For hundreds of years, the work people do has gradually been taken over by machines. It started with basic tools, gained momentum with the printing press, Spinning Jenny and windmills, and moved into the 20th century with powered machines capable of completing predefined basic tasks.
Then machines got smart. They could be programmed to do the work previously carried up by humans on the factory line. It was a big step forward and got rid of the need to hire legions of poorly paid workers who risked their health performing mundane tasks in unsafe conditions. And, it was cheaper.
But in the 21st century the drive to extract people from the workforce by automating their jobs has gathered pace. Sophisticated technology underpinned by cutting-edge software means more and more tasks can be completed without human intervention.
Rise of the machines
The so-called Internet of Things, artificial intelligence and machine learning have almost literally breathed new life into robots and extended the scope of what’s possible to a near-infinite horizon. Machines don’t care where they work; they don’t eat or sleep and they don’t complain about long hours.
Control centres can be established in the cheapest possible locations where finding a skilled workforce would be impossible; from there the work of thousands of people can be carried out by a handful of digital substitutes.
From an investment point of view, it creates an incredible opportunity. Firstly, the companies developing the technology will be in high demand. Create a technology that increases business efficiency and saves companies millions of pounds in payroll and benefits packages, and you can sit back and watch the cash roll in.
Automation will not only enrich technology businesses but enable other companies to become more profitable, clearing the way for greater returns to the people who back them financially. You can see it everywhere: banks closing branches, manufacturers cutting their workforce and logistics firms relying on computers to make sense of their operations.
But there is a catch, one that investors might want to keep an eye on. The future can go one of two ways. The first is a utopian vision where the hard work is done by machines, creative industries and entrepreneurs thrive, and people forced out of work by new tech are taken care of thanks to the huge boost to public wealth that automation will bring.
The second looks a bit like Blade Runner. Automation and artificial intelligence compounds the inequalities inherent in the economy. Companies get vastly wealthier yet employ fewer people and a clear divide opens up between a handful of winners and a legion of losers.
There is already evidence that people are becoming surplus to requirements in business success. Half a century ago, global companies – car manufacturers, banks and huge retail chains – required hundreds of thousands of people to maintain prime position. Today it’s a fraction of that.
Hugely wealthy companies that have sprouted up since the dotcom boom have comparatively small workforces. Facebook, with its market cap of more than $350bn, has around 12,000 people. Alphabet, owner of Google with a market cap of around £800bn, has 57,000.
But even these slim figures seem bloated compared to some of the newest unicorns on the block. Niantic, the US company that designed Pokemon Go, valued at circa $3bn, is rumoured to have fewer than 100 staff.
Meanwhile, Supercell, the viral video game developer behind Clash of the Clans valued at more than $10bn, is said to have fewer than 200.
The ripple effect
Investors should take note of the possible ramifications of a trimmer workforce, particularly in the short-to-medium term. Lay-offs are terrible PR and can hit confidence even if they are part of a wider strategic play.
Also, what will lower employment levels do to consumption? Will spending fall, and if so, in which areas? Although many companies will see major benefits from automation, there are bound to be some losers as the world transitions to its digital destiny.
If you’re looking for answers you won’t find them here. Too many possible permutations make future-gazing problematic. But as you peruse your portfolio and potential future investments, it’s worth keeping in mind the rise of the machines.