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How Automation is Shaping our Society

Try this on for size:

We’ve been automating for hundreds of years now. The industrial revolution caused a migration of workers from agriculture into the cities to work at factory jobs, and workers that are displaced by new technologies will find new work that didn’t even exist a few years ago.

I assume if you’re reading this article that you’re involved in automation in some way, so you’d actually want to believe that statement, and arguing against what someone wanted to believe would be pointless. I’m going to do it anyway. That statement is wrong. This time it really is different.

To explain this I need you to consider what motivates people here in the “west”. Basically we have some form of regulated capitalism. To boil that down, it means you can own things, and you are allowed to keep some fraction of the proceeds that are generated from those things. This actually applies to almost all of us, even if most people don’t think of it that way. It’s obvious to a farmer: you own land, buildings, and equipment, you grow things and sell them, and after tax you hope to end up with some kind of a profit. Ok, perhaps farming isn’t a great example because there are so many government subsidies involved, but the principle is the same with small business owners, and even employees.

Employees? Most employees don’t think of themselves as capitalists because they can’t see the capital they’re using to generate a profit, but it’s right there in the mirror. You are your own capital. Ever since abolition, this is capital that nobody could take away from you. It’s the first and primary social safety net. No matter how penniless you were, barring illness or infirmity, you had this basic nest egg of capital you could always draw from to bootstrap your life. Most people mistake capital for money, and that’s why they don’t see themselves as capital. After all, you can’t “spend yourself”, can you? Actually, going back hundreds of years, you could. Most slaves around the Mediterranean hundreds of years ago were slaves because they incurred debts that they couldn’t pay off, so they became the property of whoever they owed the debt to, until they could work off their debt.

If it helps, think of the human body as a machine that turns food into… various useful things more valuable than food. Farmers turn small amounts of food into larger amounts of food. Carpenters turn food and wood into houses or furniture. Quantum physicists turn food into transistors and lasers, and you, dear reader, perhaps you’re a machine that turns food into PLC programs. In turn, we trade these things for various useful things that other people have created. Capitalism.

Now I’m a fan of regulated capitalism because it’s an efficient way to organize lots of machines (us) into producing lots of valuable things like cars, houses and episodes of Game of Thrones.

Now here’s the weird part. There’s a huge incentive to use your capital to acquire more capital, which you can then use to acquire more capital, and so on, but very few people do this. You would think that someone who finished 13 years of schooling at the age of 18, worked 47 years and retired at the age of 65, making, let’s say, an average modest wage of $30,000 per year in present-day dollars would have had the foresight to save some of that $1.4 million for their retirement, but it’s clear that many don’t. In fact there are many people with an income far higher than that who not only don’t save any, but go into significant debt and either declare bankruptcy or become virtual slaves to credit card companies. It’s so incredibly common and has such a negative cost to society that governments actually force workers to save portions of their paycheque every week into a government pension program and then pay them a stipend when they retire. I’m not familiar with the way this works in the United States, but in Canada this is referred to as the Canada Pension Plan, and it’s supplemented by something called Old Age Security that kicks in a few years later. This is despite the fact that anyone who bothered to squirrel away 18% of their net paycheque for their entire career into a tax sheltered retirement savings plan and invested it in mutual funds would have a very comfortable retirement – much more comfortable than living on a government pension.

Now part of me thinks this is fine: you made your bed, now lie in it. But this affects everyone, even the wealthiest capitalists. The most basic of government services are the ones that wealthy people need most: military, police (criminal law) and the enforcement of contracts (civil law). These three services of government are what give people the ability to own things. The military protects it from external threats, the police protect it from people inside the country (thieves and vandals), and civil law settles disputes about who owns what.

We keep hearing that wealth inequality is a bad thing, but that can’t be absolutely true. If our system is working, it has to reward the people doing more valuable things with more money, so the only way there could be income equality is if everyone was doing something equally valuable, and we’re not. There should be a way for me to make more money by working harder, smarter, or differently than I am now. That’s the incentive to be more productive.

