The developed world is not reshoring or automating half as quickly as the technologists would have us believe, and on the macro level the impact is likely to be insignificant for many years yet.
Davos Day One. The historians are breaking down the significance of the fourth industrial revolution. They’re talking about AI, robotics, IoT, self driving cars, 3D printing, quantum computing and whether such things really will equate to a new industrial era — the new ‘new economy’ thesis if you will. The fourth industrial revolution, Harvard’s Niall Ferguson notes, is distinctive because of its exponential rather than linear pace, not only changing what and how we do things but also potentially who we are.
This guest post is from Lutfey Siddiqi, managing director at UBS Investment Bank, and Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management. It’s on the back of a UBS white paper for Davos, which you can read here. __________
Standard Chartered released a big note this week on the evolution of global supply chains, looking at the effects of new information technologies as well as the changing cost structures of established manufacturing zones. One of the key themes is that manufacturing is moving westwards, away from China and over to India and Africa. China still has lower-wage areas inland and a fast-growing productivity advantage due to the rapid adoption of automation and robotics; nevertheless the centre of gravity is moving, they say. Furthermore, the westward transition is also being facilitated by technology, especially things like the falling cost of radio-frequency identification technology and inventory tagging and monitoring. We presume it’s much easier to trust new supply networks if and when you can monitor their output and productivity real-time. As Standard Chartered’s analyst team of Madhur Jha, Samantha Amerasinghe and John Calverley note (our emphasis):
You can sign up to receive the email here. Oil topped $68 a barrel after falling to a five-year low near $45 in January. Saudi Arabia raised its selling prices in response to stronger demand and traders are looking beyond the currently well-supplied market to growing consumption and a slowdown in US oil output. (FT) Saudi Arabia has shown little inclination to curb its production, which has risen above 10m barrels a day, as it moves to expand its market share. It also said that it remained committed to infrastructure and development projects but admitted it would need to “rationalise” spending in light of low oil prices. (FT) The rebound in prices boosted inflation expectations and set prices tumbling across major government bond markets, pushing yields to levels not seen since the ECB began QE earlier this year. (FT)
You can sign up to receive the email here Ayatollah Ali Khamenei, Iran’s supreme leader, has accused the US of distorting the nuclear framework agreed with world powers. Washington‘s fact sheet about the framework, agreed last week after months of negotiations, was “mostly against reality” and contained a “narrative … [that] is distorted … to save face”, he charged. (FT and BBC) Iran’s main gripe is that it wants sanctions lifted “on the first day” of the final deal’s implementation. That’s not what the US wants, but are the interests of Tehran and Washington closer than many think? (FT) In the news
So, Apple has taken advantage of the drop in Swiss funding costs to issue SFr1.25bn of bonds. A no-brainer funding opportunity for Apple? Or…, alternatively, a sign of things to come: corporates replacing petrodollar and sweatdollar sovereigns as the key accumulators of trade surpluses in the global economy, and issuing debt in a bid to sterilise the effects of too much liquidity on capex they can’t control? If it’s the latter, we should beware of Andrew Keen’s concerns about the perils of a winner-takes-all tech economy, where a handful of geeks inadvertently become the new masters of the universe, thanks to their cunning monetisation of things Tim-Berners-Lee-types would never have dreamed of rationing to the great tech-ignorant. We’ve dubbed it Silicon Valley’s “god complex” before.
Imagine the scene in the not too distant future. An Uber self-driving electric car has just dropped you off home. Your front door has recognised your face, and your fingerprint has authenticated that it’s definitely you. You get into your house, not a key in sight, kick off your shoes, and happily discover that the 3D printing feature in your fridge has already printed the food you plan to consume for dinner. All the appliances you need are on. And everything you don’t need is off, nice and efficiently saving power. You decide to treat yourself to a quick 30-minute Netflix holographic update, only to get a nudge from your wearable tech that you’ve still got a 10 minute exercise deficit to meet your daily activity quota. It’s a problem because you happen to have signed up to the extreme health management option which shuts down your ApplePay access — without which Netflix won’t work — if you fail to meet your objectives. You quickly get busy on your smart-grid connected treadmill (which conveniently sells off the energy produced by your system back into the grid) and focus on the prospect of an autonomously prepared calorie efficient meal. When all of a sudden… your utility door flings open and your iRobot Roomba begins singing Daisy, Daisy.
