Latin America Advisor

A Daily Publication of The Dialogue

Will Automation Create or Kill Jobs in Latin America and the Caribbean?

File Photo: KUKA Roboter GmbH, Bachmann via Creative Commons.

Within Latin America and the Caribbean, Mexico and Brazil are leading the way in the use of automation, the IDB said in research released last year, with two robots per thousand workers on average. However, the two countries lag far behind more developed nations. Switzerland, Germany, Japan and South Korea, the countries with the highest numbers of robots per industrial worker, boast more than 20 per thousand workers, and China is automating quickly. Is automation a good thing for Latin America and the Caribbean, at this stage of the region’s economic development? What policies would bring productivity gains and economic vitality while creating secure jobs? How are elections in key countries this year likely to alter the outlook for the ways countries invest in technology and automation?

Jaana Remes, economist and partner at the McKinsey Global Institute: “Since 2010, Latin America’s productivity growth rates have been among the lowest in the world, and the advent of a new automation age could help restore growth and dynamism, creating new work as well as lifting societal prosperity. Our research suggests that, globally, automation and AI technologies could raise productivity by between 0.8 percent and 1.4 percent. For Latin American countries such as Argentina, Brazil and Mexico, which face economic headwinds as a result of slowing growth of their working-age populations, this productivity injection would be enough to maintain current GDP per capita growth. In countries with younger populations, such as many in Central America, automation will give a helpful bounce to the economy, but additional productivity-raising measures will be even more necessary to sustain economic development. Technological advances will drive automation adoption, but other factors will also influence the pace and extent of timing, including wage rates, labor supply and demand, and social acceptance. While much of the public debate around automation focuses on jobs that will be lost, our research highlights the considerable new labor demand—and hence new work—that it will create. The big challenge for Latin America will be to ensure education and training is improved, and that transition support is put in place to help the millions of workers who will need to shift their occupational category and upgrade their skills as these new technologies are increasingly adopted in the workplace.”

Jorge A. Sanguinetty, chairman and senior advisor at DevTech Systems: “History shows that labor-saving technological change, such as automation, is a fundamental source of economic growth and development in any country. It is also a necessary condition for increases in labor productivity that lie at the root of higher wages for workers. If automation in a given country fails to increase economic growth, it is probably because there is something very wrong with that economy. True, there is an asymmetry of effects when automation happens, as the negative effects are more easily predictable and rapidly noticeable than the long-run benefits in terms of new job creation. That is why labor-saving innovations find a certain degree of resistance even in advanced economies. Therefore, the policies to facilitate the creation of new jobs to compensate for the losses of technically obsolete jobs must focus on improving labor markets’ flexibility by reforming rigid labor codes, enhancing contractual security and property rights to create a friendly investment climate for new and old enterprises, investing in high-quality vocational and technical education to increase the supply of skill labor and its employability, and providing tax credits or other fiscal incentives to enterprises that train displaced workers and assist them in transporting new skills to other jobs. On how the 2018 elections in the region will alter the outlook on innovation, everything depends on whether the voters elect populist or free-market oriented candidates. In this regard, Colombia provides the most promising outlook, Mexico the poorest, while Brazil is uncertain.”

Alberto Pfeifer, coordinator of the Group for the Analysis of International Conjuncture (GACInt) at the University of São Paulo: “Automation is inevitable for Latin American and Caribbean countries, most of which are market economies that operate fully integrated with U.S.-centered value chains through preferential trade arrangements. Sooner or later, repetitive labor-intensive repetitive, such as in the textile, shoe and some automotive industries, will be replaced by robots and 3D printing, making jobs and investments migrate from Latin America and the Caribbean (LAC) to advanced economies. By the same token, occupations not yet replaced by automation, such as call centers and image digitalization, may migrate to LAC. The final outcome in terms of occupational level depends on how local authorities provide due adaptation of educational and training structures to prepare workers and how they alter national legislation to foster investments that will use those laborers. Mexico and Brazil, large economies with mature manufacturing sectors and sizable domestic markets, are more autonomous regarding robotization. Firms and sectors that are globally integrated will adopt robotization and other Industry 4.0 features in order to remain competitive. Governments should facilitate automation, eliminating barriers to importation of robots and advanced machinery so that the technological and innovation spillover emcompasses more sectors. Populist politicians blame technology and global integration as immediate causes of unemployment and underdevelopment. They may call for protectionism and propose autarkic solutions, but with unsustainable public budgets either they embrace sound macro and microeconomic agendas, or they will face severe economic crisis. The root causes for structurally lagging behind are inefficient public policies and weak institutions, poor and expensive legislation and low-skilled workforces. Besides, there’s room for labor-intensive activities, such as physical infrastructure, both at the domestic and the regional level in Latin America. The prescription is simple and clear: open up for more technology in the manufacturing sector; reduce risk and uncertainty in infrastructure; and provide proper management of the educational sector, focused on learning the needed skills of the future.”

Amy Glover, CEO for Mexico at Speyside Corporate Relations: “As in many other markets, automation is both a challenge and an opportunity for Mexico. A 2017 report by McKinsey Global Institute shows that 52 percent of the jobs in Mexico could eventually be replaced by robots, and there is general agreement that further education reform is needed in order to prepare the workforce for this eventual shift. Automation in the country is also linked to the integration of North America, particularly to the maquiladora and automotive sectors, and the success of the NAFTA renegotiation process will be key to determining the future of this industry. In the context of Mexico’s 2018 presidential election, there are different views on how to promote the country’s economic development and how much of a role technology will play. Ricardo Anaya, the candidate of the For Mexico to the Front coalition, has emphasized technology as a key driver of growth and a tool for ensuring that the country’s youth enjoys economic opportunity. Anaya envisions technology playing a wider role in the Mexican economy by developing a strategy to confront the global 4.0 revolution and by promoting specialized human capital and attracting R&D to Mexico. As Jack Ma, the founder of Alibaba, pointed out in his discussion of education at the World Economic Forum this year, we need to be teaching kids to do things that robots cannot do, putting an emphasis on creativity and the arts. At present, Mexico is a long way from an optimal public education system, but the question is whether the country will be able to leapfrog toward designing a system for the future. No doubt at present, the bar seems quite high.”

Nelson Altamirano, professor of economics at the School of Business and Management at National University: “Automation and technological innovation rates present the same story: Brazil and Mexico look great in respect to the other countries in the region but look miserable as compared to South Korea, a newly industrialized country by comparison. Brazil has a handful of firms in few pockets of innovation, such as in the auto, aerospace, mining and oil industries. The production processes in these sectors during the commodity boom and liberalization have integrated lean practices, efficient supply chains and automation, which are present in developed countries. In the case of large mining and oil firms, these changes have secured high and fast extraction levels. However, this automation barely increases productivity in other sectors of the economy, and firms may just request zero import tariffs for robots, which I think is unnecessary. Automation in the auto, aerospace, pharmaceutical and agricultural sectors is different because these industries are also export-oriented but have forward and backward linkages with other local industries, universities and research institutes. Automation of production processes in these industries ensures product quality as well as cost and waste reduction necessary to compete internationally. In these cases, policies that support liberalization and exports need to be complemented with innovation policies that treat robots as an element of a technological transfer process with direct and indirect effects on multiple sectors. These effects need to be evaluated and supported accordingly. Then, Brazil and Mexico may get closer to their Asian competitors.”

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