How boosting small businesses will help soften disruptive effect of machines
Artisanal firms need more support to create jobs and boost economies in the face of automation
In the award-winning book Rise of the Robots, futurist Martin Ford argues that automation will lead to widespread job losses, not only in the traditional blue-collar sectors, but also among white-collar workers. Conventional production chains and large industries have indeed invested massively in automation in the past few years. A study by McKinsey shows that many companies recovering from the 2008 financial crisis have replaced retrenched workers with machines, thus leading to "jobless" recoveries.
According to Oxford University, no less than 50% of all jobs will be lost in US and Europe in the next two decades due to the rise of automation and artificial intelligence.
In China, investment in automation is unprecedented, with leading companies such as Foxconn, which produces iconic gadgets such as the iPhone, having replaced more than 60,000 workers with robots.
In SA, too, we have begun to see the effects of automation in traditional sectors such as mining, which – coupled with plummeting commodity prices – has led to thousands of retrenchments in the past few years.
For as long as we keep supporting an economy dominated by large industrial systems, we cannot be surprised if we end up with fewer jobs and ever more concentrated profits. Top-down industrialisation is designed to maximise economies of scale and mass production, of which robots are the ultimate champions. What we need instead is a different industrial policy that puts small, medium and micro-enterprises (SMMEs) at the core of the development strategy.
SMMEs account for about 70% of jobs in the most industrialised countries, according to estimates of the Organisation for Economic Co-operation and Development, an institution representing the world’s richest nations.
Importantly, SMMEs also account for most new jobs. These companies are more flexible, adaptable and labour-intensive than large corporations, thus creating a much more dynamic professional environment and reducing the risk of alienation of the workforce.
Moreover, SMMEs benefit from a number of positive externalities, including the fact that they hire local workforces, reinvest in their communities and tend to reduce waste, thanks to customisation rather than mass production.
Yet small business faces huge challenges globally, especially in economies in which large industries capture most market opportunities. It struggles to access finance and is often confronted with higher interest rates than big business. SMMES are also hampered by regulatory burdens, red tape and convoluted procurement processes that put them at a disadvantage vis-à-vis larger and more established companies.
Not only do we need different procurement policies allowing SMMEs to access tenders, but we also need public and private institutions to view small businesses as preferential partners in the delivery of most services
I cannot think of a worse environment for SMMEs than SA. Historically, we have developed an "extractive" economy dominated by a few gatekeepers (large mining companies, commercial agriculture and so on) that has then been complemented by a "supermarket" economy dominated by big retail. We have given the upper hand to Woolworths, Pick n Pay, Checkers and the like, while virtually eliminating bakeries and butcheries.
We have tonnes of fast-food franchises that, besides providing unhealthy food to our people and driving up the rates of diabetes and cardiovascular disease, are outcompeting the ever-smaller population of family restaurants.
We have a handful of large banks dominating the credit landscape, but practically no local community-based banks. We have shopping malls everywhere, but very few local markets. In short, our economic infrastructure is designed against small business.
Despite these adverse structural conditions, our country’s SMMEs have survived. According to the State of South African small business report, produced by World Wide Worx in partnership with Xero, there are more than 600,000 small businesses nationally, contributing more than half of our GDP. Most of them started with less than R100,000 of funding and, despite the economic crisis, more than a third of them have been profitable since the beginning.
Confirming the sense of empowerment that comes with running one’s own artisanal firm, the majority of SMME owners believe they are making more money than they would have working for someone else. According to the Labour Force Survey, SMMEs produce almost 60% of all jobs in the country, although data in this field is often patchy.
Against this backdrop, how can we support the "rise of artisans"?
First, we need better economic accounting. Large corporations are generally seen as more profitable than small businesses because our economic performance indicators are off track. Instead of looking only at revenues, we must also include data on environmental effects (such as pollution and waste) and social effects (for example, local employment and community investment) that show how SMMEs outperform large business by far.
Appreciating the competitiveness of small business should result in more favourable taxation policies, abolition of any direct or indirect subsidy to big business and easier access to finance. Indeed, while many large corporations can easily access credit at low interest, most SMMEs are given no alternative but to rely on microfinance and family support.
It is important for SMMEs to be integrated into value chains, but as long as the latter are dominated by large industries, small business will see marginal gains at best.
Not only do we need different procurement policies allowing SMMEs to access tenders, but we also need public and private institutions to view small businesses as preferential partners in the delivery of most services. Then we need training opportunities, as entrepreneurship requires critical skills not all artisans possess.
Finally, we can turn the automation process on its head by using technologies not to reduce jobs through mass production but to create more through customisation. For instance, information and communications technology can be used by small farmers to predict weather patterns, monitor soil productivity and connect directly with customers and local markets. Three-dimensional printers can help carpenters, plumbers and mechanics to manufacture components traditionally delivered only by large corporations.
New tools can help artisanal miners become collectors of minerals and metals lying in our landfills (due to e-waste such as cellphones and computers).
As I discuss in my book, Wellbeing Economy: Success in a World Without Growth, the rise of artisans connects job creation with social justice and the ecological transition towards sustainable and equitable development. To encourage an open debate on some of the themes raised by the book, my centre has organised a series of public lectures on "economic transformation" to be delivered by the leaders of the three big political parties.
The first lecture will be given by DA leader Mmusi Maimane on August 17 at Wits School of Governance in Johannesburg and the general public is invited to attend. It is part of our effort to inform the policy debate in SA, especially at a time when conventional recipes continue to prove unsuccessful.
• Fioramonti is director of the Centre for the Study of Governance Innovation at the University of Pretoria.