May 052015
 
The Merlion is the symbol of the Asian city state of Singapore

This blog has written a lot about Singapore in the past, this speech by the country’s Prime Minister sums it up.

For other nations, particularly Australia, it’s time to stay paying attention to how the global economy is changing.

Singapore may not have all the answers and its government’s authoritarian tendencies may work against its ambitions to be a global tech and creative centre, but at least the government is staking a position in the new economy.

 

May 022015
 
computer_lathe

Yesterday we looked at the PwC report on the value of science and engineering education to the economy.

The survey wasn’t good news for the workforce with the survey predicting over two in five workers’ jobs were at risk as digital technologies changed industry.

Notable in the list were the industries PwC believed to be safe over the next twenty years; largely being the medical, health and ‘people’ businesses like public relations.

jobs-least-at-risk-from-tech-change

While the industries themselves might be safe, specific jobs in those sectors may not be so with roles ranging from hospital porters being replaced by robots to surgeons carrying out remote operations.

Looking at the list of relatively unaffected industries, it’s hard not to see how digital technologies aren’t going to disrupt those occupations.

Redefining public relations

PR for instance is undergoing a radical change as the media industry is being totally disrupted requiring today’s public relations professionals to have a very different set of skills to those of twenty years ago.

Those skills include a much more adept use of technology itself and having to deal with a faster, more fragmented industry.

Public relations professionals brought up in the days of boozy lunches and far off deadlines struggle in a time of bloggers, social media and data journalism.

Evolving medicine

Similarly medical practitioners, the top position on the list, have seen their jobs dramatically transformed over the past twenty years by computers and those changes are far from over as medical equipment gets smarter, personal fitness devices become pervasive and the amount of data being collected on patients grows.

Across the medical industry the roles of almost every occupation is being redefined as technology changes the tools they have, along with the nature of ailments their patients present with.

Big Data and analytics

Some professions will grow but automation in those fields will grow exponentially faster, a good example being the fifth role on the list – database administrators and ICT security professionals.

Ensuring the reliability and security of servers and networks is going to become even more essential as the economy increasingly depends upon these systems however security and IT professionals are going to rely on algorithms and Big Data to manage the massive task they have – these are the opportunities for companies like Splunk and Microsoft Dynamics.

In all of these comparatively safe industries the jobs of tomorrow are going to need different skill sets to what they require today.

For workers in these ‘safe industries’ this means further education, training and reskilling to stay employed. Just being employed in a sector that’s expected to stay static or grow isn’t enough to keep your job.

Employers in these ‘safe industries’ also face a challenge in making sure their staff have the right skill sets to use the new technologies.

The airline analogy

If you were running an airline in 1965 it would be cold comfort to look at the explosive growth ahead for the industry in the jet airline era when all your staff are trained to keep propellor aircraft in the air.

So when we talk about digital disruption, it’s not just about industries being shut down and jobs being lost but about radically changing occupations.

It would be a brave person to assume that just because their industry is safe, their own job or business is secure.

May 012015
 
free or cheap text books becomes important for British Columbia

When discussing how industries are changing, the constant question is ‘what will happen to today’s jobs?’

Even in the Future Proofing Your Business webinar earlier this week this question was asked by a number of the small business owning listeners.

That concern forms the basis of the “A smart move: Future-proofing Australia’s workforce by growing skills in science, technology, engineering and maths” report released by accounting firm PwC yesterday in Sydney.

PwC’s report warns 44 per cent of current Australian jobs are at high risk of being affected by computerisation and technology over the next 20 years.

The report highlights that Science, Technology, Engineering and Maths (STEM) subjects are critical in the jobs that are going to benefit, or be created, by that technological change.

Finding the right courses

Sadly for Australia, and most of the western world, STEM courses are deeply out of fashion with students preferring to study in business related courses such as accounting, commerce and law.

As PwC flag, those industries are at risk with accounting at the top of the list for job losses.

Australian-industries-expected-to-be-disrupted-pwc

On the other hand, PwC forecasts professions in health, education, personal care and – worryingly – public relations will be in increased demand. Something that may underestimate the effects of technology on those industries.

Competing with STEM

PwC’s main contention is that economies which want to compete in the new economy are going to need more STEM graduates.

The shift to STEM education is something the OECD highlighted in its recent report, OECD report How is the Global Talent Pool Changing?

