Understanding the K-wave for work in the current period of change

Let’s talk about jobs and AI. Some people say that the automation provided by AI will kill many of the jobs at the lower end of the economic scale leaving a class of unemployed and unemployables. It’s a difficult argument because it’s hard to see AI replacing house cleaners, carpenters, child- and health- care workers to name a few.

But the point is really what kind of jobs will be available. It’s hard to make a decent living at some of the service jobs you can name. And if AI takes away some entry-level manufacturing and business jobs how does one get on and climb the social ladder?

Others say that’s all overblown and that new niches will open up giving jobs to more people—including entry level jobs.

Who’s right?

It is certainly true that automation eliminates jobs—after all the main point of automation is rooted in labor cost reduction—and those jobs that are relatively low skilled or highly repetitive are most vulnerable in any era. Other important reasons for automation include gaining precision and accuracy. This can be documented in spades going all the way back to the Industrial Revolution (IR). Over the last few centuries, wave after wave of automation has swept the economy and general standards of living have continued to rise nonetheless.

Before the Industrial Revolution, living standards were flat over time and the vast majority of people lived on a subsistence existence. A small number of people going back to the dawn of civilization could earn a living from being rich warriors or priests for whatever local deity held sway or by making a few highly desirable things like swords, pottery, baskets, and maybe bread. The rest of the population hunted, raised crops or possibly raised herding animals and made cheese. Most people in northerly latitudes wove their own cloth in the winter.

That’s Ancient History 101.

The Industrial Revolution came along and in quick succession disrupted the old order. Its seminal inventions included manufacturing at scale and, most importantly, the factory system for managing large numbers of people and amounts of materials. But what’s less evident to casual observers is that there have been five similar major upheavals since the Industrial  Revolution in which the whole economy turned over and each had its automation phase. Wikipedia lists the ages and their starting points as follows:

• The Industrial Revolution—1771
• The Age of Steam and Railways—1829
• The Age of Steel and Heavy Engineering—1875
• The Age of Oil, Electricity, the Automobile and Mass Production—1908
• The Age of Information and Telecommunications—1971

In the second half of each of these ages, continuing automation consolidated jobs and makes workers obsolete. The twentieth century economist Joseph Schumpeter coined the term creative destruction for the seeming waste caused by disruptions brought by a new age. Sadly, while the disruptions provided a plethora of new employment opportunities, the new jobs went disproportionately to the young who could adapt more easily. Older workers age out of the workforce and eventually out of the population leaving us with a half-a-loaf situation.

What’s striking about these ages though is that they have lasted between 50 and 60 years each and they provide enough evidence of periodicity that one might look at the current Age of Information and Telecommunications and wonder if it is getting long in the tooth. At 50 to 60 years in duration, well beyond the working lives of most people, when an age ends there are relatively few people around with direct experience of the last time there was a major disruption. As a result the talk turns dystopian. Sound familiar?

The common result is social upheaval, which can be best exemplified by the Luddites, a group of textile workers who between 1811 and 1816 rebelled against further automation in textile mills and went on rampages destroying equipment in a failed attempt to preserve jobs. Luddites exist in every age and being one doesn’t work, it never does. The dates are important, the Luddites arose in the second half of the IR.

Nicolai Kondratiev, an economist during the Russian Revolution and the early years of the twentieth century, was one of the first to notice and attempt to understand the 50 to 60 year cycle in capitalist economies. Schumpeter dubbed his long economic cycle the K-wave or Kondratiev Wave shortly after Kondratiev’s untimely death in the Stalinist purge of the late 1930’s.

Kondratiev didn’t have a good answer for the job losses caused by disruptions. The situation is more acute today thanks to a combination of automation and globalization that enables corporations to move jobs to lower labor-cost countries as a matter of course and as products commoditize. It should be no surprise to anyone that under these circumstances, mainframes were made in the United States in the 1960s while smartphones are produced in the Far East today.

Obviously new jobs for new industries don’t emerge at the same time the old ones decamp. Getting ahead of the disruption caused by the end of a long wave means identifying and embracing the next one but this is not as simple as flipping a switch. A common feature of all the previous ages is that their primary activities provide the driving force for the economy and they never fully extinguish. However, their products and services do commoditize to the point that at some point they no longer provide the financial motive force of the economy. For instance, we still buy textiles, steel, and cars but none of them animates today’s economy the way that information and telecommunications still do.

So, a qualifying factor to turn a disruption into an Age is that it becomes the engine of the economy and thereby earns the naming right to the era. Understandably, there are always many pretenders to that title. For instance, today many expect that the IoT, the Internet of Things, will fill this role but the IoT seems more like a further commoditization of transportation and all that went with it. AI is in a similar situation. As it automates away human jobs, it, too, seems more of a commoditizing force than a new motive one.

In contrast, a new age brought on by a disruption, employs large numbers of people and critically its products turn a profit even with all that new employment. Students of K-wave theory will tell you that the first half of the cycle is inflationary and is responsible for inventing profitable products while the second part invents services that aim for efficiency and cost reductions ultimately resulting in the commoditization that ends the wave as an economic driver.

With the past as guidance, it’s not a great leap to say that digital disruption will continue because it is ultimately a commoditizing factor and a refinement in the efficiency not only of the current age but also some of those that came before it. Importantly though, the digital disruption is definitely not the dawn of a new age.

In part 2 of this series we’ll look at candidates on the horizon for the next shift.