Domo arigato, Japanese for "thanks a lot," is the catchphrase of Styx's 1982 hit, "Mr. Roboto". The lyrics describe a futuristic world in which a man assumes a disguise made of parts fabricated in Japan. Leading up to those days in the 80s, Japan was the world's powerhouse -- an unconquered export nation. Years later, only China rivaled Japan for its onetime extraordinary economic success, becoming an important outsourced production and export hub in the global marketplace. The China advantage was easy to figure, as the low cost of labor made production price-efficient, and overcompensated companies for setting up businesses in the new land of the rising sun (formerly known as Japan).
More recently, a potentially surprising and quite different reality has been unfolding: In Zhejiang, an eastern Chinese coastal province and manufacturing center for several industries, the average labor cost of workers has almost tripled over the past seven-plus years, with annual increases of 16 percent. This development is in line with recent research conducted by the IMF, suggesting that a combination of fast-rising wages and worker activism has led to widespread labor shortages in China's manufacturing industry.
Our story does not end there. What was once considered certain demise for manual labor could now become its saving grace: automation. China has advanced to become the world's largest buyer of industrial robots, allowing for the preservation of production-price advantages and transformation to a more strategic position in the manufacturing value chain. Leading this development was Foxconn, commonly referred to as the "iPhone assembly plant," a company with 13 production hubs in nine Chinese cities. Already by 2011, Foxconn had announced the replacement of entirely human-operated assembly lines with 1 million robots, aka "Foxbots."
At home, the level of excitement over a U.S.-manufacturing renaissance seems unstoppable. Foxconn's recent plan to set up production in Pennsylvania seemingly supports this commonly held belief, but the reality may be a different one. Whereas an increase in U.S.-manufacturing activity could lead to the creation of up to 5 million jobs by 2020, it is estimated that an equal or greater number of employment opportunities have already vanished due to automation. Cyclicality of labor costs and the integration of robotics into daily life are not experiences limited to emerging economies; instead, these are reflective of a global phenomenon with inherent limits to long-term job creation.
With these technological advances in mind, the still-elevated unemployment figures in the U.S. could be considered the new norm -- very much the product of a structural shift, as opposed to an often suggested cyclical phase. It is for policymakers to recognize that prolonged economic success is not achieved via price compression through robotics or favorable energy costs, but, rather, that it is the result of focused research, innovation, and, most importantly, education.