ALL THE CARTOONS and jokes notwithstanding, there is nothing very funny about automation. It is one of those great historical forces like the Industrial Revolution. It will probably end by changing living standards for the better-but only at the cost of more than a little harsh human readjustment.

Automation helps explain why the U.S. has more than 4.5 million unemployed in the midst of the greatest prosperity ever Over the past five years, U.S. industrial production has risen some 25% but employment in U.S. manufacturing has declined 2.5%. And. as the table on pages 28 and 29 shows. 65 of the biggest companies as a group are actually employing 62% fewer people domestically than they did a half decade ago.

But automation also helps explain why, in spite of continuing rises in wages, in taxes and in other costs, industrial prices have tended to level off. Over this same period manufacturing wages rose over 18%. Yet chemical prices are off 3.2% from 1957-59 averages: rubber products down 7%; iron and steel off 1.4%. Any increases were modest: motor vehicles up 0.4%, textiles up 0.3% and machinery 2.3. Over-all industrial prices are up just 0.7%.

In recent weeks, FORBES statisticians have been busily rounding up the figures on employment by major U.S. corporations that appear in the accompanying table. The figures cover the five largest companies in assets in each of 13 industries, all of them big employers of labor. To reveal U.S. employment trends, foreign employee figures (which increased 9%) have been removed from all employee totals whenever possible.

More dramatically than words, the figures in the table document the impact of automation. Take the case of giant General Electric Co. The table shows that GE has raised its sales by 11% since 1957, but has cut its domestic employment by 9%. Result: 24.000 fewer jobs. In the chemical industry, E.I. du Pont de Nemours & Co. raised its sales 22% and cut its domestic employment rolls by 6%. All told, the 65 companies covered here raised their sales from $97 billion to $118 billion in five years while cutting their over-all employment from 5.3 million persons to 5.1 million. U.S. employment dipped from 4.5 million to 4.2 million.

Consumers have benefited from this cost-cutting: Du Pont reports its chemical prices are more than 10% below those which prevailed in the mid-Fifties. Automation and mechanization enabled du Pont to absorb

FORBES, JUNE 1, 1963

higher wages and other costs rather than passing them on to customers. The same is true of General Electric. GE's over-all prices are at the 1954-56 level, and prices of appliances like kitchen ranges, TV sets and refrigerators are selling at only 86% to 96% of their 1957-59 averages while product quality has been improved.

No Gravy Train. But if automation has benefited the consumer with lower-or at least stable-prices, it has not provided much gravy for the corporations involved. Far from it. In order to replace men with machines. business has had to invest heavily in new plant and equipment-without a proportionate gain in profits.

Consider American Telephone & Telegraph Co., the U.S.' biggest private employer of labor. AT&T got over 61% more sales per employee in 1962 than in 1957chiefly because it replaced operators with automatic equipment. But the capital costs were staggering: S47,000 for every single employee vs. only $28,000 five years earlier. Another dramatic case of the high capital cost of automation is Standard Oil of New Jersey: In 1957 Jersev Standard backed each name on its payroll with $54,000 in assets; last year it needed almost $77.000 per employee. If big industry had fewer workers, it was providing them with far more expensive tools.

As a group, these 65 large corporations had had assets of $135 billion employed in their businesses as 1963 began: in early 1958 they had just $101 billion. In round sums, they used 34% more. assets to produce 22% more sales with 4% fewer employees. But the over-all result of this automation was a decrease rather than an increase in over-all profitability. Average return on total invested capital for the 65 dropped from 9.9% to 8.7%. in spite of the inclusion in many cases of foreign earnings. Apparently, higher wages, rising costs and the capital charges for new equipment more than absorbed any over-all labor savings. Only 21 of the 65 managed to increase their return on total invested capital.

Automation was not the only reason for declining employment rosters. The profit squeeze forced industry to cut its white-collar staffs and even its employees using existing equipment. Still automation remains the major factor behind the elimination of 300,000 U.S. jobs among the 65 major corporations listed below.

The Good and the Bad. The case of General Electric, the third-largest domestic employer, is fairly representative. When sales volume dropped in 1958, GE laid

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off about 33,000 workers. As volume slowly built back, then exceeded the 1958 levels, GE continued to automate (set up groups of interrelated machines) and mechanize, thus handling its increased volume without adding a significant number of production workers.

