The Third Technological Revolution

 

The French Presidential election is long over and Europe’s gaze turns towards the September 24th showdown in Berlin. However, whilst the German election is mostly a business-as-usual affair, the French election was a bellwether for changes that are well underfoot.

“When trade stops, wars start”

Jack Ma

The 21st Century is the century of widescale disruption within the economy; indeed, the past 300 years (since Industrialisation first took off in Great Britain) has seen continued disruption and opportunities. Opportunities for both capitalist and the 100s of millions that earn their keep through wage labour, or as Oscar Wilde wrote: “work is the curse of the drinking classes”. Classic examples of disruption over the past 300 years include the steam engine, electricity, trains, and the automobile. However, the one big differentiator between disruptions of yesteryear and today is two-pronged. Firstly, globalisation is truly global. In bygone centuries, globalisation was localised occurring mostly in the West with small pockets being found in the Far East. The second differentiator is the absorptive capacity of labour markets to utilise surplus labour from redundant workers.

Earlier this year, I read “The Second Machine Age”. What’s interesting about this book and similar efforts, is how optimistic it is. They see disruption as an opportunity and whilst many may lose out, so the optimists lament, many will gain. This was the backdrop to the French election: Macron representing opportunity and embracing the future, he and his kind are the so-called entrepreneurial class. His opponents: Melenchon and Marie Le Pen, see the future as bad and calling for greater protections and social support. Indeed, as this article demonstrates, Melenchon wanted

“…international companies to comply with French law, which would affect Silicon Valley companies. But he wanted to emphasise “Made In France”. Ensuring all were playing by the same rules.”

E-commerce and the New Economy

Jack Ma, the founder of the Chinese digital behemoth Alibaba, has continually talked about the challenges that automation, AI, and machine learning pose to the global workforce. What’s clear is that the rise of the internet in the late 20th century has changed both the business landscape and consumer habits (Ma has confirmed this in his own country, China). Technology as a disruptor is incubating three divergent worldviews:

  • Tech doves, those fearful of the new economy;
  • Tech hawks, digital missionaries; and
  • Tech agnostics, those weary of the threats change poses but see great opportunities.

If this represents our Linnean classification system for technological disruption, who or what represents each family? Tech doves, characterised by Zong Qinghou in China. He’s sceptical of the “new economy” and the impact this will continue to have on manufacturing. Contrastingly, tech hawks, the likes of Deutsche Bank’s John Cryan, who openly admit 30% of his workforce will be gone in the next five years openly embraces the benefits of automation to the banking industry. And lastly, tech agnostics like Jack Ma, who talks about the perils of automation, its opportunities and the need for continued globalisation.

In a recent September interview for Bloomberg, Ma admitted that “the internet doesn’t produce but Alibaba [and similar companies] facilitates transactions”. This is what the new economy is about. On the one hand, it’s about an embrace of e-commerce, on the other it’s deploying digital technologies to revolutionise globalisation. Take for example Alibaba’s “new retail model” which is dominated by Alipay (e-commerce) and a rush to invest in SE Asia (reminiscent of the 19th century’s “Great Game” the difference now is, state actors are replaced by non-state actors). The latter objective comes as little surprise, SE Asia is home to nearly a quarter of the world’s market and it’s young.

“Data is new to everyone”

(Jack Ma, Bloomberg interview)

But hold on. There’s more at play here than meets the eye. If the 1990s and 2000s saw the penetration of the internet into the economies of the OECD, the 2010s are seeing vast swathes of the global economy become connected to the internet. Take Myanmar for instance, in 2001 0.002% of the country had access to the net, now, with mobile and smartphone penetration rates spiking, over 89% of the population has access to 3G/4G, and internet penetration stands at a whopping 19.3% (as of 2016). However, whilst some countries are playing catch up, those at the forefront of the new wave of digital disruption are making the change from IT to DT, or in everyday English information technology to data technology.

 

Technologies impact

“Entering a world of opportunities and challenges”

Jack Ma

In another recent interview with Bloomberg, Ma cites manufacturing as not being the driver of new jobs, on the other hand, as experience has shown us, the service sector will increasingly drive job creation. And this is why I see Jack Ma as the world’s leading tech agnostic. The following data sets, taken from the World Bank, show how services and manufacturing have changed just in the last year.

manufacturing
Manufacturing as a % of economic growth (2016)
services
Services as a % of economic growth (2016)

On this front, Jack is certain recent trends with service sector growth continuing.  However, his bearish compatriot Zong Qinghou is highly critical of the new economy which he says is responsible for “stealing wealth from the real economy“. Furthermore, Zong sees the new economy forcing brick and mortar companies to close. It’s early days yet but Amazon’s takeover off Whole Foods could be the bellwether new economy watchers have been looking for. On the other hand, M&A activity like that demonstrated by Amazon signifies the inherent weakness of the new economy’s companies. At some point, they need a physical footprint to access existing markets which are new to their companies.

According to Jack Ma, technology takes 50 years to be fully assimilated into the economy. The first 20 years are characterised by the development and deployment of technology, the following 30 years see its uptake and application. In Ma’s own words “pay attention to those next 30 years”.

The next 30 years will see the application of robotics, AI, and advanced manufacturing to vast swathes of the current economic ecosystem. It’s at this juncture that we come full circle with France’s recent presidential election. Melenchon wanted “Made In France” Jack Ma and the likes of En Marche’s young upstart, Macron, want “Made In Internet”. Political and national boundaries are becoming both obscured and obsolete in the new economy. And whilst Amazon retains its first mover advantage, crossing the Rubicon from digital to brick and mortar, Andy Haldane of the Bank of England has said that 15 million jobs are at risk from robotics and automation, in the UK alone. This is a truly bleak outlook.

