CEDA ‘Future of Work’ Conference

June 19, 2015
Speeches

'Australia’s Future Workplace'

CEDA Conference

19 June 2015

 

When Lord Byron travelled to Greece in 1812, he declared:

Fair Greece! sad relic of departed worth![1]

Immortal, though no more! though fallen, great!

In many ways, he wasn’t just talking about Greece’s ‘departed worth’ as measured just by its cultural or artistic output, but actual economic output.   As Angus Maddison’s project to track historic national accounts shows, Greece’s per capita income in the age of Byron was only around 20 per cent higher than it was in the age of Plutarch [2]

For many millennia, economic life was much the same for each successive generation. 

The problem of rapid technological change - and with it, the displacement of wide chunks of the labour force - is a relatively new one.  Perhaps the first social movement protesting against automation and the threat it poses to labour was the Luddite movement in the early 19th century; workers protesting at Foxconn facilities about being replaced by robots is the latest incarnation of this same problem[3].

In 1930, John Maynard Keynes wrote of the fantastic and frenetic changes occurring around him, with output per head in U.S. factories increasing 40 per cent in a period of just five years. “The increase of technical efficiency,” he wrote, “has been taking place faster than we can deal with the problem of labour absorption”[4].  He predicted that within a century, output per head would be four to eight times greater; and that the work week would be reduced to around 15 hours, to be replaced by a culture of leisure. 

He was right in terms of growth - 85 years on and the Australian and U.S. output per head has grown by a factor of six[5].

And there has also been a huge shift of jobs from traditional sectors.  In 1900, one in four Australians were employed in the agriculture sector[6].  As of May, agriculture accounted for slightly more than 2 per cent of total jobs[7].  As late as 1970, manufacturing accounted for 28 per cent of the workforce; it now accounts for just over 7 per cent of jobs.

The short point is that in an open, dynamic, globally competitive market economy, jobs lost in relatively declining sectors will be made up for in new ones.

What Keynes didn’t foresee, however, was just how transformative new innovations would be; bringing not just new ways of creating old products, but new waves of demand and need for skilled inputs.

Economists Claudia Goldin and Lawrence Katz famously wrote about the “race between education and technology” and it appears that humans have, for the most part, stayed ahead of the curve of technological change by moving up the value chain faster than computers[8].

A 1965 NASA report sums up our inherent advantage. “Man is the lowest-cost, 150-pound, nonlinear, all-purpose computer system which can be mass-produced by unskilled labor.”[9]

But as Hugh Durrant-Whyte and a team of NICTA researchers point out, 40 per cent of the workforce - or around 5 million Australian jobs - are at high risk of being replaced by computers in the next 10 to 15 years[10].

This study largely reinforces a study by Oxford’s Martin School in 2013, which found that a slightly larger proportion of U.S. workers - around 47 per cent - will have their jobs threatened by computerisation in coming years[11].

Part of the answer for Australia’s workers is contained in these two studies - we are slightly less prone to automation than U.S. employees because of the makeup of our workforce, with relatively fewer workers in the service sector[12].

What is different about the current wave of disruption - referred to by some authors as the new wave of the industrial revolution - is the pace of change, driven in large part by a confluence of trends. Each would be significant enough to disrupt traditional jobs, industries and business models in their own right, but together they’re having an irrevocable impact; not only on the way we work, but on just about every aspect of our lives.

This is no ordinary disruption

The key to our future economic prosperity - our competitiveness and progress - is, in large part, contingent on our ability to counter some trends and embrace others. They include:

  • The explosion in computer processing power, and the relative affordability to store and transmit large volumes of data. Between 2000 and 2009 the number of transistors per chip increased from 37.5 million to 904 million[13]. Today there are about 2 billion transistors in an average smartphone, making it more powerful than the combined computing power at NASA in 1969.
  • The opportunities of mass connectivity and mobility, which is accelerating the pace of globalisation and changing consumer behaviour - from the way we exercise to the way we access entertainment. There are already as many mobile subscriptions worldwide (7.5 billion) as there are people, and the share of smart devices is increasing[14]. The ubiquity of the Internet has also broken down barriers to entry. Startups can launch a new product directly to billions of consumers.
  • The globalisation of supply chains. Trade is increasingly in intermediate goods - as distinct from finished products - and supply chains have become more sophisticated and integrated. Take the Apple iPhone 6; it includes components made by 785 suppliers in 31 countries - regrettably none of them Australia[15].
  • Demographic changes such as Australia’s ageing population and the impact this will have on labour force participation, and high youth unemployment - currently 14 per cent[16].

As with previous cycles of technological progress, where the application of new technologies has lead to greater automation - particularly in agriculture, manufacturing and now mining - the current wave of disruption will inevitably result in job losses in other areas susceptible to automation and standardisation.

While the prospect of 5 million jobs being lost to computers is alarming, it does not consider the types of jobs that will be created in the future. Technology will be leveraged to develop new goods and services, new innovations will emerge, and companies most susceptible to disruption will reinvent their business models, as many - though not all - are doing today.

