Hillary Clinton’s Initiative on Technology & Innovation shows politicians are beginning to take the challenges of a changing economy seriously
As the 2016 US Presidential election settles down into a competition between Republicans and Democrats, Hillary Clinton has released her vision for the American tech industry.
What’s particularly notable about the Clinton plan is her aim of “building the tech economy on main street,” which is “focused on creating good jobs in communities across America.”
Spreading the tech industry’s jobs, and wealth, beyond a few middle class enclaves is an important objective for all nations in the twenty-first century and Clinton’s objectives are an indication that the US political establishment is beginning to understand this.
Other countries should be noting Clinton’s objectives to raise the skills of workers, build the tech infrastructure and get investment into smaller communities as something they too have towards.
In an Australian context, Clinton’s initiatives highlight the missed opportunity of the Turnbull government’s Innovation Statement, a narrowly focused and weak document that has done little to encourage investment and even less to reform skills training.
The Clinton move though shows technology, training and stimulating new businesses will be one of the imperatives of nations as they deal with a rapidly changing economy.
The world is flooded with money, but we also have surpluses in manufacturing, a surplus in most commodities, of energy and an increasing surplus of labor.
From Shanghai to Barcelona, the surplus of labor is beginning to be felt as industries become increasingly mechanised and the consequences of short sighted economic policies over the last thirty years begins to be felt.
That labor surplus is also driving the political shifts in Europe and North America as workforces are finding their living standards being pressured and their economic prospects dwindling. As a consequence, voters are looking for scapegoats – immigrants in Europe, the EU in Britain and Mexicans in the US.
Regardless of which scapegoat you choose to blame for the global economy’s uncertainty, the fact remains we are in a time where scarcity can’t be assumed.
This means business models that are based upon restricted supply are, in most sectors, under threat. The whole economics of scarcity becomes irrelevant when there are no shortage of suppliers around the globe.
In some fields, such as energy, technological change is seeing the dominant positions of oil companies, electricity generators and distributors being challenged in ways that wouldn’t have been thought possible a few years ago.
Even regulated industries where government licenses artificially controlled supply – like taxis, broadcasting and telecommunications – increasingly new distribution methods are changing the economics of those industries. No longer is buying a government license a sure fire way to big profits.
Right now, the imperative for businesses to find the areas where there is scarcity and supply constraints. For many industries that may be too difficult a transition.
Negative interest rates though take us into uncharted territory. How the global economy responds to virtually free and unlimited money is going to be an interesting experiment.
While it appears the proposition will fail, the fact it is being debated indicates an acknowledgement of changing attitudes towards income and social security.
In many respects governments – particularly in the English speaking world – have ignored the personal social consequences of their economic policies over the last thirty years that have seen working people’s and increasingly the middle classes’ incomes fall and become more precarious.
Now those costs are being acknowledged in the face of increasing concentration of wealth with politicians and business leaders being forced to confront far less stable and cohesive societies.
It may be that the discussion of a universal guaranteed income forms the foundations of a new social compact that defined the mid Twentieth Century, increasingly it looks like something is needed in increasingly divided economies.
While a unified guaranteed income may not be the solution to addressing the economic and social needs of a substantial proportion of a workforce that is under employed and poorly paid, a discussion on what we can do needs to be had. At least the Swiss have started this.
For governments to stimulate economies, they are going to have to find a way to increase productivity and the spending power of populations. The current remedy of pumping cheap money into the economy isn’t enough to do this.
One concerning message for the tech sector in these figures is that simply boosting productivity will not be enough to boost the economy. In fact widespread automation of existing jobs may make the problem exponentially worse.
The statistic that indicates younger workers are dropping out of the workforce to look after older relatives should be particularly worrying for economists and a warning to politicians that thirty years of the neo-Liberal model espousing smaller governments and reduced public services now threatens to change the political dynamic – something that the rise of Donald Trump is also a symptom of.
For policymakers, the question is how to employ people in jobs that give them enough income to support their families without ringing up huge debts.
Interestingly, much of the current tech mania is based upon the same credit based consumerism that’s driven the last thirty years of western economic growth. Apps like Uber, AirBnB and the countless delivery apps are good examples of businesses based on happy consumers jamming more on their credit cards.
The era of 1980s thinking is over, we’re going to have to rethink what policies encourage employment and wealth creation along with seriously considering what capitalism is going to look like in the mid-21st Century.
In many respects the United States is ahead of the rest of the world in this as the decentralised nature of US government sees many functions being the responsibilities of local county and city agencies.