In their report the organisation forecast that the number of students studying around the world would increase from 130 million today to 300 million by  2030 with all of that growth being in Chinese and Indian STEM courses.

Already that science and engineering emphasis is clear in today’s numbers.

OECD-graduates-by-field-of-education

To counter the drift away from STEM courses among students, PwC suggests a campaign to engage young people while they are still at junior school.

The Australian conundrum

Sadly, that’s unlikely to work in Australia given the nation’s economy is built upon property speculation driven by the wealth effect of rising real estate prices.

Two nights before the PwC report one of the highest rating shows on Australian television came to its 2015 finale. The Block, which features couples renovating and flipping properties, finished its season the apartments being sold at auction at record prices and the contestants pocketing between 600 and 800,000 dollars for a few month’s work.

For young Australians the message from their parents and society is clear; don’t innovate, don’t create, just buy as much property as you can afford.

In the US on the other hand, the business heroes are the builders of new enterprises; people like Steve Jobs, Elon Musk, Bill Gates, Mark Zuckerberg and the founders of Google.

Other countries like Israel, India and China, are aspiring to be the next generation of tech leaders. That’s what’s necessary to build a dynamic economy.

Creating enduring jobs

As the PwC report claims, “the jobs most likely to endure over the next couple of decades are ones that require high levels of social intelligence, technical ability and creative intelligence”

Harnessing that combination of social, creative and technical intelligence is going to be one of the challenges for all economies in a decade of change.

Getting the supply of STEM skills right will be essential for success for all countries at a time when digital technologies will drive most industries.

Apr 252015
 
Courtesy of Wikipedia

can Wellington become a global tech hub? raised an interesting question, how big does a city need to be in order to be successful in the new economy?

Does a compact city with a few hundred thousand people have an advantage over several million inhabitants sprawling across a huge metropolis?

The romantic view is the smaller cities should prevail but history, particularly given the wide sprawl of Silicon Valley, indicates the opposite.

While Silicon Valley, and most of the other Twentieth Century industrial hubs like Detroit, were sprawling conurbations it may be this era’s centres are more compact with towns being walkable.

Certainly this is what we’re seeing with the tech industry’s shift into San Francisco as workers find they’d rather walk or cycle to work than spend hours on freeways each day.

So it may be the newer breed of businesses and industries that don’t need massive infrastructure also don’t need to sprawl.

If that turns out to be true then cities like Wellington could do well.

Apr 252015
 
wellington-new-zealand-city-view

It bills itself as ‘the coolest little capital in the world’ however something is going on in Wellington, New Zealand’s capital city, as its technology sector takes off.

Last week I was in Wellington, partly to attend the Open Source, Open Society conference and also to have a look at how the city is doing so well as one of the leading startup cities.

While I’ll have a number of posts about the city, startup scene and conference over the next couple of weeks, it’s worthwhile noting some basic impressions that came from the visit.

The size of the city, Wellington is a small town with a population of 200,000, brings both advantages and negatives for the business and startup communities.

Small is sweet

One of the advantages of being so small is the business community is relatively accessible, a number of entrepreneurs told me how easy it is for them to find the specialists they need given there’s usually two degrees or less separation between everyone.

Normally having a small business community means it gets insular, particularly in a capital city where the business of government can create a bubble effect. What’s notable about Wellington is most of the businesses are looking outward towards the US, Australia and East Asia.

The city’s intimate business environment also improves trust within the community as one Aussie expat told me, “if you rip off anyone in this town pretty well everyone knows about it by the end of the weekend. It keeps everyone honest.”

Being small, the city makes it easy to walk around which compounds the business networking opportunities. A businesswoman, who is also a lifelong Wellingtonian, observed how she allows an extra 15 minutes to walk anywhere as she finds herself stopping for conversations.

Three dominant businesses

Having three successful businesses in the city – TradeMe, Xero and Weta – has both its upsides and disadvantages with the bigger players tending to dominate the employment market and funding opportunities.

Of the three businesses, TradeMe is the most domestically focused while Xero is growing in the tech sector and Weta is the most diverse with its range of special effects and movie production services.

With Weta, the business is exposed to the vagaries of the global film industry as Statistic New Zealand survey of movie production shows.

