By Neil Patrick
Welcome to an exciting brand new year. What does 2016 have in store for us? Well the world's top economic, business and government minds are all in Davos to figure it out for us.
Here in the UK, despite the government crowing about the record number of ‘jobs’ it has created (actually this is only true if we count what I call the 'self-unemployed'), there’s no sign that many normal people actually feel much better about things. In the US, a similar pattern is occurring; a slight uptick in hirings, but a persistent deterioration of incomes.
From my perspective it's all been rather obvious for a long time now: the world is trapped in a vicious circle of low growth, low interest, low inflation and low hope.
In September 2014, the World Bank finally decided the global jobs crisis was more or less ‘official’ as I reported here. According to their estimates, the global economy needs to create a further 600 million jobs by 2030, just to keep pace with population growth.
16 months later, and this topic is now one of the main themes of the World Economic Forum at Davos. This week, the world’s elite in business, government and rather weirdly IMHO, entertainment (Bono, Will.I.Am, and Leonardo DiCaprio are there too), have all gathered in this swanky ski resort in Switzerland. Not surprisingly, no-one invited me or anyone I know.
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| Davos in Switzerland - Where the world's elites are this week Credit: de:Benutzer:Flyout |
But even the just modestly well-off are taking a hammering too as trillions have been wiped off stock values since the year began. Sir Martin Sorrel, chairman of U.K.-based advertising giant WPP was characteristically pragmatic saying:
"The new normal is a low-growth world"
Sorrell is worried that companies are not confident enough to invest in new projects that might create growth and jobs. Instead, they increasingly prefer to reward shareholders with dividend payments and share buybacks.
And consumers remain wary too; nearly eight years after the global financial crisis saw the collapse of many banking groups and triggered the deepest recession since World War II, many retailers have reported massively disappointing sales over the Christmas period.
But let’s not despair. Fortunately Swiss bankers UBS have come up with a 'keynote' report which deals with the main theme for this year’s Davos conference. It is titled excitingly, “Extreme automation and connectivity: The global, regional, and investment implications of the Fourth Industrial Revolution”.
Well I was excited by it…
I don’t expect you to read it, but if you are as nosy as I am and have some spare time, here’s the link to it.
The mainstream media is busy not reading it much either, either because they are too dazzled by the parade of rich and famous people they are itching to photograph, or because for them this is just another reporting gig and careful reading of such things takes too much time when they have tight editorial deadlines to meet.
However anoraks like me do read such things. Very carefully.
In case you are not familiar with the who’s who of global private banking, let’s just summarize UBS’s resume. UBS is the biggest bank in Switzerland, operating in more than 50 countries with about 60,000 employees globally. It’s the world's largest ‘manager’ of private wealth assets, with over CHF 2.2 trillion in invested assets. In other words, it’s the bank of choice for the world’s super rich.
Swiss banks do not care about the likes of you and me. They do care about things like making friends with the rich, powerful and influential folk at Davos. They work hard at this (aka spending lots of money). And they apply a lot of their considerable reserves of brain power too. The term ‘establishing our thought leadership’ was doubtless bandied around their offices a lot as the work was being done on this report.
Over the years, UBS has built up an extensive corporate resume of what Wikipedia rather euphemistically call ‘controversies’. These include laundering Nazi holocaust assets, tax evasion in the US, France, Germany and Belgium, LIBOR rigging, bond market rigging, currency benchmark rigging, FOREX manipulation, rogue trading, misrepresenting mortgage backed securities, and illegal arms sales money laundering.
There is a full description of all these accomplishments and more on Wikipedia here.
In the interests of balanced reporting I should point out that UBS is ranked in the US as amongst the top 100 best places for mothers with children to work and invests significant sums in the arts and cultural sponsorships. In October 2013, UBS Wealth Management was voted the Best Global Private Bank by Professional Wealth Management, while also being recognised as the Best Private Bank for Philanthropy Services, and the Best Global Brand in Private Banking.
