The future of work in Asia By Monali Roy

14 February 2017 Technology ≈ Advancements

Every year, millions of young people enter the labour markets in Asia. Creating sufficient jobs to meet this demand is a huge challenge. What solutions work best needs to be determined in the local context.

Every year, millions of young people enter the labour markets in Asia. Creating sufficient jobs to meet this demand is a huge challenge. What solutions work best needs to be determined in the local context. What this essay aims to do is look into the global opportunity structures for development, and reflect on what changing conditions could mean for the ability to create employment in Asia’s emerging economies.

The global window of opportunity for development is closing

Ever since the Second Industrial Revolution started to peter out in the 1960s, global capitalism has faced a crisis of consumption demand. The decades that followed have been described by Wolfgang Streeck as buying time to address the root cause of the crisis: that consumption demand grows slower than the increase in productivity. The inflation of the 1970s, the public debt of the 1980s, the private debt of the 1990s and the quantitative easing of the 2000s were all strategies to create demand by injecting future resources for consumption at present.[1]

While all of these temporary fixes necessarily led to major crises, they bought the time needed to implement five strategies to “repair capitalism”: 1) the rationalisation of production through technological automation aimed at increasing efficiency; 2) the globalisation of production by offshoring, profiting from cheap labour cost in developing economies; 3) the neoliberal approach to free the supply side from any “political cost,” such as by lowering taxes, cutting back welfare and depressing wages; 4) financialisation as a strategy to sidestep the crisis by looking for profits in the financial markets; and 5) the digital revolution, understood by Philipp Staab as the latest attempt to tackle the consumption crisis by rationalising the consumptive and distributive apparatus.[2]

So far, none of these strategies has succeeded to resolve the consumption crisis. On the contrary, deindustrialisation and automation have contributed to the crisis by creating un- and underemployment in the old industrial countries, leaving fewer people with disposable income for consumption. The series of financial crises has shown the risks of the financialisation strategy. Finally, the promise of digital capitalism to create new consumption demand may equally backfire, when digital disruption automates middle class jobs and further erodes consumption demand­­­.[3]

Which of these global trends will reverse, continue or accelerate?

The technological rationalisation of the production apparatus, propelled by increasing global competition, will certainly continue. Despite the significant contribution of automation to unemployment[4], there has been no widespread political resistance to it. Most of the public anger focuses on globalization and trade. Rising productivity, on the contrary, is celebrated as the only way to survive the breakneck global competition. In the absence of any political pushback, then, digital technologies like 3D printers have the potential to unleash a new wave of productivity increases through automation.

Digital automation is eroding the comparative advantage of cheap labour. This trend is accelerated in those countries that had reached the Lewis turning point, where the reserve army of cheap labour in the agricultural sector has dried up, as well as in ageing societies where the total labour pool is shrinking and wages have started to rise.[5] For instance, in China, hourly wages increased on average by 12% annually over the last decade.[6] Some of this cost has been offset by rising labour productivity.[7] As the competitive advantage of cheap labour cost erodes, however, other factors like product quality, skilled workforce, supply chains and local governance become more prominent. Most importantly, increases in energy efficiently are making their mark. As a result, total costs of manufacture goods in some emerging economies are approaching those of the United States.[8] All things considered, manufacturing in the United States is only 5% more expensive than in China.[9]The tumbling labour cost, together with better energy efficiency, are making manufacturing in the old industrialised countries competitive again.

This cost convergence allows manufacturing industries to be more flexible and react quickly to shifting consumer demands. In the clothing and garment industries, shelf lives are getting increasingly shorter. But the long shipping time is the Achilles heel of these and other fast-moving consumer markets. Consequently, multinational companies like Walmart, Ford and Boeing, as well as small- and medium-size companies, have started to reshore production facilities back to their parent countries. The Reshoring Initiative, a non-profit organisation, estimates that 260,000 jobs have been created in the United States because of this shift.[10]At the same time, the incentives for offshoring have deteriorated. At least in emerging economies with rising wages like China, if not the total numbers, then the composition of foreign direct investment is shifting from manufacturing to financial services. Accordingly, open manufacturing positions in China have been dropping consistently since 2012, indicating that job creation in the manufacturing sector is slowing shrinking.[11] This means we may be seeing the beginning of the reverse of the offshoring trend already.

