Why will Spain get 40% unemployment by 2025?

In the last 10 years, the Spanish economy has gone through many periods of instability fuelled by several factors, both internal and external.

There are 2 structural elements that can potentially lead the country to increase unemployment by around 40% by 2025.

It is not news that a huge chunk of the workforce will be replaced by automated machinery (robots) in the coming years. The first ones to be replaced will be those where the tasks are repetitive hence easy to automate, such as the automotive industry or other factories, as well as the service and tourism industry.

In 15 years, it will be difficult to find a restaurant, a call centre or even a taxi operated by a human being. The following chart by Ray Kurzweil, shows that 2 years from now, a computer will have the capacity of an insect’s brain and a whole human brain in 9 years.

Highly developed countries will be able to survive through the broad access to high quality education and variety of jobs opportunities. Nevertheless, many workers in Spain are what we call ‘low-skilled workforce’, where the tasks are characterized by being repetitive and easily automated. These will be one of the first types of jobs to get replaced.

In developing countries, business owners will not have the required financial means to afford the cost of automation, while in Spain or any other strong Latin American economies, they will be easily accessible and be one of the first choices to increase profit.

IBM Doctor Whatson

There are other professions that will be the first to disappear; there is already a computer capable of diagnosing a patient better than a doctor. It is estimated that doctors will disappear almost entirely in the coming 10 to 15 years.

In the healthcare industry, the replacement is going to be accelerated, since machines will be able to do the work at a fraction of the cost and will not require 5 or 6 years of training.

Spanish public healthcare deficit

There’s a high chance of an early adoption in Health Robots in Spain, as it will help the government to reduce their huge social security deficit (keep in mind that there is a high number of low-skill workforce and doctors in Spain).

The chart by Ray Kurzweil we saw before also depicts that the growth of computer power is exponential, which means that replacement will occur in an accelerated way, that is to say, destroying more and more jobs every year.

The Spanish government will probably try to face the disruption by imposing new laws, rules or decrees, but the country has a structural problem that only few people can see.

Due to my work as a business consultant, I learnt some patterns that are generally seen in organizations with high financial deficits.

Imagine that company X wants its star product to be cheaper and more attractive (we call them company requirements). In a traditional organization, management will create 2 new departments, one responsible for making the product cheaper and another for making it more attractive

The issue here -difficult to see at first glance- is that every time a new business requirement is added (cheaper, more attractive, etc.), complexity is increased (things we need to deal with).

The real problem is that for each additional requirement, we will have to find new people (or robots), create roles, see how they relate to the rest of the company, and create rules for their way of behaving as well as a lot of additional rules. We call this ‘increase in complication’.

An increase in complexity substantially increases the number of rules (complication), which makes the company less effective, slower, and much more expensive to run

The chart on the right hand side shows a research done by the Boston Consulting Group, where it can be seen that between 1955 and 2010 companies increased their complexity by 6 (requirements), which led complication to increase by 35 (related rules, departments to be created, power chains, Etc.).

Which may not seem obvious here is that for each new requirement (for example that we now want the product to be eco-friendly), we raise complication by several times. As the relationship is not linear but exponential, for each new addition to the lower line, we will increase the top one by 5 time or more.

Companies where more and more rules and departments and exceptions are added to solve a problem, become slow monsters that struggle to adapt and eat most of their profits on trying to sustain their structures.

It is almost a habit in Spain to create big number of decrees and laws to try to deal with simple problems or exceptions. They generally end up with hundreds of rules and procedures all the time, but they barely remove any of them!. People also believe that politicians are paid to create new laws and decrees instead of removing them.

Solving peoples’ problems with new laws sound like the right thing to do, but if you take into account what I mentioned earlier, you will see that that it exponentially increases the money needed from the taxpayer to sustain the model. This will create an upward spiral, where more and more funding will be needed, as we have seen in recent years. This effectively leads to a perpetual increase on taxes.

A few weeks ago, the government intervened by introducing new rules to try to regulate how the clients overcharged by junk mortgages, would be repaid by banks (and in that way avoid them to go to court). This action increased the complexity and complication, created new procedures and exceptions, which made the government spend the tax payer money inefficiently, this will ultimately lead to an extremely expensive solution in the long run.

If we take into account at the fact that each law or decree increases complication by 6 (infrastructure to support it), you will understand that the government will have less room for maneuver in the event of any unexpected market disruptions (i.e. robots).

Since there is no plan to simplify the government model (constant removal of laws and decrees), there will be little capacity for the Spanish government to change this situation.

It is estimated that global unemployment will reach 47% to 81% in the coming 20 years and Spain will be one of the first economies to be hit due to the 2 factors mentioned before.

Having in mind all the information provided, it is wise to believe that the unemployment rates will reach 40% by 2025.

It is not related to the liberalization of markets, free trade agreements nor immigration -which, by the way, it is a simplistic explanation- but other factors that are even more complex and slightly unrelated.

Spain still has time to change their future, but for this to happen, a cultural and structural shift needs to begin before January 2018.

Read more about IBM Doctor Whatson in here: https://www.google.es/amp/s/futurism.com/ibms-watson-ai-recommends-same-treatment-as-doctors-in-99-of-cancer-cases/amp/

Read about unemployment predictions for 2025 and robotics -from the Boston

Consultancy Group and Oxford University- in here: http://www.bbc.com/news/technology-33327659

Thanks for listening,
Erich.

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