Following the 2008 financial crisis many smaller cities and rural counties found their revenues crunched, for many of them this compounded thirty years of economic decline as local industries folded or fled overseas.
In his long piece detailing how those different communities are rebuilding, Fallows comes to the conclusion a new political consciousness is evolving among the groups working to change their cities. While early, the common objectives of these groups will evolve into a movement.
Fallows marks what will almost certainly be a defining feature of today’s first world nations as their politics evolve around these movements.
The tale of regulatory mis-steps and dashed political hopes of telecommunications policy illustrates the failure of Australia’s ‘go big, go global’ policies of the 1980s.
The concentration of Australia’s business power has its roots in the 1980s where the then Hawke Labor government decided the nation’s corporations couldn’t be globally competitive unless they had scale in the home markets, and so a wave of mergers and acquisitions started.
An industry that was particularly problematic was telecommunications. At the time Hawke came to power in 1983 there were three government owned telcos; Telecom Australia that operated the domestic network and the Overseas Telecommunication Corporation which handled the nation’s global links along with a small satellite provider, Aussat, intended for remote access and some defense functions.
David Havyatt at InnovationAus describes the late 1980s thinking that lead to Telecom and OTC being merged to become Telstra, the company that dominates the Australian telecommunications industry today.
The then political troika of Prime Minister Bob Hawke, Treasurer Paul Keating and communications minister Kim Beazley decided allowing OTC and Telstra to merge would give the company global scale, as Havyatt quotes from a policy discussion around 1990.
“A strong vertically integrated national carrier which is able to provide a one-stop-shop for Australia’s telecommunications services both domestically and internationally, providing economies of scale and scope and the prospect of a unified and enhanced international profile.”
Despite the lofty ambitions and a few half hearted attempts to grow global business operations, a quarter century on sees Telstra’s international returns at an almost derisory level.
Dodging global bullets
One could argue that Telstra’s shareholders dodged a bullet – Canada’s Nortel followed the same path and, after early successes, failed spectacularly in the early 2000s.
For Australians in general though, Telstra’s insular focus has been a disaster as maintenance and investments were deferred to make the company’s yields more attractive and the Howard government’s compounding the Labor party’s mistakes in fully privatising the business without breaking its monopoly power.
Which lead Australia into the folly of the National Broadband Network – while the original intention of investing in the telecommunication sector and breaking Telstra’s lock on the industry was a good idea and supported by this writer – it quickly morphed into a massive waste of money and remains so today. If anything, the NBN will only increase Telstra’s market power while delivering more expensive services to the nation.
Australian exports by sector: Department of Foreign affairs and trade
Notable in the above graph is how in the 1990s it appeared the ‘go big, go global’ was working but by the turn of the century, the combination of the mining boom and the nation’s business elites – particularly in banking, insurance, retail and media – had starting looking at exploiting their domestic markets rather than competing internationally.
While there have been successes such as Westfield in shopping centres, Lend Lease in construction and Brambles in logistics management, the bulk of Australia’s corporate leaders are inwardly focused on extracting maximum revenue from their captive local companies.
Global ownership
Increasingly, those dominant companies aren’t even Australian. The brewing industry is a good example where locally owned beer producers make up less than ten percent of the market dominated by New Zealand’s Lion Nathan and British based global conglomerate SAB Miller. Australians, it seems, cannot even brew their own beer any more.
Australia’s managers have been the greatest beneficiaries from the nation’s failed business policies as it’s insulated them from global competition, life is good when you’re the biggest fish in a tiny pond.
While good for managers, the lack of business diversity competitiveness and insular focus leaves Australia’s economy deeply exposed. The failure of the 1980’s grand vision where Australia developed a cohort of globally leading businesses is one that will be regretted by future generations as they pay higher prices for poorer products.
The fate of two shopping malls illustrates the importance of skills and education for communities
Yesterday we posted on how a lack of education is contributing to the decline of America’s middle class. An article on Bloomberg’s Gadfly website illustrates the direct effects of this change in comparing the fortunes of two different shopping malls.
It’s not news that America’s malls are dying in the face of changing demographics, consumer tastes and economics but some centres continue to thrive.
Bloomberg’s Shelly Banjo and Rani Molla put the success of some malls down to the affluence of their customers. A centre that boasts Tesla, Apple and Louis Vuitton stores such as Atlanta’s Lenox Square thrives and charges high rents to its tenants.
Just the presence of an Apple Store boosts a centre’s rents by 13% claim the authors.
