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Charlie Kingdollar
Burgeoning advances in automation, artificial intelligence (AI) and robotics could result in economic and societal disruption as businesses and municipalities incorporate artificial intelligence and/or robotics into their operations to cut costs and improve efficiencies.
This automation economy has already begun: in the U.S. 5.6 million manufacturing jobs were lost between 2000 and 2010. Eighty-five percent of those job losses were due to automation.1 This trend will only accelerate.
Some refer to this economic shift as the “fourth industrial revolution.” This moniker, however, really fails to describe the speed and breadth of the potential changes coming to other industry sectors, and society as a whole, as automation will impact a wide variety of both blue and white collar jobs.
The potential for job disruption caused by the advent of autonomous vehicles has been widely discussed in the media, including projections that an estimated 4 million driving jobs are at stake. But beyond the hype, look at what's occurred with regard to autonomous vehicles in the U.S. just since the beginning of 2018:
On a broader scale, several recent studies have discussed the potential job losses arising from automation:
Even with 2% job growth, many experiencing job displacement will not have the skills to take advantage of it. Many of these new jobs will go to those with degrees in AI, robotics, computer programming, mechanical engineering and coding, etc. We have no precedent for anticipating the pace or prevalence of this new wave of occupational disruption.
In the past, with a modest training investment, workers could migrate from one kind of manual labor to another. Now, however, the required training investment to move from manual labor skills to robotics or programming is greater, and will require a larger investment of time and money on the part of the worker.
When the U.S. economy experiences higher unemployment rates, a broad range of economic factors can be affected along with it, including discretionary spending, local business formations and home ownership. Consider the 2007-2008 financial crisis: The economy experienced significant increases in unemployed and under-employed workers; a significant decrease in new home building; a broad-based economic contraction, seen in sharply reduced new business start-up rates; a dramatic reduction in "over the road" mileage for truckers and commuters, resulting in lower numbers of accidents; and significantly reduced new or leased car purchases. All of these effects were in addition to the obvious fallout from over-leveraged homeowners, the wave of foreclosures that ensued and the impact on local businesses.
Driverless vehicles, AI and robotics are also finding their way into many other sectors: construction, farming, retail, food services, financial services and the insurance industry. While we can anticipate the implications for classes of business within the Property/Casualty insurance industry, there may also be broad societal implications that could impact state and municipal governments.
In addition to both the strain on local businesses and broad societal implications, this new wave of automation will also have an impact on state and municipal revenue streams, including:
These technological advances hold the potential to disrupt the status quo with regard to the revenues and expenses of governmental entities. Now more than ever, these entities will need to pay close attention to the trends and inflection points as they present themselves in the data they use to project and manage their budgets. Old patterns may not be as predictive as they were historically.