The growing resentment against globalisation in post-Brexit Europe and Trump America may further accelerate reshoring. The rage of the losers of globalisation is hardly irrational. Decades of secular stagnation and jobless growth have depressed real wages and living standards, and condemned millions to underemployment and debt.[12] Garnished with racist vitriol and nationalistic hyperbole, right-wing populists have proven that the message ‘globalisation has not worked for the working and middle classes’ can win majorities. With the promise that the ‘free movement of goods, people and ideas will benefit all’ losing credibility among voters, politicians across the political spectrum will be tempted to play with the protectionist toolbox.

While the neoliberal cost-cutting paradigm is still perceived by many decision makers as “without alternative”, public resentment against austerity is mounting. The election of Donald Trump as the US President is a watershed moment. American voters have entrusted their fate in a candidate who has vowed to lay the axe at the foundations of the liberal world order. The political battle over the new paradigm is still raging, and it is far from clear what will replace the current order. Still, it seems that neoliberalism has passed its peak, and may soon begin to reverse.

Financialisation, in times of low profitability in the “real economy,” continues to be attractive for capital looking for profitable investments. In the aftermath of the 2008 financial crisis, political decision makers have refrained from any meaningful regulation of the financial markets. This free pass may change in case of another financial meltdown. Until then, the financialisation trend is likely to continue unabated.

Finally, digital automation is only just taking off. Artificial Intelligence, robots, smart grids and 3D printers will revolutionise the way we live, work and commute. Digital utopists have high hopes of curing diseases, mitigating climate change, and democratising energy and production. Digital dystopists fear that digital automation will create mass unemployment, pulverise the middle classes, erode democracy and pave the way for a global totalitarian regime. Optimists see excellent opportunities for high-skilled work arising, but even those are hard-pressed to see much hope for low-skilled labour. Accordingly, the political debate over Labour 4.0 is fully underway. Regardless of whether the promise to unleash a new wave of consumption demand is empty, venture capital and politicians alike are putting all their hopes on the Fourth Industrial Revolution. Digital automation, it seems, is bound to accelerate.

The race for development in Asia

What will be the implications of these trends for the future of work in Asia? Most of Asia’s emerging economies have followed the export- and manufacturing-led development model. Taking advantage of its abundance of cheap labour, East Asia’s flying geese have moved from agriculture to light manufacturing to full industrialisation. What worked so spectacularly well in East Asia over the last decades, however, may no longer work under rapidly changing global conditions.

First, the global window of opportunity for export-led growth seems to be closing. Given the dark political clouds on the horizon, it can no longer be taken for granted that OECD markets will stay open for Asian exports. Donald Trump has called the Trans-Pacific Partnership “a potential disaster for our country” and vowed to kill the deal on his very first day in office. More so, the United States and the United Kingdom seem determined to re-negotiate existing trade agreements. Other countries may also go down this road. Prudently, Asian population giants like China and India have already begun to reorient their development models towards their domestic markets. Smaller countries like Malaysia or South Korea are looking to their bigger neighbours. For geopolitical reasons, China may indeed be willing to found a regional trade regime around its Regional Comprehensive Economic Partnership. However, given the need to absorb its own excess capacities, it is unclear if China would be willing to replace the United States as the “buyer of last resort.” Asia’s emerging economies would, therefore, be wise to rethink their export orientation.

Second, digital automation may lead to jobless growth. Higher labour productivity means that less workers can produce the same output, leading to the need to cut jobs. Even if investment and growth rates stay high, the factories and workshops of tomorrow will be populated with robots. Multinational manufacturers are lining up to set up production facilities, creating a few hundreds of jobs, whereas a few years ago tens of thousands of workers would have been required for the same. This poses an enormous challenge to countries with high population growths, where millions of workers are looking for jobs. In India, every month one million young people are entering the labour market.[13] Despite a benign global environment of low oil prices, leaving room for public spending on infrastructure as well as consumption demand, India’s track record in job creation has been disappointing.[14] In fact, despite being an international investors’ darling, India loses 550 jobs per day.[15] Indonesia, where the number of adults over 15 years increased by 3.1 million between 2014 and 2015, only 200,000 jobs have been created in the same period.[16]

Third, digital automation changes the quality of employment generated. A survey of employers in major industries in ASEAN countries showed that the demand for high-skilled workers far outgrows the supply.[17] Following the pattern in industrialised countries, the need for low-skilled workers dwindles. Given the low productivity in the agricultural sector, this surplus labour is likely to migrate to urban centres. In India, the urban population is projected to increase by anywhere between 300 to 400 million people.[18] What will happen if the aspirations of these internal migrants remain unmet and frustrations rise?

