Automation

Automation is the substitution of self-operating machinery or electronics for manual or animal effort to support or control a broad spectrum of processes. Examples range from automatic teller machines, to robotic farm tractors, to securities transactions, and beyond. Henry Ford's use of the conveyor belt to produce Model T Fords in the early 1900s was a precursor to today's assembly lines that feature robotic assembly stations and automated inventory control, testing, and defect detection, all of which can be quickly reconfigured to accommodate variations of car models. Information technology is a form of automation used to process data, transmit information, or handle transactions, such as to order merchandise, buy or sell securities, or make hotel reservations. Automation and the technology change that it represents have transformed economic arrangements and human lives in numerous ways. It has profoundly impacted production processes by increasing speed, accuracy, and sheer output volume, while eliminating some kinds of tedious, repetitive work. Automation that extends the reach of information transmission, processing, and control generates economies of scale that lead to firms being larger and allows production in more disparate regions, thereby increasing the intensity of global competition.

Automation has far-reaching consequences for employment opportunities. It generally substitutes for unskilled labor while complementing skilled labor. As such, automation results in the elimination or outsourcing of some jobs and the creation of new ones. As skill requirements change, members of the labor force must be retrained, and across the board, educational demands are raised.

Automation generally has positive impacts on productivity, economic growth, and the quality of life. It also has far-reaching impacts on the consumer side, lowering the prices of existing products and services, while increasing their quality, and creating entirely new products and services such as digital entertainment (CDs, DVDs, MP3s, etc.). Automation also increases the productivity of consumption within the home, contributing to the quality of leisure time. Examples are dishwashers, microwave ovens, and automatic lawn sprinklers.

Automation commonly involves the substitution of prespecified, codified rules for human judgment. This might be fine during normal times, but anomalies can cause breakdowns, and under stressful conditions in particular, human judgment retains its importance. Automation duplicates human actions with machines and electronic technology, but when automated, tasks themselves can change. For example, many secretarial jobs morph into administrative functions in an automated office environment. Electronic technology can blur national boundaries and, in the words of Thomas Freedman, create a flat world. For example, a phone call from New York City to Akron, Ohio, can be routed through India without either party to the conversation knowing it. Automation can accelerate the speed with which events occur. While it is desirable to get tasks done quickly, production processes must be synchronized; thus timing must be coordinated, and speed can have negative consequences. Faster cars, for example, are not necessarily safer cars, especially if they are cruising down the highway at great speed. All told, automation presents new challenges to public policy and governmental regulators.

In recent years, automation has affected many industries in general and some in particular. One of the most important and complex industries, that involving the securities markets, has moved in the [Page 65]past quarter century from the horse-and-buggy era to the jet age. Equity markets are a good example.

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