However, take a brief flight to Frankfurt and Deutsche Bank’s CEO, John Cryan has had a tough job restructuring a bank that was ground zero for the subprime financial crisis in Europe, he is one of the so-called ‘tech hawks’. In an interview with The Guardian, Cryan was upbeat and pragmatic about 30% of his workforce being lost to automation in the coming years. But here’s the paradox: automation can do the jobs of accountants (working the numbers and delivering the account). Once this has been done, humans can enter the post-processing phase and analyse the numbers, gaining new insights that they were anathema to precisely because they didn’t have the time to analyse the accounts they had prepared.

 “…If you take an accountant at the bank, a large part of their job is to produce numbers. It takes them three to four weeks to produce an account and then they move to the next one. Wouldn’t it be great, if machines could produce those numbers in just a few hours? Then accountants could analyse the numbers, form valid opinions what those numbers mean and not just produce them…”

(Taken from The Guardian)

The future is bright and it’s bulging

Across the spectrum of industrialists and corporates, it appears there is mixed sentiment to the future of production and work. Jack Ma often uses the phrase “when trade stops war starts” even his rival Zong Qinghao has been heard saying that “as long as there are normal trade ties there will be peace between the US and China”. I’m not sure I entirely agree with either statement. Trade doesn’t necessarily stop wars, in most historical cases it’s been the other way around (it is a great oxymoron nonetheless), I think what both meant to say is: globalisation prevents wars and if we retreat to nationalism and isolationism, the corollary being the early and mid-twentieth century, then the Thucydides Trap between the incumbent USA and economic rival China may become a reality.

However, few commentators have touched upon how the youth bulge is affecting the global South, whether they’re in Newly Industrialised Nations or Least Developed Countries. The global youth bulge adds a new dimension to the debate around automation, AI, robotics and the new economy. It is an entirely untested variable. We only have historical analogues to use as inferences but large, young, unemployed populations are a potential tinderbox. The reality for those growing up in nations such as India, Indonesia, Cambodia, Mexico, Nigeria who are under 30 is this: there are few opportunities. The comparative advantage of these nations is being undermined by advances in robotics and automation. Western companies may not need to outsource production to the developing world if, indeed, they can retain production at home using the latest in technology at a fraction of the cost. This way they retain their reputation, cut costs, increase productivity and don’t have to deal with pesky regulators and demanding customers.

Bangalore is the exception and not the norm in the developing world. Unless nations can harness their youth bulge and turn what should be seen as a demographic dividend into an asset rather than a headache, often the recruiting ground for the continuity of industrial violence. This will require prudent macro-educational policies being put in place now. In effect, the digital (IT and DT) revolution will only exacerbate inequalities that have existed since the end of colonialism. Simply put, some nations will never be able to catch up unless radical and transformative actions are taken.

With estimates ranging from 9-49% of all global jobs being lost to automation, nations and economies need to adapt. Globalisation speeds up the process of adaptation or redundancy. Those who are low-skilled, no-skilled, with low incomes and low levels of education will be hit first and hardest. Automation is here and it’s coming. Otto will disrupt the haulage industry across the globe but its impacts will be felt in OECD economies first and foremost. So what can citizens, policymakers, and nations do to adapt? In the words of Tony Blair before becoming British PM in 1997 “Education, Education, Education”.

It’s hard to remain pragmatic around such a trite response like “education”. And as this recent Guardian article points out, education may not be the panacea our leaders claim it to be. So is education a paragon? The Jack Ma’s of this world have it wrong on the benefits that education can bring to remedy the rapidly evolving work landscape.

So why do I believe Jack Ma and his like have it wrong? Firstly, global population has yet to peak (this is highly significant). Secondly, we’re living longer and baby boomers are remaining in the labour market. Thirdly, employers are parsimonious: few pay for their staff to be retooled and retrained. Only stalwarts of the corporate and public world pay for their staff to remain at the top of their game or more precisely “remaining relevant”. The vast majority of people will have to pay for their training and re-education. What we’re witnessing right now is a bifurcation point. Those who can afford and who are in the corporate and public elite will solidify their positions, those who are locked out under present circumstances will remain so but the bifurcation will be more pronounced. Fourth, data creation continues at an exponential pace. It can’t be analysed quickly enough and we continue to hoard it. Data is the cleanest oil we’ll ever discover and it doesn’t pollute.

FANGs, FAAMGs and “The Rights of Man”

Jack Ma is convinced that the education system needs to change the way we teach and what we teach, his sentiment is echoed by President Macron. The ultimate question is this, have policymakers fumbled for too long? Can inequalities within the existing world order be redacted or will they be enhanced? The Alibaba’s, Amazon’s and Uber’s of this world are also foreshadowing a new emerging trend, the rise of the non-state actor. Alibaba, Tencent, the FANGs (Facebook, Amazon, Netflix, Google), FAAMGs (Facebook, Amazon, Apple, Microsoft, Google) continue to gain power, wealth, data and are driving the future of work and humanity. It is these corporates that wield power in the “data technology” world. Nation states will be consigned to a relic of the past. We need governance and democracy in place to challenge this new asymmetric governance landscape. Rather than concentrate on education for whatever jobs are left for humans, we also need to relearn our rights. The GDPR is a great start but citizens aren’t cognizant of the changes that are underfoot. Widespread political re-education needs to begin.

 

 

 

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