In fact, that’s what really matters: does the average person believe they can improve their standing? Because if they don’t, they get unruly and do wild and crazy things. Things that make wealthy people uneasy because in the west those unruly people can really mess with the government that’s providing all those military, police, and civil services they depend on.

Imagine you work in a factory in the Midwest U.S. that makes air conditioners. Chances are, you don’t think of yourself as a machine that turns food into air conditioners. You’re not thinking about how to make that machine more efficient, or more valuable. You’re already working 6 days a week, and your family never sees you. All you know is that sooner or later the guy who drives the fancy BMW is going to move your job to another country, or replace you with a robot, and since all the other plants around here have closed, you might not be able to send your kid to college. How would you feel? Maybe you’d be inclined to vote for a politician that promised to punish companies that moved their factories to Mexico.

I think the crux of the matter is that this worker no idea what to do. The incentives are still there: learn a new skill, invest in yourself, be more productive. But few people do it, for the same reason that few people save for their own retirement.

I’ve spent a few years around people who’ve been running small businesses, and I’ve tried to pay attention. It took me years to really understand that there was nothing magical about running a business. That’s because, like almost everyone else, I was brought up with the idea that innovative geniuses come up with brilliant new ideas and start companies that make billions of dollars. Outside of a few small cases, that’s simply not true. Look hard enough and you can find an industry that’s in demand and growing. If the demand is high, there will always be companies in that industry that are poorly run but still make a profit. You can make money simply by doing the same thing as everyone else and simply not being the worst at it. That’s how capitalism works – it gives you incentives to provide products and services that are in demand.

I have a relative that got laid off many years ago. There was a jobs program where they gave him classes on how to start a small business. He learned how to keep books, write an invoice, and how to do his taxes. They hooked him up with a small business loan. A few months later he’s running his own business and a couple years after that he’s hired an employee. Now he has the opportunity to invest in himself, like buying better equipment and improving his skills.

Let’s say you’re a PLC programmer. Your company likely pays you upwards of $50,000 a year. How much did they spend on your computer? Did they cheap out? Does it make any sense to handicap a $50,000 a year resource with a cheap laptop? If you were in business for yourself, you’d quickly realize there aren’t many things you could invest in that would make you a more efficient or valuable PLC programmer, but a faster computer is a no-brainer.

Automation is increasing productivity and with self-driving trucks and expert systems being developed, the rate of productivity increase is set to explode. However, these are expensive investments and there’s no way for displaced workers to take advantage of this automation. If I gave a truck driver a bigger truck, they produce more value per mile driven, but if I replace the driver with a computer, they have no value at all.

Increased productivity stopped producing higher wages back in the early 70’s. A bank teller makes the same now as they did back then (adjusted for inflation) even though most of the drudgery has been offloaded to ATMs. In fact, ATMs allowed banks to open more smaller branches and the demand for tellers to staff those branches has actually increased the number of tellers total, but despite automating the simple tasks and increasing demand for tellers, they’re not making any more in wages.

The same people who are currently blaming immigration and outsourcing for their problems are soon going to realize that automation is what’s really eating their lunch. Unlike in the industrial revolution where displaced workers could participate in this new economy by switching from farming to factory work, during this transition workers will either lose their jobs and have to completely re-skill, or at best they’ll keep their jobs but not see a penny more for their increased productivity.

That’s because old automation made people more valuable, but new automation seems to make them less valuable. That means it’s devaluing the one bit of capital they have.

This is where someone usually suggests a universal basic income so everyone can share in the increased productivity without everyone contributing to it. I’m not convinced the numbers add up. What we really need is to encourage this idea of viewing yourself as capital, not as an employee. An incentive and a safety net for people starting a small business should be less expensive and more effective than paying people to sit at home. How about teaching this stuff in school (I figure teachers are pretty clueless about starting a business). How about making it easier to start a business than going on social assistance? How about making in-demand skills training free?

