By Shawn Allen, Contributing Editor
How should investors position themselves as automation and robotics threaten many jobs, particularly in manufacturing? Employees who are not investors may have few options. But for investors, the logical response is to invest in the companies that are benefiting from automation and robotics.
Automation has been eliminating jobs since at least the time of the Industrial Revolution. Luckily, new and far better jobs have historically taken their place.
Society overall has benefited enormously from automation. But some groups have suffered. Older workers in labour intensive industries don’t always find new jobs.
In classical economics dating back to the Industrial Revolution, the three factors of production are land, labour, and capital. Land also includes the natural resources of the earth. Capital in this case refers to such things as factories, tools, buildings, vehicles, and machinery. In today’s world capital would also include software and communications networks as well as accumulated knowledge and education. Capital is basically all the man-made things and investments that facilitate the production of goods and services other than land, natural resources, and human labour.
Correspondingly, we can divide the output or earnings of the economy into the wages of land, the wages of labour and the wages of capital. Each of the three contributes to the output of the economy and each is entitled to its wages or share of that output.
Clearly, it is capital investments that have led to the enormous and continuing increases in per capita economic production and therefore human living standards over the decades since the Industrial Revolution. After all, the land and natural resources have not increased and neither has the physical capacity of humans to work. Correspondingly, the owners of the capital stock of the world have been rewarded with an ever-increasing share of the growing wealth created by the economy.
Luckily for all those that rely on labour for their income, the value of their labour has also increased due to capital investments. A human working with a jack hammer or with an excavator is naturally worth more than the same human working with a pick and shovel.
But automation has led to greater wealth disparity. Many decry the advantages that “capitalists” have over the working population. Actually, both the workers and the owners of capital have greatly benefited. I’ll leave it to politicians and activists to argue whether our system is fair.
But given the world we live in, it’s clear to me that a logical response for individuals is to become investors and own a share of the capital stock of the world. Most people can participate in the economy as both a worker and an investor (owner of capital) over their lives.
As investors we indirectly own and earn returns or “wages” from land and capital. The alternative path of relying solely on our labour income is increasingly unwise.
Investors can own a share of the overall economy with a diversified portfolio. And to the extent that robots and automation are seen as a growing threat to their jobs, it certainly makes sense for investors to own some of those.
An example of a manufacturing company that uses robots and continues to automate production is Linamar, which I recommend.
Contributing editor Shawn Allen has been providing stock picks on his website at www.investorsfriend.com for over two decades. He is based in Edmonton.