In the world of science, great insights have led to great change. In economics however, it has tended to be the other way with great changes leading to great insights.
For example, the Great Depression led to the Keynesian revolution. The architect of the revolution, John Maynard Keynes, went on to write an essay titled “Economic possibilities for our grandchildren”, the thrust of which not only remains relevant but also prove to be a warning in light of recent events.
“We are being afflicted,” >wrote Keynes in 1930 , “with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment .”
The seeds of Keynes’ eighty-year-old warning have started blooming on the Indian IT industry's landscape, where after a nearly twenty year boom, the inevitable has started happening.
As Vineet Nayyar, former CEO of HCL Technologies told this writer in a recent interview while smiling wryly: “Let’s not forget, the IT industry in India was built on the back of cheap labour.”
The question that begs to be asked here is what happens when the labour is no longer cheap and the going gets tough for outsourcing companies? The answer, of course, is automation .
The ‘Big Three’ - Cognizant, Infosys, Wipro - in the space of the last six months have signed agreements with >New York-based company IPsoft , an organisation that promises robots and humanoids that automate and deliver IT projects at a cost that is roughly less than one-fourth the billing rates of engineers from most domestic IT firms.
Eliza.. phone home!
IPsoft’s prized offering, a blonde-haired humanoid charmingly known as ‘Eliza’, is all set to start automating low-end BPO work. The promises that Eliza brings—80% greater efficiency and the potential to save as much as 80 per cent of costs—are too attractive for IT firms to pass up.
On the contrary, for an industry wracked by hiring issues, labour problems and decreasing profitability, automation is its best bet— much to the detriment of a populace that has come to depend on the IT services industry for employment.
In retrospect, it is now clear that the wave of automation that is set to sweep over the Indian IT and BPO industry is merely the second part of a process that started with jobs flowing from the Western world to India, China and other off-shoring hubs.
What are the implications and consequences of the IT services industry entering an era of robots? There are perhaps two questions whose answers give us a glimpse of this brave new world of technological unemployment.
One: What are the implications for employment? In other words, are we looking at technology-caused massive unemployment over the next ten years?
Headed to the glue factory
The answer to this is that we simply have no way of knowing at this point. The threat of technological unemployment has reared its ugly head many times over the last 70 years; the jump in employment from the farming sector to manufacturing and finally the services industry is indicative of this.
The market, however, has proven to be surprisingly accommodating in responding to technological-caused unemployment. A new crop of jobs has, almost like clockwork, sprung to replace the ones lost due to changes in technology.
This conclusion however is based on two preconditions: that the current economic conditions are well off enough to absorb technological unemployment, and that the displaced workers are able to re-skill themselves.
Both these conditions are not satisfied in the present Indian context, however. Our economy is nowhere as robust as it was pre-2008, hiring is down, the auto industry is in a slump, and so on.
Perhaps even worse is that it will be difficult for the typical IT BPO worker to retrain, or, more importantly, train. The typical 25-30 year old BPO employee is in the IT industry for the very reason that he/she has no other marketable skill. He or she has, at the most, a diploma liberal arts/science degree and is perfect fodder for the IT services industry. How will this section of the population go back into training, let alone find the money required for such an education, and become a hospital technician or something else?
Self circulating nexus
The second question, whose answer reveals a far darker and startling picture of the future, is how the rise of the robots will affect economic equality in India.
The final push from the corporate world using cheap, exploited labour to using automation or robots is the manifestation of a second, digital economy that is slowly supplanting its physical counterpart.
This second economy has a capital bias—in that companies such as Infosys will now prefer capital over labour. Or in other words, IT services companies will now spend money on more technology (robots) than on human employees.
What is wrong with this? Perhaps the most prominent side-effect is that it will shift the distribution of income from workers to owners of capital. It no longer becomes a question of producing wealth. Companies such as Infosys and Wipro will see increased margins and better profits and continue producing ever increasing amounts of wealth. The question then becomes of how this wealth will continue to be distributed.
In this new economy, where robots will rule, the owners of capital and the owners of assets stand to win the most. It is not in the case of companies that produce products/commodities, whereby if they save money, the prices of the products and vegetables they produce goes down.
When India’s biggest IT companies save on money through the use of more technology and a dramatic decrease in the use of labour, it drags the distribution of income away from labour; thus driving down wages and employment volume.
The U.S, for instance, has seen >a great decoupling over the last two decades; where growth in employment and household income has faltered even as output and productivity continue to shoot upward.
Indeed, over the next two decades, technological process may have freed the Indian masses from their jobs, but not from their struggle for subsistence.