A Thomson Reuters survey ranked UBS number one in all three of the key disciplines of research: Research ; Sales and Equity Trading and Execution. UBS was also named as the number one leading pan-European brokerage firm for economics and strategy research.
I will let you form your own views about the question, ‘If UBS was a person, who would they be?’
The UBS report sets out to forecast the impacts of current trends in technology, markets, business and politics to provide a view of the economic outlook for different countries around the globe.
The introduction proclaims:
“Previous industrial revolutions have been driven by rapid advances in automation and connectivity, starting with the technologies that launched the First Industrial Revolution in 18th century England through to the exponential increases in computing power of recent decades. The Fourth Industrial Revolution is based on the same two forces. The first is extreme automation, the product of a growing role for robotics and artificial intelligence in business, government and private life. The second, extreme connectivity, annihilates (interesting choice of verb – Ed.) distance and time as obstacles to ever deeper, faster communication between and among humans and machines.”
So far, so what? If you have been alive and awake at all in the last few years, this is as obvious as the fact that night follows day. And as anyone who has followed this blog from the beginning knows, I have being banging on about this for over three years.
They continue:
“These changes will have very different effects on nations, businesses and individuals. Automation will continue to put downward pressure on the wages of the low skilled and is starting to impinge on the employment prospects of middle skilled workers.”
It isn’t starting guys, it’s been happening for the last ten years at least (But I know, you’ve been a bit distracted).
But wait, there’s good news (sort of):
“By contrast the potential returns to highly skilled and more adaptable workers are increasing.”
Interesting that the word ‘potential’ is used here. This is a word bankers love, because it’s a get out of jail free card. “Highly skilled and adaptable” is also code for willing to move anywhere, accept work on any terms and be able to do the work at a pace and level of excellence beyond our that of our peers. Good news for all you wunderkinds. Not such good news for everyone else.
“Among corporations, a wide range of traditional businesses – especially those that act as intermediaries – can be expected to suffer. Many labor-intensive firms should be able to boost profit margins as they substitute costly workers for cheaper robots or intelligent software (my emphasis).
Now we are getting to the real problem. So called “traditional businesses” are ones that have successfully grown over many decades and employ(ed) lots of people. And yes, they are shrinking, automating and collapsing faster than ever. Those that are still alive are seeking to slash costs and boost profits through more and more deployment of technology.
But don’t worry, it’s all going to be okay because:
“… a range of entirely new companies and sectors will spring into existence. For nations, the largest gains from the Fourth Industrial Revolution are likely to be captured by those with the most flexible economies, adding a further incentive for governments to trim red tape and barriers to business.”
The key to economic success for nations and individuals alike in the future is flexibility. I agree with UBS on this point. But this is also where the whole hopeless vision falls apart. Because we can’t even keep up with the pace of tech change today, let alone tomorrow; as anyone familiar with Moore’s Law also knows, these changes are only going to accelerate.
How many Ubers, Googles, Trip Advisors, Air B’n’Bs does it take to create just a million jobs? Every single one of these ‘disruptive innovators’, (or whatever MBA style label you wish to put on them), ‘work’ - at least for a short time - because they need very few employees relative to their revenues and capital. Unlike traditional businesses, their capital is not in human assets, it is in tech assets. Robots are not paid a salary. And they don’t go shopping.
Worse, the traditional industries that they disrupt are people heavy. It’s a double whammy of the job-lite businesses destroying the job-heavy ones. This is the horrible economic reality of disruptive business models.
And neither UBS nor any commentator I can find, has any practical remedy for this cannibalization of jobs. The only glimmer of hope is that as costs of living continue to fall, the strangulation of household incomes will effectively be loosened.
The trouble is that achieving this flexibility is fraught with difficulty. And making it happen quickly enough is almost impossible when we consider the different speeds at which technology and our people, organisations and institutions are capable of moving.
UBS can see that they will do very nicely if their vision or anything like it actually materialises. There will be many more super rich in the world, but also a great many more who used to be comfortable, becoming very uncomfortable. The first group matters to UBS. The rest of us do not.
Happy New Year.
