Pin factory productivity

Adam Smith illustrated how the division of labour could improve productivity in the famous small pin factory example he used in his tome ‘Wealth of Nations’, 1776, viz:

  • 10 workers, each specialising in a different aspect of the work , could produce over 48,000 pins a day
  • However, if each of these ten workers had made the entire pin on his own, they might not have made even one pin a day, and certainly not more than 20
  • Hence, one must never focus on the task alone when seeking to improve – always look at the process as a whole

 

Bertrand Russell, the famous mathematician, wrote the following many years later in response:

In praise of idleness

  • Suppose that, at a given moment, a certain number of people are engaged in the manufacture of pins – they make as many pins as the world needs, working eight hours a day
  • Someone then makes an invention by which the same number of men can make twice as many pins as before
  • But the world does not need twice as many pins – pins are already so cheap that hardly any more will be bought at a lower price
  • In a sensible world, everybody concerned in the manufacture of the pins would take to working four hours instead of eight each day, and everything else would go on as before
  • But in the actual world this would be thought demoralising
  • The men still work eight hours, there are thus too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work
  • There is, in the end, just as much leisure as on the other plan, but half the men are totally idle while half are still overworked
  • In this way it is ensured that the unavoidable leisure shall cause misery all round instead of being a universal source of happiness
  • Can anything more insane be imagined?

 

Conclusions:

  • When qualified workers are in short supply, or increasingly expensive to employ, it makes sense to seek to automate their work
  • At present, and despite low unemployment, UK firms can exploit cheap foreign workers, either immigrants or via outsourcing to the Far East for cheap labour and land or India for English speaking call-centres
  • Come Brexit, however, the former cheap labour source may well dry up whilst, already, the weaknesses of the latter outsourcing route have curtailed much demand
  • So the inevitable pressures on UK management will be to invest in new and better processes and technology
  • Thus a significant uptick in UK productivity growth can be expected in the next year or so

Heavyweight cautions about AI expectations

Many of the innovations that led to productivity increases in manufacturing ended up playing a role in the economic downturn that began in 2008, says Nobel laureate economist Professor Joseph Stiglitz

For a long time, he said, many countries have been focusing disproportionately on innovation in the wrong areas, such as saving labour

“We have a lot of unemployment and yet firms are investing in machines to replace unskilled workers”

The focus should be not on GDP but a typical person’s median income, sustainability and distribution

As many as 25 million Americans are unemployed – and Stiglitz predicts full employment will not be reached in this decade

Erik Brynjolfson, the MIT economics professor, et alia is less gloomy: “We are optimistic about the ultimate productivity growth fuelled by AI and complementary technologies

The real issue is that it takes time to implement changes in processes, skills and organisational structures to fully harness AI’s potential as a GPT (General Purpose Technology)”

Benefits from specific applications are already being realised but broader economic effects from widespread adoption have yet to gain momentum so we await many more applications, steady improvements and the spawning of complementary innovations

And this could take years, even decades

Finally, Professor Rodney Brooks, MIT emeritus professor of robotics, says:

  • “Having the ideas about AI is easy – turning them into reality is hard – deploying them at scale is even harder
  • “Realising the benefits of AI is not automatic, nor is it fast – it will require great effort and entrepreneurship to develop the needed complements and adaptability at the individual organisational and social levels
  • “Major adjustments to business processes, capital infrastructure and job design will be needed to realise their full economic value”

 

Conclusion: The coming economic resurgence due to AI could be as big or bigger than any of the ones we saw in the past

GE announces ‘Big Data’ productivity gains

A new report from GE – General Electric, USA – found that the Industrial Internet  could add €2.2 trn to European GDP by 2030, boost productivity and spur economic expansion.

The report, called The Industrial Internet – Pushing the Boundaries of Minds and Machines: A European Perspective, says that a mere 1 % increase in efficiency in healthcare, aviation, transportation and energy could yield savings close to €40 billion.

