Reasons for Optimism II (Long-term)

by | Nov 19, 2012 | General

The Robotics Revolution

Ever since steam was efficiently harnessed to power factory machinery, most technological advances have been greeted with fear rather than celebration.

Below is an 1880’s cartoon illustrating the threat of robots on employment. You might think that 200 years of mechanization accompanied by growth in both wages and jobs would have put an end to such fears, but no. In fact we might be entering another period of intense fear of automation.

The fear might be greatest where it is least expected: China. Foxconn, the makers of iPhones and thousands of other electronic products, just took delivery of 20,000 robots. They plan to buy one million more in the next five years. And this, in a low cost labor market!

So how is this good news? Think of it this way: robotic manufacturing can be done anywhere. In fact, to save shipping costs it makes sense to do most of it near customers, not in places where wages are lower. The big winners could be the US and Europe, where the customers are, and where there’s an educated workforce that can be trained to manage these automated factories.

No, the thousands of manufacturing jobs lost over the last 30 years aren’t coming back in the same form, but manufacturing will increasingly migrate to the US for reasons cited above as well as our low energy costs. 

The new robots are smaller, smarter, and in some cases trainable. One of our portfolio companies has invested billions in new systems here in America that will revolutionize a very old process—warehousing.

Here are links to two videos that show how a new Amazon warehouse works:

Clearly the number workers per order has been reduced, but the system obviously allows Amazon to process many more orders than a traditional warehouse. Customers get their stuff faster and at a better price. 

One hundred years ago, when 50% of the population remained on the farm, the question was, “If we mechanize farming, what will all those people do?” Now only 1% of the population feeds the rest (plus exports). Manufacturing will not vanish from America, but how we do it will change drastically. The jobs created will generate more value for owners and be better compensated because of that added value.

After four weeks of down markets, we thought a little long-term optimism was in order. As you know, we have prepared for a weak market and today’s strength does nothing to change our view of the next year or so. Still, as these videos demonstrate, there will be great opportunities within the stock market in the coming years.

Best regards,

Daniel A. Ogden


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