A conversation in Shenzhen
Several years ago when I first taught Software Engineering in China, an economics professor took me to a “manufacturing zone” where hundreds of factories were operating. He said: “Our economy is booming because we have the largest labor workforce and the lowest costs in the world. Our goal is to be the manufacturing center of the world.” I asked: “What will happen if there is no need for labor workers anymore? He laughed: “Factories always need labor workers, what else could happen?”
That was then but last month when I taught in China, he told me about the growing unemployment there: “Technology changes many things and automation has dis placed many labor workers. We are reaching a turning point where many factories are moving to lower cost countries and we have a lot of labor workers without jobs. As an economist, I think when the economy prospers, people buy more and spend more which stimulate companies to produce more and hire more workers, but it did not happen.”
I told him: “That theory works in the past but with globalization, factories can move anywhere that have the lowest costs to maximize profits. Today with rising labor costs, China is no longer the lowest cost in the world and cannot compete with lower cost countries in Africa. But that is only the beginning, soon you will see the results of sophisticated automation where robots are replacing workers then even lower cost countries cannot compete with machines. With robotics and automation technologies there will be fewer needs for labor workers. The problem is many people do not think it could happen so fast because they do not understand Moore's laws. I think economists may need to study technology to understand changes that happen in this Information age. Many economic theories that are taught today are formulated for the industrial age where lower cost and the export of products are the key drivers but today some of these theories are no longer valid. In the industrial age, capital and labor are the key engines that drive the economy but in the information age, innovation and knowledge are the new engines for economic growth. Instead of focus on manufacturing and build more factories you should focus on improving the technology education to produce more knowledge workers before it is too late.”
He asked: “Today we have more people go to university than ever before and the number of people completing university is rising to several millions each year. We all hope that this generation will have better opportunities than previous generation but somehow we have many unemployed college graduates who cannot contribute to the economy.”
I explained: “The issue is your economy is still based on manufacturing so most available jobs are labor jobs. For years, your country continues to build factories with the hope that the manufacturing outsourcing will continue despite the rising in labor wages. You are not focusing on creating jobs for the highly educated people so when your students complete college there are fewer jobs for them. Of course those with college degrees are not willing to work on labor jobs so you end up with a lot of unemployed college graduates. Another issue is your education system has not changed much so your graduates do not have the skills needed by the global job market therefore your graduates can not go to work in other countries. There is a shortage of IT skilled workers all over the world but your graduates cannot fill them because they do not have the up to date knowledge and skills.”
He agreed: “Currently many graduates are still waiting for job opportunities that may never come. Their parents want them to get a job but they do not have the knowledge and skills to compete for job in the global market that is why we have an unusual phenomenon called the “Ant tribe” which describes millions of unemployed college graduates who left home and live with others in crowed basements of buildings or in corner of streets waiting to get jobs. Many of them are desperate, involve in criminal activities or social diseases such as drugs and alcohols. They are regarded by the society as part of the country's lower class, joining poverty groups such as peasants, migrant workers, and unemployed labor workers, despite having college degrees. Have you read the book by Professor Lian Si called “The Ant Tribe”?”
I told him: “I have read that book. It is sad that many smart people who graduated from good universities cannot fulfill their dream of making a living. As educators, we need to find a solution because without proper action, we will have a “wasted generation” and it could be a major burden to society. Eventually unemployed graduates will become detached from society and get involved in bad things such as alcohol, drugs and other undesired activities. Today many graduates are still hoping that they may get a job but if this hope is no longer feasible it may cause a lot of problems. Many economists have warned about a time bomb if this problem is not solved.”
He agreed: “I know that. As economics professors, we have discussed about how to transform our economy from manufacturing-based to innovation-based.”
I told him: “To make the transformation happen, everything must start with the education system. Today only few countries do it right such as Japan, S. Korea and Singapore. Many are still confused because they believe that by just changing the “manufacturing zone” into “high technology zone” than the transformation will happen. It is a mistake because technology innovation requires knowledge workers as the key drivers not building more technology zones. The transformation must start with a technology-based education such as STEM. The reason many economists do not understand it because the transformation from agriculture age to industrial age started with manufacturing factories where labor workers moved from farms to factories with minimum training or education. The fact is factories require “muscle power” but innovations require “brain power”. Industrial age relies on more labor workers to work in factories but Information age depends on knowledge workers to innovate and it is based on a strong education system. Getting more students into universities is a way to develop workers to build the innovation-based economy but without improving the education system by focusing more on technology, you are creating an “economic vulnerabilities” with high number of unemployed college graduates.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