Eight miles away from Lenox Square is Northlake Mall which only attracts a quarter of the rents on a per square foot (psf) basis and doesn’t boast the high quality names but rather a range of fading chains and department stores.
Northlake’s woes lie in demographics with its shoppers scoring poorly compared to Lenox Square’s on all measures.
The key points are per capita income and the education level with only just over half of Northlake’s customers having a college degree or better with the result earning only 2/3rds of that of Lenox Square’s shoppers.
Northlake’s lagging educational and income levels isn’t unusual as this is exactly the problem facing most of the lower middle classes as their earnings fall as their skills are left behind by an increasingly technological society.
The decline of Northlake, and most of America’s malls, illustrates the effects of an undereducated workforce on the local economy. Making sure the population has the skills to compete in the 21st Century is more than just a problem for the individuals affected.
America’s fading middle class is bad news for businesses run on old models.
The US middle class is losing ground reports the Pew Research Center citing its latest report that finds less than half of all Americans identify as middle class.
A fading middle class is bad news for companies basing their businesses on increasing consumer spending such as old school retailers, big box stores and fast food chains. The affluent youth culture of the 1960s consumerist model is particularly under threat as the falls in income have fallen disproportionately on the young, as this New York Times examination of American social trends shows.
The end of the 20th Century miracle
It’s hard to see this trend being reversed as the bulk of the Twentieth Century middle class miracle was the surge in well paid manufacturing jobs during and after World War II. After thirty years of seeing those roles going offshore, the next wave of technology threatens to do away with them altogether.
That next wave of technology doesn’t promise to be good for middle class professionals and managerial workers either as automation and artificial intelligence promise to do away with many of their well paid jobs as well.
A large middle class is historically an aberration, when the term was first formally used in Britain just on a hundred years ago only 20% of the population fitted the criteria – incredibly the US only started studying the nation’s middle classes in the 1950s – and prior to the industrial revolution only a tiny group of merchants and professionals could fit the description.
A wartime boom
It was the economic boom after the Second World War that saw the assumption of everybody except the most chronically disadvantaged becoming middle class.
That idea really started to pass in the early 1970s but as a myth it’s continued to hold on, partly due to easy credit that’s allowed workers on declining real incomes to keep up the charade of an ever increasingly prosperous middle class lifestyle.
However that charade is increasingly becoming harder as the Pell survey shows and that is bad news for those retailers, fast food companies and other businesses based on the 1960s consumer model.
All is not lost though, the vast majority of those falling out of the middle classes in 21st Century America – or Australia, the UK, Canada and New Zealand – will still have lives far richer and healthier than those of the middle classes a hundred years ago.
The Turnbull government and its ministers face a big test in the upcoming innovation statement this week and will need to follow through with tangible results.
The Turnbull government and its ministers face a big test in the upcoming innovation statement this week and will need to follow through with tangible results.
In 1976 Clive James visited Sydney fifteen years absence from his hometown. In his book Flying Visits he described the changes that had happened during his time away including some observations on the nation’s thriving movie industry with the comment “premature canonization is the biggest threat facing the young Australian film director today.
James’ words came back to me at an Australian Israel Chamber of Commerce in Sydney last week where the hosts were gushing over 25 year old Wyatt Roy, the Federal Assistant Minister for Innovation, last week.
There’s a lot to like about Wyatt Roy, he’s an intelligent and articulate minister with a self depreciating sense of humour and a touch of humility – qualities generally not associated with Australian politicians – though the old guard gushing over his youth and the achievements of his two months in office can be embarrassing.
In many ways the fawning over Wyatt Roy is emblematic of the general sense of relief in Australian business now the Turnbull government has left behind the nightmare of the vindictive and petty middle aged adolescents who made up the Abbot administration while also being a world away from the backward looking grey Liberal Party stalwarts of the Howard era and the self interested suburban Labor apparatchiks of the Rudd and Gillard years.
The question though is whether the hopes pinned on Turnbull and Roy can be realised which is why there are so many hopes being pinned on this week’s expected release of the government’s Innovation Statement laying out a policy framework for the nation’s economic pivot.
For Australia the stakes are high, the resource sector is collapsing and the property market – the real key to the nation’s suburban prosperity – is looking brittle. Policies that encourage new businesses and industries are now essential to maintain the country’s living standards.
