In The Headlines

Automaton and the Changing Face of American Manufacturing

The loss of American manufacturing jobs has been a mainstay issue of national elections for many years. The underlying problem now, though, is not foreigners taking American jobs, but instead the fact that factories do not need as many people as they used to because machines now do so much of the work. America has lost more than 7 million factory jobs since manufacturing employment peaked in 1979. Yet American factory production, minus raw materials and some other costs, more than doubled over the same span to $1.91 trillion last year, according to the Commerce Department, which uses 2009 dollars to adjust for inflation. That is a notch below the record set on the eve of the Great Recession in 2007. And it makes U.S. manufacturers No. 2 in the world behind China.

Critics are right that trade has claimed some American factory jobs, especially after China joined the World Trade Organization in 2001 and gained easier access to the U.S. market. And industries that have relied heavily on labor—like textile and furniture manufacturing—have lost jobs and production to low-wage foreign competition. U.S. textile production, for instance, is down 46% since 2000. And over that time, the textile industry has shed 366,000, or 62%, of its jobs in the United States. But research shows that the automation of U.S. factories is a much bigger factor than foreign trade in the loss of factory jobs. A study at Ball State University’s Center for Business and Economic Research last year found that trade accounted for just 13% of America’s lost factory jobs. The vast majority of the lost jobs—88%—were taken by robots and other homegrown factors that reduce the need for human labor in factories. “We’re making more with fewer people,” says Howard Shatz, a senior economist at the Rand Corp. think tank.

General Motors, for instance, now employs barely a third of the 600,000 workers it had in the 1970s. Yet it churns out more cars and trucks than ever. Or look at production of steel and other primary metals. Since 1997, the United States has lost 265,000 jobs in the production of primary metals—a 42% plunge—at a time when such production in the U.S. has surged 38%. Allan Collard-Wexler of Duke University and Jan De Loecker of Princeton University found last year that America didn’t lose most steel jobs to foreign competition or faltering sales. Steel jobs vanished because of the rise of a new technology—super-efficient mini-mills that make steel largely from scrap metal.

And the robot revolution is just beginning. The Boston Consulting Group predicts that investment in industrial robots will grow 10% a year in the 25 biggest export nations through 2025, up from 2% or 3% growth in recent years. The economics of robotics are hard to argue with. When products are replaced or updated, robots can be reprogrammed far faster and more easily than people can be retrained. And the costs are dropping: Owning and operating a robotic spot welder cost an average $182,000 in 2005, $133,000 in 2014, and will likely run just $103,000 by 2025, Boston Consulting says. The firm estimates that robots will shrink labor costs 22% in the United States, 25% in Japan, and 33% in South Korea.

But the rise of the machines offers an upside to some American workers. The increased use of robots—combined with higher labor costs in China and other developing countries—has reduced the incentive for companies to chase low-wage labor around the world. Multinational companies are also rethinking how they spread production across the globe in the 1990s and 2000s, when they tended to manufacture components in different countries and then assemble a product at a plant in China or another low-wage country. Both the 2011 earthquake and tsunami in Japan which disrupted shipments of auto parts, and the bankruptcy of the South Korean shipping line Hanjin Shipping which stranded cargo in ports, exposed the risk of relying on far-flung supply lines. “If your supply chain gets interrupted and your raw materials are coming from offshore, all of a sudden shelves are empty and you can’t sell product,” says Thomas Caudle, president of the North Carolina-based textile company Unifi.

Now the United States is seeing the return of companies as they look to capitalize on the savings provided by robots, cheap energy, and the chance to be closer to customers. “They don’t have all their eggs in that Asian basket anymore,” Caudle says. Over the past six years, Unifi has added about 200 jobs, bringing the total to over 1,100, at its automated factory in Yadkinville, North Carolina, where recycled plastic bottles are converted into Repreve yarn. Unmanned carts crisscross the factory floor retrieving packages of yarn with mechanical arms—work once done by people.

In a survey by the consulting firm Deloitte, global manufacturing executives predicted that the United States—now No. 2—will overtake China as the most competitive country in manufacturing by 2020. (Competitiveness is measured by such factors as costs, productivity, and the protection of intellectual property.) The Reshoring Initiative, a nonprofit that lobbies manufacturers to return jobs to the United States, says America was losing an average of 220,000 net jobs a year to other countries a decade ago. Now, the number being moved abroad is roughly offset by the number that are coming back or being created by foreign investment. Harold Sirkin, senior partner at Boston Consulting, says the global scramble by companies for cheap labor is ending. “When I hear that (foreigners) are taking all our jobs—the answer is, they’re not,” he says.