The film industry is one of Wellington’s important employers with the sector supporting around two thousand businesses in the city, although I didn’t get time to explore how much of an overlap there is between the tech and film industries.

TradeMe is largely a domestic focused business that provides a steady work and skills base for the local workforce. While it’s the least internationally exposed business of the three, it’s probably also the most consistent.

Xero, like Weta, is a globally expanding business and its success is attracting investors and expats from North America and Australia. While its the smallest of the three it’s probably the business that has done the most raise Wellington’s profile in the tech industry.

Community spaces

What’s particularly notable are the number of coworking spaces in Wellington ranging from the straightforward Bizdojo startup space and Creative HQ through to the quirky Enspiral coworking space.

The availability of shared spaces makes the city attractive to startups and adds to the vibrancy of the local tech community which links into hipster pursuits such as craft beer.

Communities like Enspiral also add another dimension to the local startup and creative industries environment by connecting entrepreneurs with their peers and service providers.

Partnerships with government

One aspect I didn’t get to explore while in Wellington was the relationship between the city’s business community and educational institutions, particularly Victoria University.

Similarly I didn’t get the opportunity to discover how much of a role local and national governments have had in the development of Wellington’s tech scene. It seems to be relatively hands off although some government agencies have supported Weta with co-investment funds.

What I did meet though were plenty of immigrants; from Croatia, Denmark, Holland, the US and, most of all, Australia.

Talking to some of the US and Australian expats it was clear that lifestyle combined with opportunity with lifestyle, as one Aussie emigre told me “I couldn’t get the water views, access to the city and be able to walk to work back home like I can here.”

While these are superficial thoughts that I’ll expand on over the next week as I decipher notes and listen to interviews, there’s no doubt that Wellington is carving a position as one of the global centres of the new economy. How big it becomes will depend on how many other businesses grow to the size of Xero or Weta.

Apr 142015
 
Skilled workers are essential to building industries

Yesterday this site looked at the shortcomings of the Australian government’s Inter Generational Report and criticised it primarily for its failure to imagine how society and the economy would look by 2050.

While no-one has a crystal ball, making projections on how government spending will look in the future without having some basis for the assumptions on revenues and expenditures renders a document like the IGR somewhat useless.

So what might Australia’s economy in 2050 look like? Here’s a quick list of thoughts.

Rethinking retirement

The obvious is most western societies, including Australia’s, are going to be older. This has a number of consequences, particularly with the retirement age.

In 1909 the old age pension was introduced in Australia with eligibility starting at 65 for men and 60 for women. At the time, life expectancy was 55 years for men and 59 for females.

Today age pension age has barely moved with it becoming 67 for those born after 1952. Life expectancy today 91.5 years for men and 93.6 for women, this expected to increase by 2055 to 95.1 and 96.6 respectively.

More importantly, life expectancy at age 60 will move from 16.9/19.3 years today to 21.3/23.1 in 2055.

Quite clearly the superannuation assumptions of being able to get a tax free pot of gold at 60 are doomed, few people will get enough from their lump sum to see themselves through twenty years retirement.

That throws them back on to the state. Given these numbers it’s clear the eligibility age for the old pension is going to have to be increased.

Coupled with a declining birth and participation rates seeing fewer taxpayers contributing to government coffers, the need to reform the pension age is going to become more pressing.

A healthier population

One of the differences between 1909 and today is that we’re far healthier. A fifty something today is generally in better shape than a thirty year old of their grandparents’ time.

Coupling that with the changing nature of work where most workers of a century ago were employed in exacting physical labour, today’s employees are far more likely to be sitting on a computer. This means the working life can be extended.

While the population is going to be healthier, an older population is going to mean more people with chronic conditions and those with serious issues like dementia are going to be an increasing drain on medical services, not to mention increased incidence of cancers and possibly diseases related to sedentary lifestyles.

This means the nature of medical treatment is going to change, a lot more is going to be spent on early identification and intervention of chronic and debilitating conditions.

Changing the workforce

While the workforce is going to get older, it’s also going to become more precarious. This is already clear in the long term trends since the 1980s and with the rise of ‘collaborative economy’ businesses like O-Desk, Mechanical Turk and Airtasker we can see jobs becoming more casualised.

Today’s children will not have a steady career path and governments have to plan for extended periods of unemployment. This too affects the participation rate and the levels of household spending.