Fourth, global trends may increase the risk for premature deindustrialisation. Dani Rodrik observed that in a globalised market, manufacturing moves on as soon as wages start to rise, leading to premature deindustrialisation in newly industrialising economies.[19] By the time manufacturing in South Korea accounted for its highest proportion in jobs, incomes were around $12,700. In India, factory employment started to decline as a share of employment when income was around $3,300.[20] This trend is accelerated by financialisation, which encourages roaming hot money in pursuit of quick profits over long-term investments, increasing the risk for financial crises and external shocks.

Finally, the artificially intelligent robots of the future will not only compete with Asian workers from afar, they are also going to ultimately replace them. In the old industrialised countries, the service sector has long been the best hope to absorb those who were replaced by automation in the manufacturing sector. The flexible and decentralised nature of many low-skill service jobs made them so far relatively resistant to automation. Frey and Osborne, however, believe that this resistance to rationalisation may end in the current wave of digital automation.[21] Major breakthrough in big data, sensors and intuitive programming allow machines to take over tasks that seemed to be off limits only a short time ago. Plummeting costs of robotics make these machines increasingly competitive with human labour.[22] As Brynjolfsson and McAfee point out, contrary to common belief, it is not necessarily the manual jobs which are the most easily automated.[23] Billions of years of evolution have equipped humans with a sophisticated motoric apparatus, while our cognitive abilities are not as impressive as we like to believe. Consequently, in this second wave of automation, it is rather the cognitive jobs than the manual ones, which are being automated. Put bluntly, it is easier to replace a tax clerk with a robot than a cleaning maid. Artificially intelligent robots will replace service sector employees with highly repetitive tasks like tax consultants, travel agents, legal clerks or call service providers. Platforms like Uber or Amazon are likely to disrupt local markets from pharmacies to logistics and retailers. A World Bank study estimates that the proportion of jobs threatened by automation in India is 69% and 77% in China.[24]The ILO estimates that 56% of jobs are at risk of being automated in the ASEAN-5 countries.[25] The difference in labour cost, however, makes it unlikely that low-skilled service workers in emerging economies are being replaced with machines anytime soon. This is even more true if these jobs are not subject to international competition, but embedded in the domestic market.

In sum, the global window for export-led, manufacturing-led development is closing.[26] This means development has turned into a gigantic race against time.

How can emerging economies create jobs?

With the traditional route to development closed, the search for alternative development models is in full swing.

When development means to race up the global value chain, a productivity- and innovation-driven model seems like the best bet. But where will this innovation come from? In Asia’s statist polities, it seems somewhat doubtful that political leaders are fully willing to trust their fate with the Schumpeterian creative destruction of the market. The secular stagnation in the neoliberal economies of the West may further discourage market-driven experiments. In South Asian societies, traditionally in the suffocating grip of its bureaucracies, the idea of state-led innovation may seem even more alien. Even in East Asia, the development state has been put to rest. In East Asian societies, with their cultural ideals of seniority, discipline and unity, out-of-the-box thinking and going against the grain are generally discouraged. How can such a cultural and political climate encourage disruptive innovation? This, however, may spell trouble for all the hopes in digital incubators. Where freedom is lacking, creativity seems unlikely to flourish.

In the digital economy, humans are needed to cater to the hopes and needs of humans. The human economy, from tourism to fashion, from health services to elderly care, from food to arts and crafts, has enormous growth potential all over Asia. The human economy offers plenty of opportunities for employment generation. Until now, care work has largely been provided by family and neighbours, and remains largely without remuneration. Creating income from care work is especially attractive for women. Equally, the enormous potential of the tourism industry to create employment, directly and indirectly, has not yet been fully exploited. Finally, the human economy offers a new perspective for employment in the chronically unproductive agricultural sector. Organic farming, local products, and even urban farming cater to the ethics and health conscious young urban middle class consumers. Producing high quality agricultural products for this niche market can be a source of decent jobs for agricultural workers. While human economies have created millions of jobs in Thailand, the Philippines and Singapore, South Asian countries have not even begun to explore these opportunities in full.

Green growth offers new opportunities for development.[27] The International Renewable Energy Agency estimates that renewable energy employed 8.1 million people around the world in 2015.[28] China leads global employment in renewable energy with roughly 3.4 million direct and indirect jobs, followed by Brazil, the United States, India and Germany. Jobs continued to shift towards Asia and the share of the continent in global employment increased to 60%. In India, reaching the government’s goal of 100 GW through photovoltaic source by 2022 could generate 1.1 million jobs in construction, project commissioning and  design, business  development, and operations and maintenance. With its domestic focus, the construction industry seems to be better shielded against international competition than others. Enormous potential to create clean jobs also lies in energy efficiency.