I’m glad we’re talking about this because it does matter. A lot of this is tied in with what’s going on in the world right now. There’s a general sense that the next generation won’t be as well off as their parents’ generation, and that’s pretty much unprecedented. That promise that anyone could make something of themselves is slipping away, and we need that back.




Automation and the Guaranteed Minimum Income

In recent years I’ve been interested in the effects of automation on our economy and our society. Throughout history every advance in technology has brought more wealth, health, and opportunity to pretty much everyone. With every revolution people changed jobs but their lives got significantly better. When farms mechanized, workers moved into the city and got factory jobs, and Henry Ford’s assembly lines made use of this labor to great effect.

Early factories needed labor in great quantities and as industrial processes became more efficient at utilizing labor, the value of human labor rose and the demand kept increasing. So did pay. Factory workers up through the 70’s could afford a nice house to raise a family, a big car, and even a boat or nice vacations. Since the 70’s however, the purchasing power of a factory worker or even a bank teller has been pretty flat. These are two professions that have seen the most advances in automation in the last 30 years, due to industrial robots and automated tellers. If automation makes workers more productive, why aren’t we seeing that translate into purchasing power?

There are two types of technological improvements at work here. A farmer with a tractor is very productive compared to one with a horse and plow. The displaced farm workers who went to the city were given the tools of the industrial revolution: steam engines, motors, pumps, hydraulics, and so forth. These technologies amplified the value of human labor. That’s the first kind of technological improvement. The second kind is the automated teller or the welding robot. The older technology adds value even to the lowest skilled employees, but the new technology is reducing their value and the new jobs require significantly higher skill levels. There’s something about this new revolution that’s just… different. The demand for low skill labor is drying up.

The increasing divide between the “haves” and the “have-nots” has been documented extensively. Some divide is good and promotes the economy and productivity. Too much separation is a recipe for significant problems.

I’m not the only one worrying about this issue, and as I’ve followed it over the last few years I’ve been surprised by the amount of interest in a Guaranteed Minimum Income or some such plan. Basically it involves getting rid of every low-income assistance plan such as social security, welfare, minimum wage laws, etc., and creating a single universal monthly benefit that everyone is entitled to. Some people are talking about a number as high as $24,000 per year per adult. Considering that the 2015 federal poverty level in the US is just below $12,000 for a single adult, you can see that $24,000 per adult isn’t just a trifling amount.

For comparison, a little Googling tells me that the US GDP per capita is around $55,000. Think about that for a second. You’re talking about guaranteeing almost 45% of the productivity output of the country to be distributed evenly across all adults. One presumes you would also provide some extra money per child in a household, but to be fair the “per capita” figure includes kids too. It’s possible. Sure seems a bit crazy though.

Is it practical? Won’t some people choose not to work? Will productivity go down? It turns out that we’ve done some experimenting with this type of program in Canada called MINCOME. The results were generally positive. There was a small drop in hours worked by certain people, mostly new mothers and teenagers. These costs were offset in other areas: “in the period that Mincome was administered, hospital visits dropped 8.5 percent, with fewer incidents of work-related injuries, and fewer emergency room visits from car accidents and domestic abuse.” More teenagers graduated. There was less mental illness.

I’m fiscally conservative, but I’m mostly pragmatic. It’s only my years of exposure to automation, technology and working in factories that makes me ask these questions. Not only do I believe that people should contribute, I believe that people need to contribute for their own happiness and well-being. That’s why I don’t think paying people to sit at home is the ultimate solution.

The elephant in the room is this: as technology improves, a greater proportion of the population will simply be unemployable. There, I said it. I know it’s a disturbing thought. Our society is structured around the opposite of that idea. Men are particularly under pressure to work. The majority of the status afforded to men in our society comes from their earning potential. The social pressure would still be there to work, even as a supplement to a guaranteed minimum income, so we still need to find something for those people to do. Perhaps if we expand the accepted role of men in society then we can fill that need with volunteer work. Maybe.