A precarious income also means workers are less likely to take on large debt commitments. This trend is already apparent and is the main reason why companies with a 1960s consumer spending model are struggling in the economy of 2015.

Property stagnation

The Australian middle class model that depends upons highly indebted householders paying down mortgages is likely to be unpopular by the middle of the century as people will be reluctant to take out a huge loan to buy a property when their medium term job prospects are uncertain.

This one aspect is where the Australia government projections go badly awry. It’s understandable not to consider this given the political poison of telling the population their assumed property gains aren’t going to happen but it damns the IGR to failure.

A society with lower levels of property ownership means a dramatic shift in the tax mix and government expenditures. Assuming that today’s normal will also be tomorrow’s is very risky.

Changing technologies

The technologies themselves are changing the revenue and expenditure streams for government, just rolling out diverless vehicles might eliminate the need for half the US’s police force while reduced registration fees, taxes and fines will hit state and local government budgets.

Similarly the global nature of digital businesses is going to challenge governments as the locations of where work is done, goods are delivered and profits made becomes less certain. Right now tax officials are struggling with the revenues of multinationals but increasingly smaller companies will present the same problems.

The other changing nature of work is going to be its composition, just as a hundred years ago nearly half the workers in western countries were in agriculture, a number that’s below one in twenty today, we can expect changes in employment sectors as robots and algorithms take over many of today’s jobs.

All of this means a very different society and workforce to today’s. While it’s difficult to envision what it looks like from here, just as the current economy was almost unimaginable in 1975, it’s necessary to give some thoughts on the shifts to make informed policy choices rather than the opportunistic populism displayed by most of today’s political leaders.

So how do you see the economy of 2015 looking? And where are governments going to raise their money from? I’d be interested to hear what you see in the crystal ball.

Apr 132015
 
Does the digital divide really exist

“If you don’t know where you are now, you don’t know where you’re heading” says science presenter Karl Kruszelnicki – aka Dr Karl – in the publicity for the Australian government’s latest Inter-Generational Report.

Doctor Karl is part of a glossy campaign based around the report with the grand title of The Challenge of Change. The problem with the report is that it barely identifies any of the changes, let alone the effects, that might affect the economy over the next forty years.

The aim of the IGR is to identify the long term trends in the Australian economy and provide a basis for policy development. The first was delivered in 2001 and one has been produced roughly every five years since, making this the fourth.

An aging population

Much of the 2015 IGR hangs on the observation that Australia’s population is aging; stating the bleeding obvious that became apparent when the nation’s post World War II baby boom came to an end in 1965.

While the fact Australia’s population is aging despite massive immigration in recent years is undeniable, most of the report is a mish mash of motherhood statements that expose the key contradictions – dare one call it schizophrenia – lying at the heart of Australian politics and society.

The motherhood statements are all quite valid; the nation needs to develop better infrastructure, build a more skilled workforce and develop new industries as the mining boom sputters to a messy end.

Cutting education

Sadly the actions of Australian governments at both state and Federal level are in direct opposition to these laudable aims. The discussion on training and education illustrates the contradictions;

Under the ‘proposed policy’ scenario, Australian Government spending on education and training is projected to decline to 1.0 per cent of GDP by 2054-55. However, these figures do not take into account the significant increase in lending to students through the higher education and vocational education and training loan schemes.

Despite recognising the importance of training the workforce in order to keep the nation competitive the Federal government is actually forecasting to reduce spending on education and worker training.

Given the typical government education spending among developed nations is around 5% of GDP – in Australia total government spending is 5.1% for 2014 – this indicates a lot more cost to be pushed onto states to make up the shortfalls, if it is being made up at all.

A lack of investment

Particularly notable in the report is the scant talk about what industries are going to develop over the next thirty years or where the money for investing into them is going to come from.

The little discussion there is around private sector investment revolves around the superannuation system – the Australian equivalent of the US 401(k) personal pension accounts where workers are compelled to contribute into private schemes.

Total Australian superannuation assets have increased strongly since compulsory superannuation was introduced in 1992. At the end of 2013-14, total superannuation assets were $1.84 trillion, around 116 per cent of GDP. As the superannuation system matures and wages grow, total Australian superannuation assets are expected to continue to increase and make a growing contribution to national savings.

