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Can history help guide investors during this period of rapid technological change?

Simon Edelsten, manager of the Artemis Global Select Fund, looks back at what the adoption of new technologies since the Industrial Revolution has meant for workers, societies and investors. Simon believes that, as in previous periods of rapid technological change, there will be winners and losers. Companies that make the most of the opportunities may thrive for years to come; those that don’t are worth avoiding even if they look ‘cheap’.

Engels and the Luddites…

In 1768 the first automated sawmill in Limehouse was burnt to the ground by disgruntled sawyers. The British Parliament, which was quite decisive in those days, responded by passing an Act making the destruction of machines a felony punishable by death. This did not stop attacks on machines, like Cartwright’s power loom and his wool-combing machine, or papermaking and cotton-weaving machines.

Thought to have been named after Ned Ludd, an apprentice who allegedly destroyed two textile frames in 1779, Luddite riots became common. They led Frederick Engels to argue in his seminal book The Condition of the Working Class in England that the profits from automation went to owners; and that machines impoverished workers. Writing in 1845, he had a point.

Many of the early machines undercut the costs of the home-working artisanal producers. The new factories were not only much more productive, but the equipment could be operated by young – often very young – newly-trained workers. Though some artisans did find work in the new factories, wages were often lower.

In subsequent waves of the Industrial Revolution, the benefits of automation were more clearly spread. But the broader benefits did not, of course, stop threatened workers from objecting – generally through strikes, rather than by smashing machines. Some of the more colourful strikes included:

  • 1900 – New York streetlamp lighters’ strike. Policemen tried climbing up and lighting the gas lamps, but children went along behind them, turning them off again.
  • 1926 - General Strike in the UK was an attempt to prevent lower pay and worsening conditions for 1.2 million locked-out coal miners.
  • 1945 – New York skyscraper elevator operators’ strike. This left workers either having to climb the stairs of the Empire State Building (it has 102 floors) or go home. The owners brought forward plans to install automated lifts.
  • 1958 – US longshoremen’s campaign against containerisation. A resolution was agreed with unions, but the global introduction of shipping containers could not be stalled.
  • 1968 – US telephone operators’ strike. 160,000 operators refused to place calls, but automated boards were already sufficiently widespread to enable management and their allies to handle most calls.

None of these strikes could stall the adoption of new technology. Indeed, they often had the opposite effect – encouraging owners to accelerate adoption.

The sector that bore the greatest change from the introduction of machinery was agriculture. From the 1930s to the 1960s the share of farms using tractors rose from 17% to 80%, with a parallel collapse in the use of horses. Without horses to feed and groom, farmers saw their productivity rise by 30%. Improved ploughing, sowing and automation of the food manufacturing chain brought further leaps in productivity. Between 1870 and 2015, the percentage of the US population working in agriculture fell from 46% to 1%.

You’ve never had it so good…

Periods of adjustment to new working practices certainly were distressing for those whose skills had been superseded. Many, especially the old, struggled to fit into the new economy.

Overall, however, society benefited. Technology brought us electric light, cheaper food and goods and the opportunities of travel. It took the drudgery out of house-cleaning and laundry. Displaced gas lamp lighters, farmhands, buggy drivers and house maids, generally, found new roles – often in more salubrious conditions. Many new products created their own demand and spawned new industries; cars and aeroplanes stimulated the development of tourism and road haulage. It is startling to recognise that nearly half of current American employment is in jobs that simply did not exist in 1870.

Technology eventually improved incomes. The productivity gains from the Second Industrial Revolution, from 1870 through to 1914, led to rapidly rising real wages across much of society. This trend continued for most of the 20th century. Strong growth in equity markets shows that capitalists continued to reap the financial benefits too.