What’s the right answer? I don’t know. For lack of a better term, the “American Dream” was accessible to anyone if you were willing to work hard and reinvest that effort into yourself. Not everyone did that, but many people created significant fortunes for themselves after starting in the stockroom and working their way up. That security gave people a willingness to take risks and be entrepreneurial. Proponents of the idea say that a minimum income would bring back that innovative edge. Entrepreneurs could try new ideas repeatedly until they found one that worked, and not worry about their family starving. With your basic necessities met, you could start to realize your potential..

I do know that as we continue down this road of increasing automation, we can’t be leaving a greater and greater proportion of the populace without the basic resources they need to survive. Do we expect them to grow their own food? On what land? Do we expect them to do a job that I could program a robot to do, if the robot’s average cost is only $10,000/year? Do you have some valuable job we can retrain them to do? One that pays enough to support a family?

Look, I don’t like the alternatives either, but it’s better than an armed revolt.

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The Psychology of Automation

It’s easy to overlook the power of human motivation in automation systems.

I’m going to assume you don’t work in a lights-out factory. That’s pretty rare. Almost all automation systems interact with people on a regular basis, and even though we have high fidelity control over our automation processes, people are notoriously difficult to predict, let alone control.

For instance, consider a process with a reject station. Finished parts are measured and parts that don’t meet specification are diverted down a chute. Good parts continue down the line.

Question: how big do you make the reject bin? Naively you might want to make it as big as possible so the operator doesn’t have to waste time emptying it. Unfortunately that means it’s just as easy to make bad parts as it is to make good parts. You’d be better off to make the reject chute only hold 3 parts, and put a full sensor on the chute that throws a fault and stops the machine when it’s fully. Then it’ll be a pain in the ass to make bad parts, and the operator will have a lot more motivation to do something about it. While you’re at it, put the reject chute on the other side of the machine so they have to walk around the machine to empty it.

Consider a machine with an e-stop button. It’s a big red button with a mushroom head that’s supposed to be easy to hit. However, I’ve seen a lot of machines where the consequence of hitting that button was major downtime because the part tracking got screwed up or the machine just didn’t recover gracefully. I once watched a pallet get bumped out of the track and it was riding along the rail of the conveyor. I hit the e-stop just before it was about to damage some equipment. I was scolded for my efforts: “never hit the e-stop,” he said. That’s the wrong motivation. You want operators to press the button when they see something wrong, so make it easy to recover.

Consider an inventory tracking system. You want people to record stuff they’ve consumed, and what cost account they’ve consumed it against. What motivation does a person standing there with a bolt in their hand have to look up that bolt in your inventory system and mark it consumed? Very little. What if you lock the door to the store room and make them request an item before you unlock the door? That’ll help, but chances are some people who don’t know exactly what they want will click the first item on the list, and just go in and browse. What if you make the inventory storage system so convoluted that the only way to find an item is to look up the storage location in the computer? Well, that might work (until your inventory system breaks).

Like water, people tend to take the easiest path down hill. You’re better off digging a channel where you want it to go than expecting it to get there under its own power. Use gravity to your advantage. Make it harder to do things the wrong way and easier to do things the right way.




What Motivates Makers

A couple weeks ago I wrote a post about budgets, and Ken from over at Robot Shift replied:

My experience when compensation is set up to be win-win it’s a good thing. If someone’s working hard, and doing the right things often their impact far exceeds that of just their hourly contribution. It impacts teams, groups and profitability. If the organization profits from this impact, the employee should as well.

On the surface I think that’s true – we all appreciate profit sharing, but I think Ken’s talking about performance-metric-based-pay. I don’t agree with tying creative work to performance pay. The inner workings of the human mind continue to astound us. An article in New Scientist says:

…it may come as a shock to many to learn that a large and growing body of evidence suggests that in many circumstances, paying for results can actually make people perform badly, and that the more you pay, the worse they perform.

