Category: economy

Where the jobs will go

An Australian state government survey outlines the impact of automation on employment

That automation is having a profound impact on existing jobs is beginning to be appreciated by governments. A study by the New South Wales government’s Parliamentary research service examines what the effects will be on the Australian state’s economy.

Like equivalent overseas studies, the report finds over half the state’s jobs – a total of 1.5 million positions – could be at risk from computerisation.

An interesting aspect of this is the bulk of the impacts being felt in the mining, construction and logistics industries. While there’s no doubt those sectors will be hard hit, particularly for lower skilled workers, the assumption is higher level positions in management and supervisory roles won’t be as greatly affected.

Examples of this include ‘professionals’ only being at a 4.6% risk of being displaced and ‘General Managers’ at 5.0%. This compares to labourers at 96.1% and 95.7% of ‘filing and registry clerks’ losing their jobs.

While there’s no doubt the lesser skilled roles are at immediate risk, and have been for decades, the rise of artificial intelligence and business automation are increasingly going to put management roles at risk.

Quibbles aside, the report is a good read on the impacts of automation and computerisation on what has been one of the western world’s more successful economies.

The hollowing out process of Australia’s middle classes it describes show that phenomenon is not just confined to the United States and this probably creates the greatest challenge to politicians as populists seek to blame foreigners and minorities for much of the population’s declining fortunes.

Almost every government in the world is facing these issues and the efforts of public servants and economists to accurately describe what’s happening has to be applauded and encouraged.

For voters and workers, reading these reports to understand the forces changing their industries and communities is essential to making informed choices at the ballot box and the workplace.

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Silicon Valleys of the Twentieth Century

Dayton Ohio is an example of an industrial hub rising and falling, could Silicon Valley follow?

The rise and fall of industrial hubs is a topic that fascinates this blog and the excellent BBC and US National Public Radio series Six Routes to a Richer World discusses how countries as disparate as Germany, Brazil, China and the United States are carving their own paths to prosperity in the 21st Century.

In the US segment, the show looks at one of America’s industrial centres of last century – Dayton, Ohio.

The home of the Wright Brothers, Dayton also saw the invention of the cash register, air conditioner and even the self starting motor. In the early part of the Twentieth Century it held the most patents per capita of any US city and workers flocked to the region for high paying manufacturing job.

Manufacturing, and research, is largely gone from Dayton today and the question posed is could the successful cities of California’s Bay Area follow a similar path this Century.

Whether Silicon Valley and San Francisco fade will be a matter of historical forces that are difficult to see right now, but the likelihood can’t be underestimated.

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An entrepreneurial paradox

Having a nation of entrepreneurs may not indicate a vibrant economy

Being an entrepreneur has become fashionable in western countries, but according to the Global Entrepreneurship Monitor it’s not the developed nations which are the most enterprising.

UK purchasing platform Approved Index took the GEM’s 2014 report and looked at which countries have the most entrepreneurs, defined as being “the percentage of an adult population who own (or co-own) a new business and has paid salaries or wages for at least 3 months.”

Surprisingly Uganda came out on top with 28.1% of the population meeting the GEM’s criteria for being entrepreneurs with Thailand and Brazil in second and third place. Of the developed nations, Australians were the most entrepreneurial at position number 26.

This raises the questions of what is the definition of an entrepreneurs and what drives people to become one?

What drives entrepreneurs?

Part of the answer to the second question is necessity. In Nigeria, a part time business is known as the “5 to 9 job” and, as the BBC reports, those evening enterprises are the way most Nigerians see as being a pathway to the middle classes which wouldn’t be possible for most wage earners.

That becoming an entrepreneur is often a result of necessity is borne out by Uganda’s profile in the GEM report where the authors note are scathing about the government’s support of business.

The biggest enabler of entrepreneurship in Uganda is its internal market dynamics. The most significant constraints are the unsupportive government policies, in terms of bureaucracy and taxes, and a lack of financing.

Indeed, the GEM itself noted in its 2014 report on global entrepreneurship that “there tends to be more entrepreneurial activity in less competitive economies” and Uganda ranked 122nd of 144 economies in the World Economic Forum’s 2014/15 Global Competitiveness Index.