By adopting the technologies of Big Data and intelligent machines, the report’s authors claim Europe could “recover the productivity gains missed in the first round of the internet revolution and compound them with new ones, catching and moving ahead of the curve”

Good examples include:

  • AI to aid doctors and lawyers
  • Big Data analytics for retail and drug discoveries
  • Wearable sensors to monitor blood pressure and health conditions
  • Robots for surgery and eldercare
  • 3D printing for complex manufacturing such as bespoke hip joints or gas turbine blades

 

But such claims are NOT new

‘Expert systems’ to help diagnose faults and maintain human bodies or machines were being built back in the 60s – but they were too simplistic and didn’t catch on

However, with AI, IoT technology and enormous modern computer power, GE’s expectations may well be realised

Myths about productivity?

An interesting set of views and counter claims about productivity were found on Google:

  • It leads to higher wages:
    • It doesn’t
    • It needs collective bargaining, but unions have mostly lost their influence
  • It doesn’t result in fewer jobs:
    • In an ideal world, it would lead to increased output, increased market share and even increased number of jobs
    • It rarely works out that way
    • Most improvements are justified by labour-saving which is much easier and faster than penetrating new markets
  • It leads to better quality jobs:
    • The opposite is true
    • The staff that remain have to do the work of those laid off, and for the same pay
  • It stifles competition:
    • The UK, for instance, needs large capital expenditure to set up new productivity-competitive businesses
    • China does not, able to use cheap labour instead
  • It stifles innovation:
    • Retooling production lines can be very expensive
  • It freezes capital:
    • Capital which could be used for vital infrastructure say

 

You might ask which side of the fence you’re on with each claim

UK public sector wastes £120bn – every year!

A new report from the Taxpayers’ Alliance claims that the UK public sector wastes £120 billion each and every year

And this is despite claims of tightening belts and being forced to close libraries or fire lollipop ladies.

It’s equivalent to a cost of some £4,500 for every British family.

They say: “A relentless war on public sector waste is needed”

But what do those in charge, our political leaders, do?

They can’t be seen to be cutting public services – it loses them many votes

On the other hand, it’s a vote-winner if they’re seen clamouring for more resources to be poured into such cherished national assets as the NHS – National Health Service – or schools or police forces

Few question what percentage of existing resources allocated to the public sector services are being wasted or whether operating methods they use are as good as they could be – staff are all seen to be working hard, resources fully utilised, so the obvious conclusion is ‘more is needed’

And none dare admit that, on a like-for-like basis, public sector staff are better paid, have longer holidays and receive better pensions than their private sector counterparts

But, if they would only dig a little deeper, they might well find the waste of time and resources is at least 30% across the board – with much more waste on top due to the inefficiency of methods being used

Sadly, no such numbers exist

If they did, one might well find that no extra funding is needed to remove most queues in the NHS, say, or and make a huge improvement to the current poor police record in clearing-up crimes of all types, especially serious crime

Some public sector review body is needed to conduct a regular, two-pronged study of all public services:

  • Prong 1 should review the specific services each public sector should offer ‘free at the point of delivery’ having regard to what the public is willing to fund – the nation must cut its cloth to what it can afford
  • Prong 2 should review the efficiency levels of each public service unit, compare them with best practice, make changes needed and continuously improve

 

At present, neither seems to be happening other than on an occasional, piecemeal basis

Hence Amber Rudd, UK Home Secretary, said:

  • “Police chief constables need to concentrate on cutting crime – the public do not want to hear about disappointments over funding”
  • To bleats that police forces cannot sustain further substantial cuts: “Greater efficiencies have been shown to be available”

 

But who was then charged with doing what?

Chief constables were unlikely to change their tune

Meanwhile, Sara Thornton, Chair of the National Police Chiefs’ Council, pointed out that: “Offences involving knives, guns and serious violence have increased significantly”