Technological advancement and low-cost labour theory

MS Siddiqui   | Published: November 02, 2018 20:53:31 | Updated: November 02, 2018 21:08:49

Franklin Mendels had termed the "development of a labour intensive industry by the peasants" as "the first phase of the industrialisation process" and called it "proto-industrialisation". He defined proto-industrialisation as the rapid growth of traditionally organised but market-oriented, principally rural industry. During "proto-industrialisation" phases, there was no withdrawal of a part of the workforce from agrarian sector to industrial, as cottage industries were only using labour surplus made available by seasonal underemployment."Proto-industrialisation" was regional growth of market-oriented rural industry and contemporaneous agricultural growth in the 17th and 18th centuries, during the decades that preceded the industrial revolution.

The subsequent global history of the diffusion of industrialisation over the past two centuries suggests two distinct routes. The first is the 'Western path' associated with capital-and-energy-intensive industry. The theory of economic growth has commonly focused on capital rather than labour, with role of entrepreneurship nearly ignored. The second is the 'East Asian path' based on labour-intensive industrialisation. This was built on quality labour resources that were cultivated in the traditional sector.

Classical economists discussed the growth of the market while focussing on the change in production rather than demand or consumption. Labour was a major factor of production along with land and capital to them. The role of labour in industrialisation was mainly discussed in the context of how and in what proportions capital and labour were combined to produce industrial goods.

Looking back from the twenty-first century, the British industrial revolution only began to show the explosive power of labour-saving technology through the use of coal and steam engines. This eventually paved the way for replacement of skilled labour with capital and technology.

In the 20th century, the 'East Asian model' was also seen. East Asian countries like Japan, Korea, Taiwan and China initiated an alternative pattern. They emphasised on thorough utilisation of human resources along with labour-intensive technology and labour-absorbing institutions.

China was far more advanced in developing technology that put to use its huge workforce. Even before 1500 A.D, around the twelfth and thirteenth centuries, China had developed a set of highly advanced labour-intensive methods, involving seed selection, irrigation and water control, double cropping and extensive use of agricultural tools.

After the 2nd World War, Europe and East Asia began to grow. This led to the shifting of production of some labour-intensive industries to Asian countries helping some of the latter to come out of poverty. Some of these industries include apparels, shoes and more. The process continued over the next few decades. Subsequently, the former group of economies shifted towards more sophisticated industries like electronics.

Among the industries that moved to the next group of countries, garment sector has been enjoying the most growth. The garment industries shifted from East Asia to Asian countries like Bangladesh, Vietnam, Laos and Cambodia etc. after the seventies due to low cost labour and less stringent environmental laws. Most of these economies are depending on sectors like apparel to ensure growth and prosperity.

But this is likely to change soon as drastic changes in policies in China can strike them off the course.

China recently launched the 'Made in China 2025' policy. The state-led industrial policy seeks to make China dominant in global high-tech manufacturing. The country aims to do this by using government subsidies, mobilising state-owned enterprises and pursuing intellectual property acquisition to catch up with-and then surpass-Western technological prowess in advanced industries. Such technology can affect jobs of skilled workers not only in the West but also in South Asian countries like Bangladesh.

How can better technology affect jobs? What would these future factories look like? These questions were answered by a recent article published by Bloomberg. The report placed the spotlight on a textile factory complex owned by Jinsheng Group in China's remote Xinjiang region. 

A particular excerpt from the article mentions, "...inside the 16 billion-yuan ($2.4 billion) facility-a collection of stark white warehouses surrounded by an enormous expanse of pristine artificial grass-are rows of huge cotton spools, more than a million bright red and blue spindles, and almost no people. A few German engineers wander around, making sure the equipment runs at peak efficiency. This is the depopulated future of an industry that's lifted millions of Asians out of poverty."

The nearly 15 million square feet factory is more than "five times the floor area of the Empire State Building, but it needs only a few hundred production workers for each shift."

During a speech in September, Pan Xueping, the chairman and chief executive officer of the Jinsheng group, said, "Textiles used to be a labour-intensive industry...We are at a turning point." Instead of moving production to any nearby country with the lowest wages, he added in an interview a day after the speech, "the industry can achieve a human-free factory."

In the west, there is already an outrage among skilled workers that robots are making them redundant in the factories. Most experts fear that technologies including 3D printing, wearable technology, nanotechnology and robotic automation can disrupt some of the labour-intensive sectors.

In a recent study titled 'How technology is changing job and enterprise', the International Labour Organisation (ILO) shed light on the concern about loss of millions of job in Asia in the not-so-distant future because of automation.

ILO noted that robots are becoming better at assembly. These machines are cheaper and increasingly able to collaborate with people.

The textiles, clothing and footwear sectors are facing the highest risk of automation out of five industries analysed in the ILO study, including automotive and auto parts, electrical and electronics, business process outsourcing and retail.

ILO estimates that mass replacement of less-skilled workers by robots could be only two years away. Overall, more than 80 per cent of garment industry workers in South Asia face risk of losing their jobs to automation, according to Chang Jaehee, an ILO researcher who studies advanced manufacturing.

In the practical scenario of advancement of technology, the cost of labour is no longer a major factor. In a few years, the manufacturers would be able to relocate production to where the bulk of their customers are. For example, in North America and Europe, where wages have been too high to support textile production for decades, human-free factories can make all the difference.

Relocation of production will change the equation of labour and production theory along with additional facilitation of the costs and delays of round-the-world shipping. If the technology becomes more accessible in the near future, garment factories in Bangladesh are likely to be in serious problem as labour costs may become insignificant.

MS Siddiqui is a legal economist.




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