Saturday, August 02, 2014

'The New World Order': A Conversation

We live in an exceptional time. Though this isn't a quote from the excellent Foreign Affairs essay written by Erik Brynjolfsson, Andrew McAfee and Michael Spence (read it here) but somewhat its central message: That automation is now reaching a certain tipping point in capability, and with it, it is changing the dynamic of globalisation, ending the party for low cost labour and instead creating a Power Law economy, where a creative elite reap most of the rewards and most other lose out even more completely. Indeed, the authors argue that this is already happening: They report that China may have lost over 30 million manufacturing jobs, 25% of the total, since 1996 (though, the authors note, the data is unreliable because of a change in the way it was gathered) , though at the same time, manufacturing output has expanded at an exponential rate. Foxconn's (and of others) automation projects appear to be the obvious reason. This also bears out on anecdotal observation: Joshua Cooper Ramo's celebratory Globalism Goes Backward cites many examples of the trend, though allocates the responsibility to a change of heart rather than the logic of technology.

The essay makes the point that the first wave of information and communication technology, which led to some equalisation of the price of labour and capital across the world, is now giving way to the next: The technologies are becoming capable of creating a new kind of capital and labour by itself, and give, as owners of this new kind of creative capital, fewer people an even larger share of the rewards. This is the 'Capital Deepening' that the French Economist Thomas Piketty is talking about in his bestselling 'Capital in the Twenty-first Century', but which bears out in the casual observations about the divergence of compensation between the low-skilled and high-skilled staff in almost every sort of trade. This means doom and gloom for the aspiring call centre worker from small town India and the migrant labour in China in search of a factory job, but no redemption for the out-of-work Factory Worker in Leeds or the protesting tube drivers in London. In fact, it may come as bad news for entire economies: Those without creative capital may set on the path of irreversible decline. And, this should make people sit up and think not just in Delhi or Beijing, but also in Moscow and Madrid: Because even relative current affluence based on 'ordinary capital' of resources and money can not guarantee that the party will continue.

If we accept this scenario, some big questions will unavoidably follow. The aspiration of an Indian student to study accounting and get a decent job in one of the accounting back-offices is quite sensible, except for the factor, invisible from his vantage point, that there wouldn't be so many of those jobs in five years' time. The fact that it pays well (in relative terms) will continue to attract new people into the trade, and that the work requires a certain amount of skill but no continuous progression tilts the scale in favour of newer cheaper entrants and against those with experience. On the other hand, such aspirations will continue to encourage educational institutions to prepare people with such skills, flooding the market with more such people with no future. Given that the Indian government (and most other developing country governments, acting on expert advise from the global financial institutions) would want private and for-profit sector to do most of the educating for them, and these institutions gravitate towards here-and-now opportunities by their business logic (the students want immediate returns, and therefore want courses for popular careers), the country may be creating an entire generation completely out-of-step with this new wave of globalisation.

Similar questions may affect other countries. The American legislators are working hard to reduce public investment in health and education, based on a notion that those who make it, make it by their own enterprise, something that limits America's ability to compete in the future. In the UK, the health provisions are being privatised, in the hope that market mechanisms will deliver efficiency, just at the time when the limitations of market mechanism when most people lack the capability to pay are becoming obvious. All the theories we have built in the last hundred years about growth and prosperity, which was subtly and invisibly dependent on a certain way of creating wealth, are becoming open to questioning as the underlying mechanism is called into question.

Many people argue, though, that this future is not inevitable: That a job could be replaced does not automatically mean it would be replaced. The displaced workers may accept lower wages or less generous working terms rather than losing their jobs. This argument is at the heart of the dismantling of the welfare state: One would rather have jobs than healthcare benefits. Besides, newer territories could open up to supplement the labour supply from India and China when it gets costlier: This is the wisdom behind many business gurus trying to explore the new frontiers of the global economy. However, this is where global competition plays a role. If a country is unable to reform its ways and drag its heels, another country will invariably leap forward with technology, making the former play catch up. Globalisation of finance and capital will ensure that capital will seek out the territories of greatest efficiency independent of the political implications, and therefore, the march of technology may continue unabated as long as the global capital flows continue to remain free.

From this perspective, it makes better sense to be ready about this kind of future than live wishing that it wouldn't happen. This has personal and political implications. Personally, this may mean, for many professionals, a re-examination of own capabilities and renewed commitment to learning and professional development. Politically, this will mean a range of things, from looking at the fundamental things such as what kind of society that we would want to build, to a range of practical policy considerations, such as renewed commitment to public investment and review of what kind of education (creative, entrepreneurial, continuous rather than process-oriented, bureaucratic and stage-based) and health (preventive rather than remedial) provisions we need to focus on. It may sound rather innocent, but each of these moves will threaten significant vested interests, and are not going to be easy. However, we are possibly reaching that threshold when not acting will be more disastrous than even the painful action. This essay makes a powerful case in an influential journal: We will do well to take note and start the conversation.  






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