capital and decrease the demand for labor.  Poor countries, basically by definition, have a great deal of labor in relation to industrial capital.  Even larger swathes of poor countries will be rendered basically useless for market labor than in the rich countries, and with a lower level of material prosperity it will be harder to construct an economy that works for people made obsolete.  On the upside, this would seem to de-emphasize the importance of human capital to growth, and so allow for faster catch-up industrialization.  But even more than in the rich world, it could be a painful time of transition.

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