Question

How can we increase the likelihood of the scale effect dominating as automation continues to spread?

One of the most cited downsides to automation of production is the loss of jobs. However, as we discuss in class and read about in The Automation Paradox, this is not always the case.

Counterintuitively, automation can in fact lead to more jobs. This is primarily the result of the scale effect. The increased productivity of automation leads to cheaper products, leading to higher demand. As demand increases, companies need to hire more workers to keep up.

If this outcome can consistently occur, one of the main fears to automation can be dismissed. What are some ways to ensure the domination of the scale effect in this transition towards greater automation?

Answer 1

Introduction

One of the most critical aspects of production and demand and supply has been indicated with the help of this case study which relates to the fact, that as automation offers increased productivity of the existing labour force, and allows for higher quantities of goods and services to be produced in the country, this raises the demand for products and services and the economy continues to progress despite the fact that automation may have killed a few jobs when it first came. In the long run, it leads to more people employed as the income of a country and its overall demand both improve.

Now, coming over to how we can ensure that the scale effect which means producing goods at an increased scale continues, some of the critical methods which can help in achieving the same are as follows: -

Case Details: -

1) Internationalization: -

One of the key methods for a country to maintain its scale of production is to ensure internationalization. In a few seasons, domestic demand for goods and services may not be enough to maintain the same level of scale required to continue operations. However, in the long run, when countries decide to export goods and services, it becomes easier for them to be able to mass produce and maintain scale of operations.

For example, countries such as China rapidly transformed themselves from the process of automation only because they intermingled it with the concept of internationalization wherein, they were producing goods for a larger target audience.

2) Conductive Government Spending: -

In addition to Internationalization, another critical aspect which will always help in ensuring that scale of production can be maintained as is conductive government spending towards projects such as infrastructure development, roadways, railways, communication systems etc. This helps in ensuring that investment remains constant and private enterprises view the economy as being positive. Spending also results in contracts for private players which will further help in keeping investment and scale of operations constant.

3) Low Interest Rates: -

One of the major reasons as to why countries such as the United States of America have been pioneers in mass scale production and have become economic giants is because of the fact that interest rates in the country remain low. As this happens, it then increases the purchases as well as investments within a country. This is owing to the fact that loans are available at a cheaper rate and it becomes easier to maintain demand as well as to expand operations respectively.

4) Minimum Market Intervention and Consistent Business Policies: -

Another critical thing to do is that the government maintains constant business policies which help in business owners have confidence over the market in which they are operating. Doing that always ensures profits for a firm and they can then continue to grow their operations. If governments begin to control business owners and have anti-business policies, it would never help in maintaining scale of operations. On the contrary, with minimum market interventions, it becomes possible for business owners to be able to maintain and expand their operations respectively.

5) Strong Redressal Mechanisms: -

Another critical aspect is to maintain strict redressal mechanisms. Companies prefer those countries wherein laws such as property rights, patents, copyright etc. are well maintained and can be used to protect their business. Similarly, consumers also need mechanisms and laws in place to help them maintain confidence in the economy.

This is a crucial aspect of then maintaining business operations and ensuring that ill behavior if any can be redressed with counteractive policies.

Please feel free to ask your doubts in the comments section.