Take Netflix as an example. In less than a decade they cannibalised their DVD by mail business with an on-demand video streaming service. Today Netflix accounts for 30 per cent of downstream web traffic in North America, has 60 million subscribers worldwide and employs  2450 people. Many of those jobs - at least at Netflix - would not exist today had they not cannibalised their old business model[17].

So while many jobs and in some cases entire industries are at risk of being replaced by computers, technology can be harnessed to create a net increase in employment. Our challenge is to ensure that enough Australians have the skills and technological imagination to take advantage of new technologies; to approach disruption as an opportunity to invent and create, and not something that we seek to prevent.

As Hugh Bradlow from Telstra observes in his chapter, “One certainty about the economy and employment in the years ahead is they will be shaped and affected by new technology.”[18] The reality is, the future is here now so we must be prepared to embrace change and uncertainty as our friend, not our foe.

Role of government

The question therefore is: how, in the face of unprecedented technological and demographic change, can we ensure that more jobs are created than are lost? And how do we ensure that the jobs created will deliver a higher standard of living than they do today?

The aim is not, as Labor used to say, "future proofing." That’s neither possible nor desirable. It sees the future as a threat not an opportunity. We need to ensure we have infrastructure and the skills to embrace the future, to make volatility our friend so that we can take advantage of all the opportunities rapid change will involve.

STEM and ICT skills

Let me pick up on education and skills.

Improvements in educational attainment and workforce skills enabled Australia to respond, and ultimately benefit from, past waves of technological disruption. For the most part, wages have increased and so too has discretionary spending, creating demand for new goods and services, and ultimately improving our standard of living.

In terms of formal qualifications, Australia has a highly skilled workforce. 25 per cent of Australians have a tertiary qualification, and nearly 40 per cent of 25-34 year olds have a bachelor degree or higher - this is above both the OECD and G20 averages[19].

But despite our educational attainment, we must ensure that students are graduating from secondary school and university with the skills to succeed in a more competitive, globalised world.

In a volatile age of rapid disruption, agility and optionality are key assets. I always discourage young people from studying law - unless they want to be a lawyer. STEM subjects, including computer science; financial subjects, even the liberal arts are far better grounding than an arid vocational degree which will never be used in the profession.

As Catherine Livingstone observed at the National Press Club earlier this year, “We need to move urgently from a discussion about protecting the jobs of today, to creating the jobs of the future. This includes ensuring that there is a workforce skilled in attributes required by business.”[20]

We know that advances in computing and software in particular are driving the latest wave of disruption, and yet there has been a sharp decline in the number of students studying computing at university. A recent report from the Australian Computer Society and Deloitte Access Economics found that demand for ICT workers in Australia will increase by 100,000 people over the next five years[21]. But the number of IT graduates with a bachelor or postgraduate qualification almost halved between 2002 and 2013. Despite a marginal increase in the number of engineering graduates, there is a clear gap between the forecast demand for ICT workers and the current pipeline of supply.

This is a clear market failure and something that we must urgently address. Business and political leaders - and of course universities and school counsellors - have an important role to play in promoting the benefits of courses such as computer science. We need to move beyond outdated stereotypes of the IT worker as a nerdy guy in a brown cardigan and promote the virtues of a computing qualification as an excellent generalist degree - the Arts or Law degree of the 21st century. In Australia, almost half of all workers with an ICT qualification work in non-ICT fields such as advertising, and 52 per cent work in industries outside of ICT itself[22].

And while much more needs to be done to increase the pipeline of secondary school students that go on to study computing at university, a second and equally important point is this: technology is at the heart of just about everything we do, so more workers across the economy - regardless of their occupation - will require generalist STEM skills if Australia is to remain a competitive, prosperous country with a high social welfare safety net.

The importance of STEM to the economy should not be underestimated, nor is it new. As Australia's Chief Scientist, Professor Ian Chubb, has observed, approximately 65 per cent of Australia's economic growth per capita in the 40 years to 2005 came from improvements in our use of capital, labour and technological innovation. And demand will continue to accelerate - 75 per cent of the fastest growing occupations now require STEM skills and knowledge[23].

Our education system must equip students with the skills to meet this demand. Like reading, writing and arithmetic, ICT skills such as coding and computational thinking are becoming so critical that they should be embedded across the curriculum - from Foundation to Year 10 as part of the digital technologies syllabus.

While digital literacy is critical, given the rate of technology adoption in Australia - even among very young children - it is important that we move beyond only teaching students how to consume technology and instead focus on technology creation.

Last year the UK's ICT curriculum was replaced by a new computing curriculum, with students as young as five and six receiving coding lessons. As Michael Gove, the former Secretary of State for Education, explained:

"ICT used to focus purely on computer literacy - teaching pupils, over and over again, how to word-process, how to work a spreadsheet, how to use programs already creaking into obsolescence; about as much use as teaching children to send a telex or travel in a zeppelin."

"Our new curriculum teaches children computer science, information technology and digital literacy: teaching them how to code, and how to create their own programs; not just how to work a computer, but how a computer works and how to make it work for you[24].

I strongly support this position and encourage educators in Australia to embrace machine languages and computational thinking as skills that are as fundamental in the 21st century as reading, writing and arithmetic.