Citations

1. http://bit.ly/2elKPwg – Chron
2. http://bit.ly/2edBn2Y – Automation World

Innovia Grows by Turning Cash into Plastic

Mark Robertshaw is the Chief Executive Officer of Innovia, the world’s leading maker of plastic money. If that sounds like faint praise—such bills account for only 3% of the world’s money—there is plenty of reason to believe Innovia will become a bigger force in the $1.3 billion bank note industry. The £5 note the firm produces for the U.K. makes it the latest of about 30 countries to start shifting toward plastic cash, a more durable and secure alternative to the cotton in your $20 bills. Of the 50 billion-plus plastic notes now in circulation, Innovia made more than 99%. “There is a received wisdom out there that cash is disappearing,” Robertshaw says, and adds “Statistics don’t support that.”

The number of bank notes in circulation grows by about 3% a year. Making the bills is a lot more technical than it was under the Tang or Song dynasties more than a millennium ago, or in the 13th century when explorer Marco Polo first brought Asia’s cotton money back to Europe. (Before that, currencies tended toward metals, shells, and salt.) Materials have to resist rips and stains, as well as incorporate ever-more-complex security measures to discourage forgers. “There’s a lot of science behind bank notes that people probably don’t appreciate is there,” says Victoria Cleland, the Chief Cashier at the Bank of England. Before awarding Innovia the contract for the U.K.’s plastic pounds, her team spent more than five years studying potential materials for the new notes, examining whether, for example, holograms verifying a bill’s authenticity could be easily incorporated into a particular polymer. The U.K. put the first of 440 million plastic £5 notes into circulation in September; it will introduce a £10 bill in June made by Innovia. The company is bidding on the contract for the £20 note to follow.

Innovia has come a long way from its start making cellophane in the 1930s and a midcentury expansion into cigarette packaging and shampoo bottle labels, which the company still makes. It added bank notes to its portfolio in the 1980s, when Australia’s central bank was looking for bills that could better withstand the heat Down Under. Now they account for about one-third of the company’s £380 million ($468 million) in annual revenue, Robertshaw says.

Plastic bills cost a few cents each to make, about twice the cost of paper, but they last five times as long, according to Robertshaw. “They can go through your washing machine,” he says. “You can dip them in your wine.” YouTube videos show the new £5 notes being used as a needle to play a vinyl record; others have shown that fire will melt them. “We don’t claim they are indestructible,” Robertshaw says.

On the 10th floor of the Wigton factory, Innovia’s team starts the assembly process by melting small beads of plastic in a 482F furnace. By blowing in air, the machinery creates a bubble large enough to fit a couple of people inside, stretching out the plastic into a thin film. Rollers then smooth and stretch the material to 65 times its original length. Holograms and other security features are printed onto the plastic along with special inks, and the plastic is cut into 60-bill sheets. Innovia then sends the sheets to bank note maker De La Rue, which adds the bills’ designs (the Queen, Winston Churchill). Innovia’s plastic carries a unique chemical signature, so a keychain-size scanner used by retailers and banks can identify if a bill is real. While no hard currency is fake-proof, the goal is to make forgery tough enough to be unappealing, says De La Rue designer Steve Pond. Canada’s government says since it moved to plastic money, it has seen counterfeiting drop from 400 bills per million to 1 bill per million.

Victoria Cleland says the Bank of England chose Innovia after trying to counterfeit the bills. “It was much more difficult in terms of the raw material needed, the printing machinery you would need, and the time that it took,” she says. Since the U.K. introduced the bill, several central banks have reached out to her to learn more about the production process. The priority should be eliminating some cash entirely, says Kenneth Rogoff, former Chief Economist for the World Bank. In a new book, The Curse of Cash, Rogoff argues that central banks should remove large-denomination bills from the system because they are mainly used for crime and tax avoidance. “A significant share of the demand for cash comes from the underground economy and is almost completely because of its anonymity,” he says.

Rogoff predicts that future cash registers will include scanners that log purchases with plastic bills, blending elements of digital and physical currencies. Robertshaw says the technology exists to track their travel. That is the kind of technology that may help combat crime, but it would surely unsettle privacy advocates. The Bank of England is among those studying ways to introduce a government-backed digital currency, like a bitcoin issued by the central bank. For now, Cleland says, “it’s a long way off. Polymer is in the street much earlier.”

Citations
1. http://bloom.bg/2fj8MsH – BusinessWeek
2. http://bit.ly/1ZGxogo – Bank of England

The Good News Is . . .

