The Commercial Appeal

Invest in people, not robots


The job prospects for blue-collar workers is one of the hottest topics in U.S. politics. The current fascinatio­n with the potential of robotics has helped reveal the important truth that productivi­ty increases have reduced the number of manufactur­ing jobs, and that's increasing­ly true in service sectors as well. Most observers expect to continue.

So far, the options for what to do about the loss of good jobs are pretty bad. Changes in trade policy have lots of drawbacks, but even if they could be enacted, they won't address the massive productivi­ty-driven job losses in industries like manufactur­ing.

Retraining workers who lose jobs sounds like a good idea if there were lots of good jobs available for which they could be retrained. But that has not been the case, and it is unlikely to be so in the foreseeabl­e future.

Why aren't we seeing more of a focus on upgrading management and employee skills rather than replacing workers with machines? For-profit businesses, especially public companies that have

extensive reporting requiremen­ts for investors, hate fixed costs or those that can't be adjusted down if business falls.

Robots and technology are massively bigger fixed costs than workers. You might think that would scare investors and businesses away from that approach. What we can do with robots is amortize investment­s and depreciate them over time, spreading the costs out. There are also a range of special tax breaks for investment­s in capital that aren't there for management and employee spending. Tax laws and accounting principles do not recognize training and management interventi­ons as investment­s even though they surely are by any other definition.

Another way in which accounting stacks the deck against investment­s in human capital and management systems has to do with how those investment­s are reported, or not reported. An investor looking at any company can tell pretty quickly how much it has invested in capital improvemen­ts because the figure is right there on the balance sheet along with related investment­s like leased capital and even fuzzy assets like "good will." Those investment­s are seen as a good thing.But you can't find investment­s in training and in management.

They are lumped in with "general and administra­tive expenses," typically described as "overhead" costs. These are liabilitie­s on balance sheets, and investors like to see them as low as possible. Businesses that spend a lot on training and management improvemen­ts can look to investors like they are blowing money on office furniture.

So we have the irony that business is rewarded for investment­s in capital that raise productivi­ty by eliminatin­g jobs but punished for investment­s in people and management that raise productivi­ty and save jobs.

The federal government has also spent billions directly and through agencies like the Department of Defense to develop robots and other manufactur­ing technology that displaces workers. The Centers for Advanced Manufactur­ing spread the knowledge of how to use them to businesses. There is little attention given to how workers might fit into these new systems.

Given all this, it's not surprising that businesses favor spending to replace workers with capital equipment.

But the management challenges of investing in people and systems are also its saving grace.

Any competitor can call up a vendor and get the latest robot, so it can't be a source of competitiv­e advantage for long, if at all. Interventi­ons that are challengin­g to pull off like better management of the workforce can be. That makes them work in the long term for business and their employees.

Peter Cappelli is a management professor at the University of Pennsylvan­ia's Wharton School.

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