To date Canberra’s policy makers have not managed the economic changes well; the Intergenerational Report earlier this year blithely ignored the effects of technology on the future workforce and its implications to incomes, jobs and government budgets, while three years after the Gillard government’s Australia in the Asian Century report it’s remarkable how dated the document with its underlying assumption of never ending resources demand now looks.
So the Innovation Statement matters in laying out a strong view for the future of Australia however even if it does prove to be a strong, forward looking document, the Turnbull government will need to follow up with substantial actions.
The real risk with all the talk of innovation is that it will be siloed, along with IT, as “something the geeks and young kids” do. For the this week’s announcement to be anything more than more fine words from the Innovation Bureaucracy then it has to be backed by strong reform to taxation, social security, immigration and corporate governance regulations.
While the canonisation of Wyatt Roy and Malcolm Turnbull may well be premature many Australians, including this one, are hoping those hopes are well founded. This week’s Innovation Statement will be the first test.
The West is underestimating China warns veteran investor Mike Moritz, but the misunderstanding run further than just business
In the early 1990s I was working for a British company in Hong Kong and regularly commuting to Taipei. On a Cathay Pacific flight back from Taiwan one Friday afternoon, I found myself on the same flight as the organisation’s Asia-Pacific director who graciously got me into the lounge for a beer.
Over that beer he told me how earlier in the year he’d been asked by one of the pukka English directors why he was bothering spending so much money in business development for ‘third world countries’ like Taiwan and South Korea.
Jeff, as we’ll call the director, laid down a challenge to his board. “Come out and have a look for yourself,” he told them.
Some of the UK based directors took Jeff up and flew out to Hong Kong, first class on BA of course, and then continued on to Taipei where they suitably amazed to be greeted by a first world city.
“They genuinely believed they were going to fly in a DC-3 and be met by a bunch of rickshaw wallas,” laughed Jeff, a long standing English expat. “The Brits don’t get East Asia.”
“People underestimate China, especially in Europe,” Business Insider quotes Moritz as saying. “They have very little sense of the size, strength, and scale of ambition of the leading Chinese technology companies.
Moritz pointed out the fund he leads, Sequoia Ventures, is now placing over half its money in non-US companies with Chinese businesses being high on the list.
So far the United States has responded to this with clumsy efforts like the Trans Pacific Partnership, an attempt to quarantine China’s influence in the Western Pacific that actually gives PRC based businesses a competitive advantage over nations that enter the deal which does little more than strengthen US corporate interests.
Already in Africa, the results of China’s economic efforts are being seen. A good example is the new Ethopian Railway where the Chinese were quick to fund a project that EU and World Bank lenders had dragged their feet on.
Just as English businessmen in the 1990s misunderstood what was going on in East Asia, it seems ignorance of Chinese growth and intentions are even more widespread today. There may be some shocks coming for countries like Australia who assume today’s realities are tomorrow’s.
Japan’s decades of malinvestment are a lesson for all aging and slowing economies
As the world worries about whether China is the next Japan, the Japanese themselves are getting on with life in a low growth economy.
One of the latest ideas is to convert disused golf courses into solar energy farms as manufacturing giant Kyocera proposes a solution to deal with the nation’s power shortage after the closure of the Fukushima power plants.
Japan’s golf course boom of the 1980s, which they exported around the world, was a classic case of overinvestment driven by easy money and lax lending standards. Something that China has certainly had in spades.
The aging nation isn’t doing a perfect job however with the Washington Post reporting that the country’s over 65s are convicted of more crimes than juveniles and the sad reason is seniors are shoplifting to survive.
One of the major mistakes made by Japanese governments through the 1990s was to pour money into corrupt civil projects to stimulate the economy. That money was largely wasted on bridges to nowhere and bullet trains to tiny towns which did little to add to the nation’s productivity or build a safety net for the aging population.
Japan may well be leading the way for other aging nations, we need to heed their mistakes before our societies follow them.
US internet adoption rates tell us much about affluence between different groups
With 85 percent of Americans now online it’s safe to say the internet has reached saturation point in North America.
However not all groups have been as quick to get online and the Pew Internet Survey has a detailed analysis of adoption rates across different demographic segments.
The results aren’t particularly surprising with lower adoption rates reflecting class, race and education differences although older age groups are the fastest growing segment.
Ultimately adoption comes down to affluence with the key chart being the connection rates across income groups.
What the Pew report does illustrate is how critical the internet is to income levels and why it’s important for the disadvantaged to be connected for them to participate in the new economy.
For countries following affluent nations in internet adoption, getting disadvantaged communities connected might be one of the easiest ways they can improve national income, education and well being.