“In many circumstances” – I’m going to talk about one such circumstance shortly. Of course for more surprising information there’s the classic Dan Pink on the surprising science of motivation, and Clay Shirky’s talk on Human Motivation.

There’s a big difference between intrinsic motivation and extrinsic motivation. If you have to choose, intrinsic motivation is more powerful. It costs less, and it’s a stronger motive force. I believe that’s due to the phenomenon of “flow“. If you work in any type of creative field, you know the power of flow – that feeling you get when you’re 100% immersed in your work, the outside world seems to drift away, you lose track of time, but you’re incredibly productive. Without distractions you can focus your full attention on solving the problem at hand. Once you’ve experienced this a few times, it’s like a drug.

For someone like me, assuming I make enough money to pay the bills, I would trade any additional money to spend more time in “flow”. Yes, I’m Scott Whitlock and I’m addicted to flow. (I’m not the only one.) If you have one of those lucky days where you spend a full 8 hours without distractions, wrestling with big problems, you’ll come home mentally exhausted but exhilarated. At night you truly enjoy your family time, not because your job sucks and family time is an escape, but because you’re content. The next morning you’re excited on your drive to work. Your life has balance.

Paul Graham wrote an excellent essay about the Maker’s Schedule, Manager’s Schedule. The Maker blocks out their time in 4 hour chunks because they need to get into “flow” to do their best work. Managers, on the other hand, schedule their days in 30 or 60 minute chunks.

Do you see the problem? If a Manager never experiences flow then they can’t understand what motivates their Makers. That’s why management keeps pushing incentive pay: a lot of Managers are extrinsically motivated and they can’t get inside the head of someone who isn’t.

In case you happen to be a Manager, I feel it’s my duty to help you understand. It’s like this: if you’re addicted to flow, then being a Maker is an end in itself. If you still don’t get it, please read the story of The Fisherman and the Businessman. Ok, got it? Good.

So, if you’re managing people who are intrinsically motivated, here’s how you should setup their pay:

  • Make sure their salary or wage is competitive. If it’s not, they’ll feel cheated and resentful.
  • Profit sharing is ok if you don’t tell them how you arrived at the numbers.

Yeah, that’s crazy isn’t it? But it’s true. Do you want to know why? I’ve spent most of my career paid a straight wage without incentive pay. I did get bonuses, but they were just offered to me as, “good work this year, here’s X dollars, we hope you’re happy here, thanks very much.” Under that scheme when someone came to me with a problem, I relished the challenge. I dove into the problem, made sure I fully understood it, found the root cause and fixed it. The result was happy customers and higher quality work.

For a short time I was bullied into accepting performance-based pay. My metrics were “project gross margin” and “percent billable hours vs. target”. Then when someone came to me with a problem unrelated to my current project, my first reaction was “this is a distraction — I’m not being measured on this criteria.” When I paused to help a co-worker on another team for half an hour on their project, my boss reminded me that I wasn’t helping our team’s metrics. My demeanor with customers seemed to change. Work that used to seem challenging became extremely stressful. I lost all intrinsic motivation. I was no longer working to help the customer – I was working to screw the customer out of more money. It was as if, by dangling the carrot in front of my nose, I could no longer see the garden.

It’s hard for me to admit that. When you’re intrinsically motivated, you’re proud of it. It makes you feel good to do the work for its own sake. For Makers, doing work for performance pay is a hollow substitute. It demoralizes you.

I guess my point is, if you manage Makers, how do you not know this? It’s your job!



On Budgets

What function do budgets serve?

In a case where there are well-known basic requirements, and highly variable-solutions, a budget is essential to curb the tendency to put wants ahead of needs. Take, for example, an automobile purchase. All you need is four wheels. Maybe you need four doors if you have two kids, or a minivan if you have three kids, but you certainly don’t need a sunroof, or a hemi, or a self-parking car. These are luxuries. Maybe you can afford to splurge a bit, but the budget knows there are other needs that take priority, like food, mortgage payments, and utilities.

