I Haven’t Worked in Industry, But I’m Right About America’s Robot Problem

With capital-lite corporate strategies shaped by Wall Street’s demand for high returns on assets and invested capital, U.S. firms invest relatively little in robotics.

The United States lags far behind China in industrial robot adoption. This is particularly bizarre given that robot adoption should correlate with labor costs: Higher labor costs make the payback from installing robots much faster. And because Chinese labor costs are significantly lower than those in the United States, we should be the ones in the lead—not China.

So, what’s going on? As ITIF has written, the CCP has made robot adoption a national priority; one might say, an obsession. Not only do Chinese government officials give “administrative guidance” to companies (essentially, “you will install robots!”), but they also provide massive subsidies for doing so. Installing robots in China is a key part of the country’s “great rejuvenation.”

The United States is the yin to China’s yang. With capital-lite corporate strategies dominant because of Wall Street pressures for high return on net assets (RONA) and high return on net invested capital, U.S. companies invest relatively little in robotics. (They maintain high RONA by keeping assets low.) And companies that do install robots have to engage in all sorts of contortions to show that they would never, ever use robots to lay off workers. Finally, while the United States once had an investment tax credit for installing new machines, Congress—under the guidance of neoclassical economists who said this was inefficient—eliminated it in 1986.

We can see the results in the latest NSF innovation survey, which now asks questions about adoption of new technologies. The 2023 survey not only shows that firms don’t adopt robots, but that they don’t even think they should. A whopping 55 percent of manufacturing companies not only don’t have robots but also think “this technology is not applicable to my business.” Another 21 percent did not know, and 14 percent said robots were applicable, but they didn’t use them. Just 8.3 percent had adopted robots.

Now, I am not a business executive (unless you want to call the think tank world an industry), but I have to say I get irritated when I hear executives pontificate about tech-industrial policy even though they’ve never studied it. Still, the fact that 76 percent of manufacturers either don’t want robots or don’t know if they’re relevant seems shockingly high, especially as robotics technology has vastly improved and fallen in price over the past decade. Do these companies still use fax machines?

This is even more problematic because, just as there are externalities from company investments in R&D (companies don’t capture all the benefits, which is why we have an R&D tax credit), there are also societal externalities from investment in new machinery. In fact, research shows that companies capture only about half of the total societal return from their investment in new capital equipment. That means that, absent some kind of policy intervention, the rate of capital investment, including in robots, will be suboptimal.

It’s time to face reality. The U.S. economy is capital-lite, and it is designed to be that way. China is capital-heavy, and it is designed to be that way. It doesn’t take a weatherman to know which way that wind blows: Chinese labor productivity, especially in manufacturing, will continue to grow, giving Chinese firms a double advantage in global markets—relatively low labor costs and strong productivity. U.S. manufacturing labor productivity is likely to stagnate or even continue to decline, as it has for the last 13 years.

If this is the case, the only way to keep U.S. manufacturing from declining even more is either to impose tariffs (or other taxes such as a border-adjustable VAT or import bans on Chinese goods) or to accept a significant decline in the dollar (something that needs to happen anyway).

Why does almost no one in Washington seem to even notice these trends—much less care about them? This should be on the front page of The Wall Street Journal, Forbes, and even The New York Times. The answer lies in the insular “Panglossian” nature of U.S. economic thinking. As Dr. Pangloss stated, “everything is for the best in the best of all possible worlds,” despite evidence to the contrary. Everything is for the best because, by definition, market forces always produce the best (leaving aside business-cycle dips).

If we could change just one thing in Washington when it comes to economic thinking, it would be this: We no longer live in Dr. Pangloss’s world. We live in a world of massively unfair competition with China that is based on anything but market forces. And because of Wall Street, market forces now focus not on the maximization of long-term national value but on short-term shareholder returns. That is producing bad results for the nation.

Not enough space here to address the issue in full, but here’s one idea: President Trump should issue an annual award at the White House to firms that have done the best job of installing robots, and use his bully pulpit to shame other executives who have gone capital-lite and failed to invest in automation.