‘Creative destruction’ and the Fourth Industrial Revolution

We are less than two years away from the next presidential election, which means potential candidates are already testing the waters. One such individual wants to address job displacement as a result of automation, and he sees truckers as a perfect example of what has been referred to as “creative destruction” during the “Fourth Industrial Revolution”

Chances are, you have never heard of Andrew Yang. After college, he was a corporate lawyer for only a year before getting involved with a few startup companies. Eventually, one company stuck, and Yang cashed out with a few million dollars.

Lawyer turned millionaire turned political hopeful. We have all seen this movie before. However, compared to other politicians, Yang might have a clearer understanding of what many Americans fear: Losing their job to automation.

Quick disclaimer: This is in no way an endorsement of Yang’s presidential campaign. Rather, I want to point out that someone outside the trucking industry sees a glaring problem.

Truckers are well aware of the possibility of losing their livelihood to machines. They are constantly reminded with technology announcements from Daimler, Tesla and other industry giants. This future outlook has already affected at least a few industries in the present and will affect many more in the future.

As referenced in a recent episode of the Freakonomics podcast featuring Yang, this idea is known as “creative destruction” –  i.e., capitalism thrives on innovation and new technology in order to grow.

Out with the old, in with the new.

There’s no doubt that innovative technology has led to an incredible amount of wealth. Companies like Amazon, Google and Facebook have significantly contributed to the U.S. GDP over the past decade. In fact, Amazon’s spending on research and development alone is nearly the entire GDP of Iceland.

Of course, politicians see this as a major triumph in American entrepreneurship. However, Yang believes that the wealth being created is narrowly concentrated on a relative few. Meanwhile, he says there is a “war on normal people.”

During his interview on the Freakonomics podcast, Yang highlighted the problem with the current technological revolution. Essentially, jobs are being displaced and/or moved to select cities. Yang explained it in simple terms.

If you start a tech company with 100 employees in Omaha, Neb., you just created 100 jobs in Omaha. So far, so good. However, if your company gets a multimillion dollar offer from someone in Silicon Valley, you would be a fool not to take it. Naturally, you pick up your stuff and set up shop in San Francisco. You also are taking those 100 jobs with you.

Another problem, Yang found, is that those 100 jobs created are highly skilled jobs that benefit only a certain type of person. Additionally, we’re only talking 100 jobs. Yang pointed out that today’s “businesses grow lean and mean.” They are not hiring thousands of workers like we saw with industrial companies in the Rust Belt.

Industrial Revolution comparison

We hear it all the time when talking about automation taking over transportation jobs: “The Industrial Revolution destroyed horse carriage and horseshoe business, but we all turned out just fine.” Or something to that effect.

Yang makes a compelling argument as to why this is a false comparison. To start, he points out that there certainly was a revolution with social change. Labor unions were established, intense riots broke out, and universal high school education was implemented. It was not a smooth transition.

Furthermore, the highly respected management consulting firm Bain & Company has predicted that this next wave of industrial revolution is going to be faster and more powerful than ever before. In a report, Bain predicted automation may eliminate 20 percent to 25 percent of current jobs by the end of the 2020s, affecting mostly middle- and low-income workers.

“Our analysis shows that the collision of these forces could trigger economic disruption far greater than we have experienced over the past 60 years,” the report states.

The Fourth Industrial Revolution, as Bain calls it, is nowhere near the same as the first three.

‘Rubber hits the road with the truck drivers’

When asked when a new revolution will take place, Yang responded with the following:

So to me the rubber hits the road with the truck drivers. I mean there are 3.5 million truck drivers in this country, only 13 percent of them are unionized. The odds of there being a collective negotiation are very low. Eighty-seven percent of them are part of small firms of let’s call it 20 to 30 truckers, and 10 percent of them own their own trucks.

So think about that. If you borrow tens of thousands of dollars to be your own boss and be an entrepreneur and then your truck cannot compete against a robot truck that never stops — the odds then of these truckers showing up at a state capitol saying, ‘F*** this, let’s get 30 guys together with our trucks and our guns’ and show up and protest the automation of their jobs. So we’re disintegrating by the numbers. You can see it in our political and social dysfunction. Expecting that disintegration process to be gentle would be ignoring history.

And what about finding a new job? Not so fast. Literally.

In its report, Bain suggests that automation be introduced slowly. This will allow displaced workers more time to adjust, retrain or just retire. Roll it out too quickly and bad things will happen.

“But rapid automation of the U.S. service sector, for example, could eliminate jobs two to three times more rapidly than in previous transformations,” Bain predicts.

And Yang does not think government-funded retraining programs will help. Yang says the efficacy level of those programs is between 0 and 15 percent. However, only 10 percent of workers are eligible. Therefore, the idea that such programs are a viable is solution is nonsense. They will only effectively help between 1 and 2 percent of displaced workers.

“I don’t know thousands of truck drivers, but I do know some,” Yang told Freakonomics host Stephen Dubner. “And they do not strike me as the sort who will just shrug and say, ‘OK, I guess that was a good run. I’m going to go home now and figure out what job is there for someone who’s a 50-year-old former truck driver.’”