Capital Automates Jobs - Entrepreneurship Creates Them

I was in Hanoi in the 1990s as part of a group that put together a trade show featuring American companies. I was told that it was the first time that American and Vietnamese flags had flown side by side in Hanoi.

As we walked into the convention hall each day, I wondered about the grounds. The grass was long and straggly. Then, just a couple of days before we were to open, at least half a dozen Vietnamese women in those conical hats they call a non la were sitting around in small groups using instruments not much larger than scissors to cut the grass. They were happily working together and chatting and within a couple of days the grounds were beautifully groomed. At this time, Vietnam had almost no capital and per capita income was hundreds of dollars per year. It may have taken a couple of hours for one lawnmower to do the work that took these women a couple of days, but capital was expensive and labor was cheap.

Years later, I was with a client at a mine in Michigan. The pit was enormous and massive, heavily loaded trucks were slowly driving up the steep walls. The trucks carried 350 tons of ore. The executives I was working with told me that when their careers began decades earlier, the biggest trucks hauled only 25 tons. One driver in these new trucks was more productive than a dozen drivers had been decades earlier.

Capital obsoletes manual labor. It always has. It always will. And of course this is obscured by the fact that capital enables us to do tasks that we could not do without it. Or more precisely, it makes certain tasks affordable and thus something we're able to do for middle class clients and not just rich ones. Capital enables a flurry of market expansion, innovation and entrepreneurship that creates jobs but capital also ruthlessly eliminates jobs through automation.

Detroit's population has halved since the 1970s. Politicians like Sanders and Trump will tell you that jobs in the auto factories have gone to places like Mexico and China. The facts contradict their claims. 85% of jobs lost in manufacturing since 1980 have been lost to automation and only 15% have been lost to places like Mexico and China.

Meanwhile, Elon Musk is now worth about $180 billion, wealth largely created through Tesla - a car company. Detroit used to be home to the auto industry but they continued to believe the game was running a company rather than creating them, focusing on operational excellence rather than entrepreneurship. Detroit could have become a hub for entrepreneurship and innovation that would have created the wealth that Musk instead created on the other side of the continent. Think about what would have been possible if Detroit had created mechanisms for its employees to create wealth, not just drive down costs but drive value up. Because Musk didn't go to Detroit where the world's leading automobile minds once lived; he founded Tesla in San Carlos - between Palo Alto and San Francisco. Why? This was the area most experienced with and able to support entrepreneurship. When you're innovating, it isn't necessarily the old models you need to master; it is entrepreneurship itself. And if you're working around Google's campus in that same general area, you will see a constant stream of Google's self-driving cars with guys sitting behind the steering wheel conspicuously holding clipboards (that is how they are capturing data? Really?) rather than steering wheels. (They are tiny cars. I think they are powered by search engines, driven by the quest for knowledge. But I digress.) Apple is also developing self-driving cars nearby. In a parallel universe, the big breakthrough came in self-driving technology before the break in electric car technology and Google and Apple are where Tesla now is in regards to market share and capitalization. But in that universe, too, Detroit didn't lose its jobs to foreign factories; it lost its jobs to domestic innovation and entrepreneurship.

Capital has always steadily automated jobs. When our economy is creating jobs at a great pace as it did from about 2010 to 2019, it creates about 2.2 million jobs each month and destroys about 2 million jobs each month. Because of automation, bankruptcies, layoffs, people quitting, getting fired or retiring, the economy sheds about 2 million jobs a month. Meanwhile, because of entrepreneurship and growth, the economy creates about 2.2 million jobs per month. The net is an average of about 200,000 new jobs monthly.

Putting aside periodic recessions, a loss of jobs is never because of the 2 million jobs the economy is destroying each month. That's a constant. If on net we lose hundreds of thousands of jobs in a month, it means that our levels of job creation did not stay ahead of our levels of job automation and destruction.

The answer to full employment is not protection from trade or capital. The answer is more entrepreneurship and innovation.