During the first industrial revolution, machines were able to take over 98 percent of human work in the textile industry, but the decrease in prices that resulted from automation adoption and technological progress rapidly increased product demand and caused an overall increase in labour demand for weavers.
Therefore, as productivity increases and prices fall, many manufacturing sectors initially increase employment. In the case where automation has led to job losses in manufacturing, studies find that they were fully offset by job growth in the services sector.
For example, the introduction of the personal computer (PC) displaced jobs but it also created new ones and in the US PCs are estimated to have created 15.8 million net new jobs since 1980, even after accounting for jobs displaced.
Two weeks ago, I wrote about cheap labour not being the industrialisation path for Kenya. I cited the story a young engineer who worked in a company producing bottle caps for 12 hours a day and calculated his labour output for the day as Sh6 million after producing 1.2 million bottle caps before talking about the subject matter of cheap labour.
Now, I had indicated that the reason behind writing the article was to respond to the follow-up analysis that cheap labour was what industrialised the East Asian Tigers but my able sub-editor thought it otherwise and edited it. Interestingly, this was the part many people dwelled on from the responses; I had justified the numbers in the story when they did not seem to add up.
Apart from that there was also a second bunch of those have never read the work of economist Paul Krugman I quoted in the article “The Myth of Asia’s Miracle” but had to respond. Just to be clear, Krugman used the input-output model to explain the East Asia economic miracle well looking at their efficiency and productivity but I did not agree with his conclusion and his comparison of these economies mobilising resources to the Stanilist Soviet Union.
But the analysis is still worth reading. It still makes part of the discourse around understanding the East Asian economies more than 25 years since it was published.
But one issue I noted from the feedback is the one-dimensional understanding of labour output. Let me refer to the engineer’s story though this is not to give confidence in the numbers in the story but for illustration. Many seem to have understood that the labour output of 600,000 bottle caps exclusively means the engineer’s own human manpower output. Now, labour output may mean human manpower but also human labour interacting together with technology and this is the case in industrial/manufacturing sector. Technology is heavily used to leverage productivity of human labour to give higher labour/production output.
Last week I came across a research paper that analyses if automation displaces human labour in manufacturing by two researchers Christian Parschau and Jostein Hauge and found it worth highlighting.
They used evidence from South Africa’s apparel industry to explain the topical issue and they noted that historically increase in automation and productivity has led to increased wealth and overall employment.
During the first industrial revolution, machines were able to take over 98 percent of human work in the textile industry, but the decrease in prices that resulted from automation adoption and technological progress rapidly increased product demand and caused an overall increase in labour demand for weavers.
Therefore, as productivity increases and prices fall, many manufacturing sectors initially increase employment. In the case where automation has led to job losses in manufacturing, studies find that they were fully offset by job growth in the services sector.
For example, the introduction of the personal computer (PC) displaced jobs but it also created new ones and in the US PCs are estimated to have created 15.8 million net new jobs since 1980, even after accounting for jobs displaced.
Back to the research done on South Africa, they found that increasing automation is not leading to reduced employment in the apparel industry because automation has led to higher productivity, which in turn has led to lower prices and increasing demand from retailers.
This is despite the apparel industry being regarded as important to many developing countries’ industrialisation path, and high technical automation is predicted in the sector.
Coming to Kenya, the manufacturing sector has a poor state of automation and technology solution adaptation. A recent survey by Strathmore looked at 96 companies operating in three counties across 12 sub-sectors and found that only 11 percent have fully automated their operations while 83 percent had semi-automated, with the rest fully relying on manual processes.
So, Kenya should look at automation and technology solution in the manufacturing sector as its path to industrialisation.
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