When we try to take this concept of a budget to the workplace it breaks down. In the workplace, budgets serve one of two purposes: (1) flagging corruption, and (2) investment payback.

Purpose 1: Flagging Corruption

When we know about how much money it should take to do a job, we give the responsible person a budget. “Marty, we’ve been attending conferences in Las Vegas for 30 years. We know it costs about $X, so you have a budget of $X and $Y for contingency.” As long as Marty stays within that budget, keeps his receipts, and can avoid having the escort service charges showing up on his company Amex, he’s good to go. If his expense report comes in at twice the expected amount, then he has to justify it.

When you know how much something should cost, this is an efficient model. It delegates spending to the individual and only requires minor oversight from the accounting department.

Note that the budget wasn’t set based on how much money was in the bank, it was based on historical data, and the company decided there was a payback to send Marty to Las Vegas. That’s a fundamental difference between home and workplace budgets: at home we frequently buy stuff with no perceived payback, but at a company every expenditure is an investment. That’s why the function of budgets at home and at work are fundamentally different.

Purpose 2: Investment Paybacks

When you don’t have good historical data on a planned expenditure, accounting still needs an estimate. Estimates feedback expected expenditures to whoever is managing the cash flow. Budgets are the present-cost of the expected payback, with interest.

When a company looks at starting a new project, whether it’s done internally or subcontracted, first they get an estimate. Then they compare the estimate to the expected payback, and if it pays back within a certain time-frame (usually a couple of years, but sometimes as short as a few months), they go ahead with the project. However, since projects are, by definition, something you haven’t actually done before, everyone acknowledges that the estimate won’t necessarily be accurate. They will generally approve a budget with an added contingency. They’ve done the calculations to make sure that if the project comes in under that budget, the payback will make the company (and the investors) money.

As the project progresses, the project manager needs to track the actual expenditures against the expected expenditures, and provide updated estimates to accounting. If the estimate goes higher than the approved budget, management has to re-evaluate the viability of the project. They might increase the budget if the payback is good enough, or they might scrap the project.

Tying Incentives to Budgets

For home budgets, it’s implied: if you stay within your budget, you’ll make sure to satisfy all your needs, and you’re less likely to find yourself in financial hardship. You have an incentive to stay on budget.

At work, lots of people have their bonuses tied to “performance-to-budget”. If we’re talking about the first purpose of workplace budgets (flagging corruption) where historical data provides a solid prediction of what something should cost, then it makes sense to evaluate someone on their performance to that budget. On the other hand, if we accept that project budgets are based on rather inaccurate estimates, then measuring someone to a project budget isn’t very efficient.

In fact, it leads to all kinds of behaviors we want to avoid. First, people might tend to over-estimate projects because that will raise the budget. This might prevent the company from pursuing projects that could have been profitable. Secondly, project managers tend to play a “numbers game” – using resources from one project that’s going well to pad another project that’s going over. This destroys the accuracy of your project reports; now you won’t know which initiatives really made money. Third, the cost will be evaluated at the end of the project, but the payback continues over a longer time-frame. The project manager will tend to make choices that favor lower cost at the end of the project at the expense of choices that offer higher long-term payback.

Everything I’ve read suggests that (a) project managers have very little influence over the actual success or failure of a project and (b) in any task that requires creativity and out-of-the-box problem solving, offering a performance-incentive reduces performance because you’re replacing an intrinsic motivation with an extrinsic one. The intrinsic one is more powerful.

So why do we tie performance incentives to project budgets? Is there really any research that suggests this works, or are we just extrapolating what we know about purchasing a car, or taking a trip to Las Vegas? As someone who is intrinsically motived, I’ve found budget performance-incentives to be extremely distracting. Surely I’m not the only one, am I?

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