If this meant fewer jobs in GE communities, it did, however, bring other benefits to those communities. GE's total dollar payroll went from $1.7 billion to $2 billion. And GE's employees, by and large, had better jobs. Stressing retraining and reduction by attrition of its old, unskilled workers, GE has hired largely technical and clerical people since its 1958 employment slash. The type of jobs within GE has shifted radically away from the unskilled class. So great has the shift been that GE,

like the American economy, now employs more whitethan blue-collar workers. Big industry, in other words, has been upgrading its employment rolls even while trimming them. Du Pont, for example, reports that automation has eliminated many routine jobs which consisted of moving things around in plants by hand. Swift's Disassembly Lines. As the table shows, no industry has been second to food in automating its repetitive production processes. Of food's Big Five, only merger-minded Corn Products Co. failed to cut domestic employment. Typical of the food industry's new automation equipment is Borden's $37,000 automatic biscuit packer. With a single man at its controls, the packer can do the work of 40 women. Borden is doing

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FORD, JUNE 1, 1908

13% more business than it did five years ago, but with 12% fewer U.S. and Canadian employees.

Also in food, Swift & Co. has replaced hand labor by machines which produce "frankfurts untouched by human hands." Its $18,000 hide-remover machines have drastically reduced the use of hand knife work. From 1955's high of 78,000 employees, Swift has reduced its work rolls by 31%. Says one Swift executive, "We have disassembly lines the auto companies copied." But it now costs Swift $11,000 in assets to finance one job vs. under $8000, back in 1957.

Detroit has been another leader in automation. While auto production increased from 1957's 6.1 million units to 6.9 million in 1962, domestic employment has fallen

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at the Big Three. Ford Motor Co. reports that its hourly and salaried people (excluding Philcc) declined from 191,759 in 1957 to 164,428 in 1962. At the same time, the number of cars, trucks and tractors Ford produced domestically rose from 2,269,079 to 2,331,339. In Ford's Cleveland engine plant, single multipurpose machine tools now perform work formerly done by as many as six separate manually operated machines.

Automated long ago, the continuous process industries-chemicals, oils and utilities-have long required unusually high capital-to-labor ratios. Their trend toward larger, more efficient units has continued. The capital cost has been fantastic: Last year it took well over $100,000 to provide a job in the utility industry,

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over $50,000 in oil and $23,000-to-$38,000 in the big chemical companies.

Such expensive equipment, of course, replaces a good deal of manual labor. Some of the newer chemical plants can literally be operated by one or two men in the control room. In the utility field, New York's Consolidated Edison Co. had 2% fewer workers in 1962 than in 1957 yet managed to sell 35% more electricity, 26% more gas and 32% more steam. But with a capital-to-worker ratio of a huge $113,000, Con Edison was hard put to translate this increased productivity into increased profitability: Con Ed's return on total capital was still a modest 5.4%.

The New and the Old. Understandably, the fastestgrowing big industries, defense and office equipment, bucked the trend and increased domestic employment. A high-labor kind of business, defense required less capital per worker than any other industry. But even here employment has in no wise kept up with salesas the table shows. And International Business Machines has been able to increase sales 93; with only a 35% increase in employment.

For many railroads, automation and other job-cutting moves have staved off bankruptcy. The Pennsylvania Railroad notes that old steam engines in use in the early Fifties had to be changed three times on the New York-to-Chicago run, while a diesel can go all the way. In electronic yards, trains are moved mechanically. while one man sitting in a control room can route a train over hundreds of miles of track. Result: The Pennsylvania has managed to stay in the black on a consolidated basis since 1957 in spite of a staggering $137-million decline in revenue. Only lack of capital and powerful unions have held back even more railroad automation and the elimination of thousands of firemen. Industry experts claim steel production can be automated, but the greatest advances are still in the future.

Then computers can be used in mills associated with automated drive and control equipment. In the last five years, steel companies have invested huge blocks of capital for larger equipment, such as bigger open hearths and blast furnaces and oxygen furnaces. With larger outputs, companies haven't needed to operate as many furnaces and have employed fewer crews.

Get Smart! There are several very clear lessons from all of this. One is that the automated world is no place for the unskilled laborer. Jobs which once required a high school diploma now demand a college education. The young man who is too lethargic to learn a skilled trade may end up with no job at all. Witness the widespread unemployment among the unskilled and among young high school graduates. But while the unemployment lines remain long, many highly skilled jobs go begging. And average weekly manufacturing wages go on rising: $81.59 in 1957; $96.56 last year.

The other lesson is that the substitution of machinery for muscle power is no mere capitalistic trick to keep wages down, as Marx claimed. It actually means higher wages for those who do get jobs-and lower prices for consumers. Moreover, the general decline in return on invested capital proves that very few of the dollar benefits of automation really accrued to the corporations making them.

For business, automation has been a means of survival in a competitive world rather than a way to boost profits. In fact, the tremendous increase in productive .capacity that automation is bringing about is putting extra pressure on marketing, on advertising and on over-all corporate management. And its great capital cost has tended to cut over-all corporate profitability. The real message of automation, then, is this: Get training, young man. For the U.S. almost certainly faces a period when mediocrity will be at an increasing discount and skills at an increasing premium.

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