• The Bureau of Labor Statistics reported that the U.S. economy added 161,000 jobs in October and the unemployment rate moved down to 4.9%. Average hourly earnings climbed 10 cents, reflecting a 2.8% percent annualized increase. Services set the pace for new jobs, adding 43,000 including 8,000 in computer systems design and related services, while health care grew by 31,000. Financial services employment also grew, adding 14,000 jobs.

• Computer Sciences Corp., a leading computer services company, reported earnings of $0.61 per share, an increase of 10.9% over year-earlier earnings of $0.55 per share. The firm’s earnings topped the consensus estimate of analysts by $0.13. The company reported revenues of $1.93 billion, a 7.0% increase. Management attributed the results to strength in its Global Businesses Services segment and improved operating margins.

• The chip maker Broadcom announced it has agreed to acquire Brocade Communications Systems, a maker of routers, switches, and other computer networking equipment, for $5.5 billion in cash. It is the latest deal in the rapidly consolidating semiconductor industry, where companies are seeking to achieve greater scale and to provide a larger array of products to their clients. Under the terms of the deal, Broadcom said that Brocade investors would receive $12.75 a share in cash.

Citations

1. http://bit.ly/1gck641 – Bureau of Labor Statistics
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2eMB9M9 – Computer Sciences Corp.
4. http://nyti.ms/2fJ0N9I – NY Times Dealbook

Planning Tips

Guide to Understanding a Digital Insurance Concierge

“Insurtech” refers to the use of technology innovations designed to drive savings and efficiency in the current insurance industry model. One such innovation, a type of software app known as a digital insurance concierge, is a tool that helps consumers manage their various types of insurance coverage. Below is a brief guide to the digital insurance concierge. Such tools provide many conveniences for their users, but the technology is new and it is best to consult with your financial advisor if you are considering using digital insurance concierge software.

What is a digital insurance concierge? – A digital insurance concierge is an insurance technology tool that manages all your policies on one mobile platform. It seeks to provide convenience and transparency for policyholders who have multiple insurance policies which they prefer to access easily and manage hands-on.

How does a digital insurance concierge work? – Traditionally, a policyholder with various forms of insurance coverage only deals with the insurer providing that coverage. If you have auto coverage with one insurance company and health insurance coverage with a different insurance company, you will have to deal with both companies separately. The digital insurance concierge, however, brings together both coverages under one dashboard for you to access and manage.

Duplicate or missing coverage – With a digital insurance concierge, a policyholder with multiple coverages under different insurers not only can manage his or her policies under one umbrella, but can also see where there is duplicate or missing coverage. For example, suppose you have an auto insurance policy that includes coverage for your car being destroyed by fire while parked in your garage. while parked in your garage. This can be flagged as a duplicate provision if your home insurance policy also provides coverage for all assets damaged in a home fire. By analyzing your policies in-depth, the concierge app is able to save the user unnecessary premium costs paid to insurers annually.

Appropriate coverage – A digital insurance concierge is able to determine whether you are appropriately covered. By analyzing the different policies on the dashboard, the concierge can alert you on the need to buy more coverage provided by an insurer or to get rid of unnecessary coverage. For instance, a home owner in New Orleans who has basic home insurance coverage that covers only theft will be notified by the digital concierge to include flood insurance, as he or she will be deemed to be currently under-insured. Likewise, auto coverage which includes a natural disaster like a volcano eruption for a policyholder who lives in Maryland will be flagged as over-insurance. Some insurance concierge apps, like Brolly, use artificial intelligence to evaluate whether you are under- or over-insured and whether there is better-priced coverage in the market.

Scouting coverage for specific assets – Some digital concierge platforms give you the ability to include information about your acquired assets such as a car, cabin, boat, jewelry, antique furniture, artworks, etc. A digital concierge app called Trov allows its users to organize all this information online. Using Trov, you can scout which insurance coverage is available for each of your assets based on the current market value of these assets. This lets you select the right insurance for your needs, and the insurer has better information on the value of assets to price the coverage appropriately. Trov is an on-demand insurance concierge that provides you with the ability to activate, re-activate, and de-activate insurance as needed.

Citations

1. http://bit.ly/1o2PecZ – CBInsights.com
2. http://bit.ly/2edBBHl – Investopedia
3. http://bit.ly/2edD5Bk – Forbes
4. https://www.trov.com/ – Trov
5. http://bit.ly/2ftyw3r – DigitalInsuranceAgenda.com