Comparing the indexes

Looking at the Countries listed in the GEM’s top ten and listing the countries by the World Economic Forums competitiveness index ranking and the World Bank’s ease of doing business index starkly illustrates the correlation between business strangling bureaucracy and people setting up their enterprises outside the regulatory strictures.

GEM rank

Country

WEF rank

World Bank rank 

1

Uganda

122

122

2

Thailand

31

49

3

Brazil

57

116

4

Cameroon

116

172

5

Vietnam

68

90

6

Angola

140

181

7

Jamaica

86

64

8

Botswana

74

72

9

Chile

33

48

10

Philippines

52

103

 

Of the top ten countries by their entrepreneur ranking, only Chile and Thailand make the top 50 of either the World Bank’s Ease of Business index or the World Economic Forum’s Global Competitiveness Index. To summarise, the urge to be entrepreneurial is a reaction to a poor business climate.

Defining entrepreneurs

What we could be seeing is a poor definition of an entrepreneur although it’s hard to draw the line between a Ugandan housewife who sets up a market food store and an Australian family that buys a fast food franchise. Is one more entrepreneurial because they have more access to capital?

Perhaps the Silicon Valley definition of an entrepreneur – the founder of a technology startup – is a more appropriate however that excludes vast tracts of western economies and almost all the developing world.

On many levels the Global Entrepreneurship Monitor’s definition is probably the fairest as it indicates how many people are starting their own ventures regardless of their capital position or the nature of their business.

If the GEM’s definition is fair then the leader board indicates that maybe having a nation of entrepreneurs is actually the symptom of a constrained business community rather than that of a vibrant economy.

Maybe political and business leaders need to be careful what they wish for when they call for a more entrepreneurial nation.

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Thinking through the effects of autonomous vehicles

Driverless cars and autonomous vehicles are going to change the economy and workplace. Where will the jobs come from?

The defining technology of the Twentieth Century was the automobile. While there were many advancements – antibiotics, mains electricity and mass communications to name just three – nothing changed society to the same extent as the motor car.

A hundred years ago it was impossible for a pundit to appreciate how the motor car was about to change communities, the population’s increased mobility saw the suburbanisation of cities, the creation of the consumerist society and the rise of industries such as supermarkets and drive in theatres, none of which were foreseeable fifty years earlier.

Change didn’t happen in isolation, those new industries were the result of a number of changes in technology alongside the motor car, for instance the supermarket couldn’t have happened without refrigerators becoming household items along with radio and television developing new markets through the advertising industry.

Economic drivers

The biggest driving force was economic, once motor cars became affordable for the typical worker – just before World War II in the US and in the mid 1950s in most of rest of the Western world – the cost of travelling fell dramatically.

With the cost of moving around falling, workers had the opportunity to move out of the dirty, grimy inner city to new and clean suburbs where they could commute to their jobs in offices and factories. At the same time it also meant families could travel further to buy their groceries, forcing the end of the cornershop and the milkman.

Autonomous vehicles change those economics again, as Uber founder Travis Kalanick pointed out last year, the most expensive item in a taxi or Uber fare is the driver.

During his interview at the Code Conference Kalanick went on to describe how eliminating the driver changes the economics.

“When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle. So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”

Changing ownership

The assumption in today’s discussions about autonomous vehicles is that car ownership will become and thing of the past, something that fits into Travis Kalanick’s view.

Should that be the case then a whole range of new industries open up. Who owns the cars, who dispatches the cars, who plans for peak and normal usage are just a few questions and opportunities that open for savvy entrepreneurs.

A changing concept of ownership doesn’t come without problems, not least who owns the code controlling the vehicles and the data being generated which in turn raises privacy issues.

Loss of jobs

The obvious other question with driverless vehicles is what happens to all the taxi drivers, couriers and long haul truckers as automobiles no longer require operators.

With truck driving being the dominant occupation in most US states, employing 1.8 million workers according to the Bureau of Labor Studies, this is a serious question. Interestingly the BLS forecasts employment to grow five percent per annum over the rest of the decade.

