The World Economy in 2017: What to Expect (and not to expect)
Home to the World Competitiveness Center, IMD shares its findings every year with Orchestrating Winning Performance, its signature program attended by executives from around the world. The yearly benchmarking of the competitiveness of nations by IMD is considered an invaluable economic barometer and much-awaited publication. At OWP, Arturo Bris, director of the World Competitiveness Center, gave his views on what to look out for in the coming years.
The first thing Bris announced is that he has no clue of what to expect: “We don’t know what is going to happen or the impact of what is going to happen.”
The productivity puzzle
Productivity, the activity of labor, has massively increased over the past 50 years, which in turn has contributed to levels of competitiveness never seen before.
Technology has been credited with the advancement in productivity, but processed data, according to Bris, delivers another story. The greatest increase in productivity occurred between the 50s and 60s (+60%), not in the last seven years, where it has only been an average of 0.5%. “Where are the cool technology guys now? Bris said”
And yet the revenue per employee has diminished, which has led to a reduction of purchasing power. “This graph shows why Trump won,” he announced.
Technology and jobs
The problem with an automated society is that people don’t earn enough and that those who no longer have a job fall off the radar. The gap between productivity and salaries continues to widen, as does the gap between technologically advanced countries and those that are not.
“This is a massive problem. It is contributing to inequalities and disparities and is not sustainable.”
Bris then discussed the factors that contribute to accentuating the gaps, before presenting the solutions that won’t work and why.
The displacement of production to China has been a major factor in the growing disparity. There are however reasons to fear that even China’s economy is in danger because of its high level of private debt (150% of GDP). The system only works while there is economic growth, and because it is a closed system buoyed by the state, there will be no way to bail it out when growth subsides.
India, too, represents a risk because it has no system to support its economy since the privatization of its banks in the 50s.
Protectionism aggravates the situation as it ends up hurting smaller countries. As for Trump’s strategy to bring back jobs to boost the US economy, Bris’s opinion is that it doesn’t take into account the debt that will be contracted to invest in the creation of new jobs, nor the fact that the dollar will be pushed up, making foreign goods more attractive in the US.
The US is currently the largest importer in the world and Trump’s vision does not include the possibility of retaliation and trade wars in the event of excessive protectionism.
Over the years, the burden of taxes on individuals has risen, while corporations have seen theirs diminished. Furthermore, technological companies contribute nowhere near the level of tax revenue that manufacturing does and has done in the past.
On the other hand, Bris does not believe in taxing them higher or inflicting fines, as the EU has done with Google, because the risk is that they will move back to the US, or reduce innovation.
Later in the discussion, Bris advances the idea that new ways must be found to channel the massive wealth of tech companies into the direct financing of services that serve the public good, such as pension schemes for life or the building of schools.
This solution is a non-starter since not even a dictator could impose upon people to no longer use technology! On the other hand, robots should be taxed as any form of labor.
Bris points out that job creation does not always produce revenue for the state and gives as an example Saudi Arabia, where Uber has created 20’000 jobs, but pays no taxes.
When companies’ shareholders are denied voting power, and are still held by their founders, as is the case with Facebook, Apple, Ali Baba and Snapchat, investor activism is impossible. The values and philosophy of the founders prevail and cannot be affected by investors.
“We don’t know how we are going to make people better off.” Furthermore, longevity will continue to exacerbate the problem.
Without pretending to hold any answers, Bris does however leave us with open questions:
“Can we find innovation that creates jobs?”
“Can we find a way in which companies voluntarily respond to the common good and social needs?”
Advances in technology and artificial intelligence are only going to accelerate and Bris introduces into the discussion the proposal made by Kai-Fu Lee only three days earlier in the New York Times under the title “The real threat of artificial intelligence”.
“So if most countries will not be able to tax ultra-profitable A.I. companies to subsidize their workers, what options will they have? I foresee only one: Unless they wish to plunge their people into poverty, they will be forced to negotiate with whichever country supplies most of their A.I. software — China or the United States — to essentially become that country’s economic dependent, taking in welfare subsidies in exchange for letting the “parent” nation’s A.I. companies continue to profit from the dependent country’s users. Such economic arrangements would reshape today’s geopolitical alliances.”
In Bris’ opinion, minimum guaranteed income is going to happen. It will probably start in Switzerland with a referendum and then it will spread.
“I know that I’m in a minority, but I’m right,” he concludes.