An Epidemic of Company Failures Will Lead To Workforce Automation

London is such a melting pot of people. As I write this I’m on the banks of the Thames. Out the window to my left there’s a pigeon scratching its head. On the water river cruise boats motor one way and battle the current the other.

On the walkway below I see two women walking, hands full of shopping bags, dripping in gold and clearly foreign money. There are lots of families. Lots of kids. I think it’s school holidays. Mums and Dads must have taken some time off work.

I see two older ladies, probably retired, having tea in a cafe.

Then there’s the influx of business people.

Most of the business-crew are well dressed. It is London after all. Although some wear trainers with their business suits. Obviously trying to protect their feet from the stresses of more formal business attire. Little do they seem to care that they are committing the ultimate fashion faux pas. I’m cringing just thinking about it.

There are bags, shopping bags, suitcases, briefcases, tourists, travellers, business people, students, families, and everywhere pigeons.

They all are doing whatever it is they’re doing today. I watch them walk past and wonder what they do. What do these people do for a living? Those women with the shopping bags, how do they get their money to pay for them?

It’s at that point I wonder if they know the future that’s approaching. That the job they do today might not exist in the next five years. And that in order to stay relevant and in the workforce they’ll have to pick up new skills and look for new jobs.

Failures reach epidemic levels

In all reality I could be sitting anywhere in the world. Everyone you see, the people you know, everyone’s job is at risk thanks to coming technologies.

Without new technologies companies will struggle. There will be companies that fail. Lots of them. Some will fail because they can’t adapt, some will fail due to economic downturn. But as they fail, they will leave a lot of people out in the cold.

Company failures are reaching extraordinary numbers in Australia. Is it an epidemic? Can something be done to keep them alive?

Well if you have a look at Arriumn’s Whyalla plant, they’re doing their best to stay alive.

As part of Arrium’s administration, they’re trying to get the plant to a satisfactory state of business in order to sell it off.

For the workers at the Arrium plant that’s going to mean a 13% pay cut. Their union isn’t happy with this – they’re targeting a 7.5% pay cut. Either way, pay cuts are coming.

As I wrote on Wednesday, would you rather take a pay cut or lose your job completely? Keep in mind that the chances of reemployment in your current profession are getting slimmer and slimmer.

In some situations you should see the writing on the wall anyway. You should have a pretty good idea if you work in a business that’s battling. As an employee, if you don’t know how your work is going, ask.

Why wouldn’t you? It’s not illegal to ask your boss if the company you rely on for income is going to still exist in 12 months’ time. In fact if you don’t ask…well can’t say we didn’t warn you.

Take a look at the mining industry for example. If you work in mining, you’d be pretty nervous right now. In the first five months of 2016, 170 mining and metals companies went bust. That’s right, 170!

But you think that sounds bad, it get even worse in the construction industry.

According to MiningWeekly,

‘…the mining industry is still better off than the construction industry, which has the highest insolvency rate so far this year.

The industry has reported 625 insolvencies, accounting for 18% of the total Australian insolvencies (3,634) for the five-month period.’

In the 2015 calendar year there were 10,164 insolvencies in Australia, according to ASIC. This is well up from the 8,794 insolvencies in the 2014 calendar year.

Comparing the 2016 March quarter to the 2015 March quarter we find that,

  • Court liquidations were up 40.4%
  • Creditors’ voluntary liquidations were down 7.6%
  • Receiverships were down 8.4%
  • Overall voluntary administrations were up 9.4%

If you break it down even further we can see exactly where these insolvencies were coming from. And it’s alarming. Comparing industry insolvencies from the March quarter 2015 to the March quarter 2016,

  • 3% increase in the ‘accommodation & food services’ industry.
  • 7% increase in the ‘education & training’ industry’
  • 6% increase in ‘professional, scientific & technical services’

Companies are going under at alarming rates. Are these insolvencies avoidable? Probably. Some businesses and business owners are destined to fail for their own reasons. But many can’t compete and stay alive with high wages and unproductive humans.

The alternatives are to automate the workforce — which is happening — or lower wages. But lower wages are unlikely because who’s going to offer a pay reduction in their next annual review?

Reskill — if there’s a provider still in business

So the outcome is pretty clear. If people won’t accept being paid less — or they won’t accept being paid appropriate money for their job — then the workforce will automate.

That will in turn see a spike in unemployment. For those unemployed, the future isn’t all that bleak (sort of). With enough foresight, they can retrain and reskill. However (and here’s the catch 22) the industry required to help achieve that is the one struggling most.

The industry we need to see thriving is the exact one where we see the greatest rise in insolvency. If something isn’t done to rectify this now, then the future will be bleak for a lot of people.

Another report in the Sydney Morning Herald highlights that,

Forty per cent of today’s workforce — more than five million people — will likely be replaced by automation in the next 10 to 20 years, according to the Committee for the Economic Development of Australia,’

Now it also does explain that the future isn’t as bad as it might seem. These new technologies will take jobs, but they’ll also create them too. There will be enough jobs for all!

Well, yes and no.

Sure there will be a raft of jobs that we don’t have today. But the problem is the kinds of jobs that will exist versus the kinds of jobs we’ll lose to technology.

Let me explain…

If you’re a truck driver you’re probably going to lose your job in the next five years. Volvo, Mercedes Benz, and Freightliner — all the major trucking companies are working on automated trucks.

A truck that can drive cross-country on its own. It will operate 24/7. It will revolutionise transport & logistics. It will do so without breaks, sleep or narcotics. It will be far better than a truck driven by a human.

Sorry to be the bearer of bad news, but that’s just the future. Now if that’s the case and there’s mass unemployment in trucking, what will they all do? They can’t just pick up a ‘social media engagement’ or a ‘roboticist’ job now can they?

They must retrain. And they must do it now. But without a thriving education system for adult education, things don’t look so great. The only other option available is to end up doing menial work for pennies — or take massive pay cuts.

How it plays out will create a lot turmoil. Uncertainty and confusion will continue to reign. But if you can see it coming, you can prepare for it. If you don’t, expect to suffer the consequences.


Sam Volkering,
Editor, Money Morning

Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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