So where will the jobs of tomorrow be created?

In a comprehensive study on the future of work in ASEAN countries, the ILO has looked into the impact of digital automation on the five major employment-generating sectors. New technologies like robotic automation, Internet of Things, 3D printing, sewbots, cloud computing and software robots are changing the skill set required from workers. The assessment looks very similar to the impact of digital automation in other regions of the world: while new high-skilled jobs are created to work with machines, low-skilled labour is increasingly being replaced. Engineers and technical experts are needed in the automotive, electronics and textile industries. Highly educated employees with certificates in medicine, business, finance, law, accounting and data analysis have good chances in business process outsourcing. Employees in the retail sector will need skills in data management, digital marketing and social media.

These expectations, however, need to be squared with the reshoring and protectionism trends. Asia still has many advantages going for a future in manufacturing.[29] The erosion of cheap labour’s comparative advantage, and the ability to produce better quality close to the home markets, however, suggest otherwise.

With manufacturing on the way out, and the chronical labour surplus in the agricultural sector, only the service sector is left as a major job generator. Again, the digital revolution offers hope for high-skilled labour. By putting in place the infrastructure for a global division of labour in real time, the digital revolution allows high-skilled workers in Asia to compete individually with their peers in the OECD countries. Aneesh Aneesh sees opportunities in research and development of software, engineering and design, animation, geographic information systems, processing of insurance claims, accounting, data entry and conversion, transcription and translation services, interactive customer services, finance and credit analysis, market analysis, archive administration and website development and maintenance.[30] What is different from the call centres of today is that these jobs require higher skills. Importantly, these “digital jobs” are not restricted to the IT sector, but arise across the entire spectrum of service sector. Major industry leaders have invested in crowdsourcing platforms, which allow outsourcing of tasks globally.

With its millions of highly educated workers, India is in a good position to compete in the globalising service markets. The National Association of Software and Services Companies suggests that India aims to capture 20% market share in Internet of Things sector, worth $300bn.[31] India aspires to build a cyber-security product and services industry of $35 billion by 2025, and generate a skilled workforce of one million in the security sector.[32] Following the path its IT industry has already taken, there is ample opportunity for English-speaking, highly skilled workers to create income in the global crowdsourcing industry. Compared to Western workers, which are being deprived of social security, decent wages and workplace co-determination, for Indian workers the gig economy may still offer a way to get ahead. Accordingly, domestic worker app companies are expanding between 20%-60% month-to-month, bringing together households with domestic workers, at least those who have access to mobile technology and banking.[33] However, when digital crowdsourcing platforms allow employers to choose from offers originating from labour markets with vastly different wage levels, this extreme competition between the global labour reserve armies drives a race to the bottom, where only the lowest wages can prevail.

If the service sector will reward all these hopes is by no way certain. On the one hand, the digital division of labour allows service workers to compete in many more markets globally. On the other hand, some of these emerging jobs are already being automated.[34]

In order to win the race for development, emerging economies need to move up the global value chain. Doing so requires major investment in the skills and creativity of the workforce. If human skills are the key to the future of work, policymakers need to limit the brain drain at all cost. Already today, India, China and the Philippines are major exporters of skilled labour.[35]If high-skilled workers feel they are not safe at night, or cannot find affordable housing, quality schools and health services, doctors, engineers and programmers may decide to look for a better life overseas. The key challenge is then to build liveable cities. Green and inclusive urban habitats not only create employment opportunities today, but also convince the creative workers of tomorrow to stay.

Creating jobs, therefore, is not a technical task, but a highly political one. Building a highly skilled workforce needs major investment in education, infrastructure and health services. In many transformation countries, the middle classes refuse to shoulder the tax burden for these investments. Unable to move up the global value chain, countries can then be stuck in a transformation trap of political conflict and economic stagnation.[36] Sustainable development, therefore, is only possible on a solid social foundation based on an inclusive compromise between established and emerging classes. Those societies who understand this basic equation of development will be best placed to solve the employment challenge of the 21st century.

This article was originally published in ‘Raisina Files: Debating the world in the Asian Centur

About the Author

I have been working in an organisation named observer research foundation which seeks to lead and aid policy towards building a strong and prosperous India in a fair and equity world. For more details visit us our links COMMENTARIES, CYBER AND MEDIA, CYBER AND TECHNOLOGY, DEVELOPING AND EMERGING ECONOMIES, ECONOMY AND GROWTH, INDIA, REGIONAL INTEGRATION.

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