The Automation Incentive

One of the stranger consequences of the health care law might be its effect on technology investment.

We didn’t know it at the time, but a wave of technology investment and implementation within American manufacturing facilities might have gotten its start on December 24, 2009. That was the day the Patient Protection and Affordable Care Act (Obamacare) passed the Senate. The bill seemed all but certain to become law at that point, as it did a few months later.

Timing is everything.  The act’s passage came at a moment after manufacturers had dramatically cut staff, but now were seeing demand increase. Production facilities faced decisions related to how they would increase their output. And as they were facing these decisions, they learned that labor would soon become more expensive and difficult to employ.

Just how much more expensive and difficult was anyone’s guess. Indeed, the uncertainty arguably has been this new law’s greatest failing. Even many critics of the law would at least agree that health care is a valid area for reform, and reform is inherently disruptive. However, when legislators pass a law they do not understand and cannot explain, they force the businesses affected by it to brace for their worst fears in terms of what the potential disruption will be. Essentially, Capitol Hill sent this message: Hire at your own risk.

Meanwhile, technology has always been there. Accessible solutions for automating manufacturing processes have existed for decades, and manufacturers have generally recognized that a process less dependent on direct human involvement ultimately is less expensive. Companies that have resisted automation have done so in large part because of the transition cost. A plant committing to automation not only has to install and master new systems, but also has to change its culture to redefine employee roles. For the most part, this has seemed like too much—until now?

By itself, the health care law is not big enough to turn manufacturers toward greater use of technology. However, automation already had significant pluses in its column. The health care law is big enough to tip the balance, giving automation the win in many cases.

Other factors are also big enough. Health care is not mentioned in either this or this recent article about a shop that recently committed to greater use of automation. Yet I know from private conversations with employers how much their wariness about the impact of this law figures into their reluctance to expand staff.

In the end, though, they will hire—and this is key. To the extent that automation replaces people, it does so by expanding what other people are able to do. The quality of staff is still paramount in an automated process, perhaps even more than it was previously. When the manufacturers committing to automation do eventually add staff, the employees they add will be more valuable to the enterprise because they will be able to deliver more value than would have been possible in the past. Thus, this particular unintended consequence of the new law is one that—over the long term, anyway—might prove to be positive.