Of course education is not the exclusive right of those enrolled in the school and university systems. There needs to be a renewed focus on upskilling - or reskilling - and career development, particularly in industries most susceptible to automation. This could occur through traditional on the job training, specialist courses, or vocational education.

The Government is investing $3.5 million in a "coding across the curriculum programme" to ensure all students gain exposure to coding in primary and secondary schools.

And we have committed $500,000 to trial a P-TECH style programme in Geelong. P-TECH is an education pathways partnership between IBM and the New York Education Department where students graduate with an associate degree, along with the skills to continue studying or transition directly into an IT job.

Conclusion

We are living through the most exciting times in human history. The pace of change is exhilarating.

But we cannot foresee with certainty how the future will unfold.

We do however know that the world is being transformed by an unprecedented number of technology trends; trends that are reshaping just about every part of our lives - not least of which is jobs and the labour force.


[1] Byron, Childe Harold’s Pilgrimage

[2] See The Maddison-Project, (2013), “Historic National Accounts” available at: http://www.ggdc.net/maddison/maddison-project/home.htm. Adjusted to 2000 US dollars, the per capita income of Greece was $960 in 1830 compared to $800 in the year 0.  As Josiah Ober notes in his excellent new book Rise and Fall of Classical Greece, the rate of technical and developmental advancement in classical Greece was as great as it was at the start of the modern era.  Source: Ober, J. (2015) The Rise and Fall of Classical Greece.

 

[3] The Economist, (2011), “Robots Don’t Complain”, online here: http://www.economist.com/node/21525432

[4] John Maynard Keynes, (1930), “The Economic Possibilities of our Grand Children”.

[5] In 1931, output per head in Australia was $4,354 in 2000 US dollars; as of 2010, it was $25,584

[6] Connolly, E., & Lewis, C., (2013), “Structural Change in the Australian Economy”, RBA bulletin, available at: http://www.rba.gov.au/publications/bulletin/2010/sep/pdf/bu-0910-1.pdf; see also, ABS, (2001), “A Century of Change in the Australian Labor Market”, available at: http://www.abs.gov.au/AUSSTATS/[email protected]/Previousproducts/1301.0Feature%20Article142001#Endnotes

[7] ABS, (2015), “Labor Force, Australia, Detailed”, available at: http://www.abs.gov.au/ausstats/[email protected]/mf/6291.0.55.003

[8] Goldin, C., and Katz, L., (2007), “The Race Between Education and Technolgy”, available at: http://www.nber.org/papers/w12984.pdf

[9] Quoted in Brynjolfsson, E.,  and McAfee, A., (2015), “Will Humans go the way of Horses”, in Foreign Affairs(July/August), available at: https://www.foreignaffairs.com/articles/2015-06-16/will-humans-go-way-horses

[10] CEDA (June 2015), Australia’s future workforce? pp.6, 60.

[11] Frey, C., & Osborne, M., (2013), “The Future of Employment: How Susceptible are Jobs to Computerisation?”, available at: http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf

[12] CEDA (June 2015), Australia’s future workforce? p60.

[13] [email protected] Blog, (2014), Moore’s Law and Computer Processing Power, available at: http://datascience.berkeley.edu/moores-law-processing-power/

[14] Global Mobile Statistics, (2014), available at: http://mobiforge.com/research-analysis/global-mobile-statistics-2014-part-a-mobile-subscribers-handset-market-share-mobile-operators

[15] Beta News, (2014), “The Global Supply Chain Behind the iPhone”, available online here: http://betanews.com/2014/09/23/the-global-supply-chain-behind-the-iphone-6/g

[16] Australia Youth Unemployment, (2015), available at: http://www.tradingeconomics.com/australia/youth-unemployment-rate

[17] Forbes, “Global 2000 List” available at:  http://www.forbes.com/companies/netflix/ and Smith, C., (2015), “50 Amazing Netflix Statistics and State” available at: http://expandedramblings.com/index.php/netflix_statistics-facts/

[18] Diamandis, P., (2015), “10 Years of Change” available at: http://peterdiamandis.tumblr.com/post/118118175825/10-years-of-change

[19] OECD (2012), Education at a Glance: OECD Indicators 2012, available at: http://www.oecd.org/australia/EAG2012%20-%20Country%20note%20-%20Australia.pdf

[20] OECD (2014), Skills and Jobs in the Internet Economy, pp.4–5, available at: http://dx.doi.org/10.1787/5jxvbrjm9bns-en

[21] Simes, R., & O’Mahony, J., (2015), Australia’s Digital Pulse, available at: http://www2.deloitte.com/au/en/pages/economics/articles/australias-digital-pulse.html

[22] Ibid.

[23] Australian Industry Group, (2013), Lifting our Science, Technology, Engineering and Maths (STEM) Skills, available at: http://www.aigroup.com.au/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/LIVE_CONTENT/Publications/Reports/2013/Ai_Group_Skills_Survey_2012-STEM_FINAL_PRINTED.pdf

[24] Gove, M., (2014), “Michael Gove Speaks about computing and education technology”, available at: https://www.gov.uk/government/speeches/michael-gove-speaks-about-computing-and-education-technology

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