White Collar Automation

My cousin told me of an interesting business trend which has been in operation for some time but is picking up speed. In the 1990s, American businesses all wanted to automate. This required hundreds of new software packages and millions of lines of code. Thousands of Indian software engineers were hired, many of them were sent on-site on the relatively relaxed visa regime where they could charge in dollars. Small companies grew into the IT giants of today and we saw the growth explosion of companies like Infosys, TCS and Wipro.

Today, Amazon and Google are stealing their lunch. Cloud computing and automated tool-chains of ready-made and easy-to-tailor applications allow a handful of engineers to deploy within weeks and maintain what used to take a legion of programmers to a year to code. Essentially, cloud computing companies are selling the same code over and over again. Fans of the Hitchhiker’s Guide to the Galaxy series may be reminded of the Hitchhiker’s Guide 2.0 which allowed the same guidebook to be sold over and over again.

This is a familiar story in all other areas of the economy. Organizations are re-tooling to adjust. There are two major consequences:

  1. Decline in hiring. Hundreds of engineering campuses across India rely on companies like TCS for mass recruitment. Huge service sector companies come and hire as many as 30-70 engineers at a single campus. This is eroding year by year.
  2. Mid-level professionals who moved into program management are finding their skills increasingly out of demand. Small teams where everyone has to know the system seem to be gaining.

The problem isn’t just industry, it’s also academia and society which has got used to churning out software engineers in thousands. In our history books, we studied how the industrial revolution in Britain led to the destruction of Indian economy and major social restructuring as cheap foreign goods flooded the market. Is this being alarmist? Maybe the example is a bit extreme, but the effects are also going to be extreme.

First, the software industry is important. One word that used to get thrown earlier was ‘decoupling’. It was pointed out that over 80% of the Indian industry catered to domestic demand. Hence the loss of export oriented software was supposed to have minimal impact. 2008 dispelled these illusions. To take one example, one of my friends had invested in a mushroom farm. When the software industry shrank, so did the demand for pizzas for late working techies. No pizzas, no demand for mushrooms, so their business took a hit. The software industry provides an engine for demand in India like no other.

Second, even in developed societies, it takes decades for a labor force to re-tool and re-position itself. Consider how many towns in Britain and the US never recovered after manufacturing or mining ended there. Even as the GDP grew healthily, unemployment remained high in localized pockets destroying whole societies. India is nowhere near as advanced or educated as these places. Pain will be high.

The IT industry isn’t the first nor will it be the last industry to be automated. Finance, medical support and now possibly law are following.

Someday, somebody is going to make a computer that can do the job of a CEO. Machine learning already informs most of the decisions of the senior executives in most large companies, it is only a matter of time before decision making is slowly subsumed as well. There is an old joke that the factory of the future will have only two employees, a man and a dog. The man to feed the dog and the dog to prevent men from fouling things up. But what would such a factory make and who would be around to buy it?

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