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  • Cornerstone Team

Don't fear the Robot-man

"Greater automation in the UK and other developed markets is the answer to greater productivity and so to GDP growth," argues Niels Jensen, economist and CIO of pension consultant, Absolute Return Partners.

To that end, expect companies operating in and around technology and robotics to grow their share of the equity markets in years to come.

Take the car manufacturing industry. A spot welder is paid on average $25 per hour. A robot can do the same job for $8 an hour (all in). Those countries that don’t embrace the new technology will simply be left behind, such are the advantages.

Developed economies have a massive advantage over China in this respect.

Because of the sheer number of people, China cannot allow robots to replace hundreds of millions of workers. There are simply too many mouths to feed every day. "The old world has exactly the opposite problem," Jensen says.

"A shrinking workforce will force robots to be installed if we want to keep industry alive, partly because we won’t have enough people to fill the manufacturing floors, and partly because those who are left will be too expensive."  

The best line of defence against Chinese competition is therefore likely to be more automation. 

On the point of labour costs – Jensen believes the significant gap in hourly earnings between developed and emerging markets countries is likely to foster two very different approaches to automation. Whereas robots are almost always the most cost effective solution in developed countries, labour costs in most developing countries are still sufficiently low to warrant a different approach. 

Germany tops the chart with hourly manufacturing wages of approx. $50 per hour, whereas most EM countries do not exceed $5 per hour. A likely side effect of increased automation is even lower inflation, at least in DM countries. Not only do manufacturers save considerable amounts of money by replacing human beings with robots, but robots are also getting cheaper to install. 

In a report at the end of 2015, Bank of America Merrill Lynch reckons that whilst robots have on average become 27% cheaper over the last ten years, they will fall a further 20%+ over the next ten years. 

All this has the potential to boost productivity whilst keeping inflation low, and could be the saving grace for otherwise doomed developed economies. 

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