This statement ignores how the pool of superannuation funds is going to decline as baby boomers and Generation X reaches retirement age and starts to draw down its savings.

An even more important aspect missed by the authors are the risks Australian workers are exposed to as the only thing guaranteed by these funds are the rich fees charged by the managers.

During the global financial crisis of 2008 both the returns and asset bases of superannuation funds were hit hard with some funds suspended from trading and withdrawals restricted. The risk of similar event happening in the next forty years and its impact on household savings and business investment is simply ignored.

Ignoring the elephant

The key to understanding the Australian economic miracle of the last 25 years lies in the property market where housing lending has been boosted at the first sign of economy trouble.

As a consequence Australian households have become amongst the most indebted in the world and the bulk of domestic savings are in housing assets. Housing is the cornerstone of the Australian economy and the source of its middle class wealth.

Remarkably in the entire document the words ‘housing’ and ‘property’ only appear twice and three times respectively.

In ignoring the effects of housing on both state and Federal budgets, the bureaucrats have ignored the single most important factor in Australia’s wealth.

Given even in the most favorable projections, baby boomers and Generation Xers will be selling down their property portfolios to fund their retirements during the IGRs forecast periods, it is nothing short of amazing there is little mention of such a critical factor.

A flat line future

An important feature of the IGR is its focus on government spending with a strong ideological bent supporting the Australian political obsession with privatisation and currying favours from the deeply discredited and corrupt global ratings agencies.

This blinkered view of the world makes it hard for the authors to give a balanced analysis of the risks presented to the Australian economy and this weakness is exacerbated by poor analysis.

Each of the reports has featured ‘flat line’ projections for growth, unemployments and trade. For example here are the terms of trade projections from the current report.

Australian-terms-of-trade-projections

Such analysis is effectively useless and, because of each of the reports features such lazy forecasting, the projections in each time period end up being distorted by the circumstances of the day; forecast economic growth for the 2020s across the four report has varied between 1.6 and 2.8% over the reports.

Indeed the latest report is possibly the most optimistic with a 2.8% forecast growth rate which is at odds with the comparatively pessimistic view of 2.3% in the halcyon days of the 2002 report.

Lazy analysis

The IGR’s forecasters justify the flat line analysis by claiming long term trends will be due to underlying changes in the economy which will smooth out business cycles.

It is also important to keep in mind that the long-term projections look through business cycles and assume a smooth growth path through to 2054-55. In reality, it is almost certain that any economy will go through such cycles over a 40 year time period. However, the outlook to 2054-55 will not be driven by these cycles, but by the underlying trends in population, participation and productivity.

While this is to an extent true as short term cycles oscillate around the longer term trends, the forecasters do nothing to identify what will drive growth in the Australian economy for the next thirty years.

The IGR’s greatest failure is in not considered the structure of the economy and the workforce over the next three decades is its greatest flaw. How people are working and where they are working is going to shape the nation and government revenues.

Compounding the report’s failure to at least attempt to forecast the workforce’s changing structure, the authors’ projection of unemployment are almost an insult.

estimated-australian-unemployment

As this blog has pointed out constantly over recent years, the workforce is undergoing fundamental shifts in the face of automation, robotics and intelligent systems. While it may turn out five percent is the average rate of unemployment over the period we can expect major fluctuations in the workforce as industries are dislocated.

In turn those fluctuations are going to affect government revenues and expenditures, not to mention their influences on home prices and the superannuation balances of those facing extended periods of unemployment.

A flawed roadmap

Ultimately the Inter-Generational Report is of little use in helping policy makers and the community plan for the challenges and opportunities facing Australia over the next thirty years.

Like the Australia in the Asian Century report it’s a curiously selective document that fails to consider most of the external factors that are going to shape societies over the upcoming decades.

Just as the Australia in the Asian Century paper is a dated and discredited document a mere three years after its release shows the calibre of advice being given to the nation’s leaders.

While Doctor Karl is exactly right that we can’t know where we’re heading unless we know where we are, this report fails to acknowledge how Australia came to be in its privileged position and what the opportunities are in a radically changing world.

It may well be that The Lucky Country stays lucky to the middle of this century and caps off two hundred years of good fortune. If that does happen though it will not be because of this flawed and shallow report.

The authors of the Intergenerational Report ducked the challenge of change.