That scale of  job losses hasn’t been unusual over the last century. The agricultural industry itself has seen a massive fall in employment in that time period with the proportion of Americans working in agriculture falling from half the population to a tenth of that.

Creating new industries

Obviously half the US working population didn’t end up being unemployed, with the many of those displaced by the motor vehicle – either in the agricultural sector or in those fields catering for the pre-motor car market – finding work in other fields.

That the economy adapted to the loss of jobs in what were traditional fields in 1915 gives us a clue to where the jobs and industries of the future are going to come from as the changing nature of the economy means new businesses are created.

As the economics of these industries change, we see the need for workers move further up the value chain. We also see those reduced costs open opportunities for new ideas, just as the supermarket concept took hold in the 1950s as the economics of household shopping changed.

This is where the greatest opportunity lies for today’s entrepreneurs lies, in figuring out how those reduced costs will change the way consumers and society use transportation. In turn that will drive the next wave of employment growth.

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Malls and the economic divide

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.

atlanta-mall-comparison

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.

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Rethinking education in a time of a declining middle class

Reskilling the workforce is essential to address middle class decline

The role of higher education is changing in the face of technological and economic change as this World Economic Forum article describes.

Education is one of the keys to staying competitive in an increasingly technology driven society on both a personal and societal level. Individuals and nations that neglect their education investment risk are left behind.

One of the starkest examples of this are America’s lower middle class and the rise of Donald Trump.

In an article for The Atlantic, former George W. Bush adviser David Frum, describes how economic uncertainty for America’s relatively unskilled workforce are pushing back against their falling living standards.

The angriest and most pessimistic people in America are the people we used to call Middle Americans. Middle-class and middle-aged; not rich and not poor; people who are irked when asked to press 1 for English, and who wonder how white male became an accusation rather than a description.

You can measure their pessimism in polls that ask about their expectations for their lives—and for those of their children. On both counts, whites without a college degree express the bleakest view. You can see the effects of their despair in the new statistics describing horrifying rates of suicide and substance-abuse fatality among this same group, in middle age.

That these people are supporting Donald Trump – and their counterparts in almost every Western democracy – is not surprising as they losing in the new economic order and the technological changes which are eliminating or devaluing their jobs.

For governments and communities, the question is how to restore these folks’ fortunes or at least maintain their living standards. With protectionism almost certainly guaranteed to fail, the obvious answer is to give these workers the skills to compete and contribute in the 21st century economy.

Sadly, most Western governments still locked in a 1980s Reagan/Thatcherite mindset see education as a cost to be reduced rather than an investment in both their communities’ collective wealth and society’s cohesion.

Education, like the rest of society, is changing. A rethinking of both how it is delivered and its role is essential for nations to be successful in today’s economy.

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Building a European Silicon Valley

Europe’s development of an equivalent to Silicon Valley faces many hurdles

The World Economic Forum asks can Europe build its own Silicon Valley?

It seems the answer lies in money, investors’ money to be precise, with a lack of VC funds to finance emerging businesses and a lack of acquisition hungry corporates providing high profile experts argues the WEF piece’s author, Keith Breene.

That appears to be a strong argument although there’s still some strong contenders for European tech hubs with the WEF identifying Munich, Paris and London as being major centres.

London’s claims are reinforced by the city’s strength in financial technology with KPMG nominating 18 of the world’s top 50 fintech startups being based in the British capital.

Interestingly, the Belgium town of Leuven which has styled itself as a centre for 3D printing and beer features on the WEF list of European startup hubs as well.

While it’s unlikely Europe can create a ‘Silicon Valley’ – even the post Cold War US would struggle to do so today – the presence of major centres like London and specialist hubs like Leuven indicates another important aspect of creating a global centre, that of having an existing base of businesses and skills.

That skillbase isn’t built up overnight, it’s a decades long process of commitment from industry, investors and governments and often as much the result of a series of happy accidents rather than deliberate planning.

It may well be the question of Europe creating a Silicon Valley isn’t really relevant with the bigger issue being how the continent’s cities and nations put in the conditions to develop long term industrial hubs. Trying to ape today’s successes for a project that will take decades to come to fruition could be a big mistake.

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