That’s a compressed summary of a white paper released by UBS on Wednesday, How trade, technology and finance can help keep the recovery going The gist is that recent advances in information and communications technology, new innovations in methods of manufacturing, and fresh ways of harnessing and exploiting energy could unleash significant growth benefits for the world economy over the next few decades.
Ever since Robert Gordon made his assertion that all the low hanging technological fruit has been picked, evidence to the contrary has been piling up. It’s worth noting, first off, that Gordon’s paper was relatively backward looking. It arrived at its conclusions by taking trends prior to 2007 and projecting them forward, largely ignoring the 2008 crisis that occurred. It also measured innovation in terms of dollar denominated growth.
Now that we have Chinese socialites engaging in public cat fights over who is richer, posting snapshots of their bank accounts “Rich Kids of Instagram style“, one has to wonder if it may be worth revisiting John Hempton’s prediction last year that the Chinese authorities will finally crack down on this sort of over-the-top gratuitous wealth display, and when that happens the luxury brands — among them Swiss watches — will begin to suffer. (*We should note the “I’m really richer than you” meme possibly applies to Prince Alwaleed bin Talal as well).
ROBOTS! AUTOMATONS! CYBORGS! ARTIFICIAL INTELLIGENCE! ARGHH!!! Last weekend I attended Robots on Tour, a robotics, humanoids and cyborg exhibition put together by the Zurich-based Artificial Intelligence Laboratory at the University of Zurich.
ROUND-UP Stocks soar to five-year high. Wall Street’s S&P 500 had its biggest one-day gain, or 1.3 per cent, since the start of January, supported by a better than expected survey of durable goods orders (excluding transport). Now at 1,515 points, the New York benchmark was striving to recover last week’s five-year closing high of 1,530. The Dow jumped 175 points, or 1.3 per cent to 14,075, its highest level since Oct. 15, 2007. The FTSE All-World equity index added 0.9 per cent and the FTSE Eurofirst advanced 0.9 per cent. Milan’s FTSE MIB index recovered early losses to close higher on the day. Demand for the dollar fell, with the dollar index sliding 0.3 per cent. Copper declined 0.2 per cent to $3.57 a pound while Brent crude fell 0.7 per cent to $111.95 a barrel (Financial Times).
Anti-Japanese protests spread across China: Thousands of Chinese protesters gathered outside the Japanese embassy in Beijing on Tuesday, some hurling water bottles at the heavily-guarded facility, and Japanese companies in China braced for an escalation of demonstrations over a territorial dispute between the two countries. Canon, Toyota, Honda and Mitsumi have all suspended some operations while Fast Retailing’s Uniqlo shops and many 7-11 stores are also closed. September 18 is the anniversary of Japan’s 1931 occupation of parts of mainland China. US election campaign criticisms of China and the White House’s decision to seek trade sanctions against China for illegal auto industry subsidies is further complicating the picture. (Financial Times)(Reuters)(Wall Street Journal) US inflation expectations have risen sharply after the Fed’s QE3 announcement. Expectations for US inflation over the next 10 years rose as high as 2.73 per cent on Monday, based on the difference or the “break-even rate” between nominal and inflation-protected Treasury debt. It was the highest intraday break-even rate since May 2006. (Financial Times)
We have written extensively about how the global economy is becoming increasingly technology-intensive, and reaping productivity gains. Robots, we’ve argued, are slowly taking over in the workplace. And there are plenty of anecdotal examples, such as these noodle-slicing beings from China. But sales figures also confirm that more robots are being sold than ever before.
Something of a puzzle is emerging in the UK’s labour market. The overall employment picture is definitely improving. According to the latest figures from the Office of National Statistics, the economy added more than 431,000 new jobs in the past year and the employment rate is now considered to be relatively high. At the same time, however, there’s no doubt that labour productivity has been falling — quite the opposite to the picture in the US, where productivity has been rising sharply.
George Magnus of UBS has a 29-pager out on Monday questioning if the Asian miracle may finally be over? FT Alphaville is still poring through the details, but couldn’t wait to bring you a substantial chunk of the note which is dedicated to the role of technology and its impact on Asian market dynamics. We’ve noted on more than one occasion that economists may be missing a trick when it comes to how technology is changing the global economy. More so, that developments like 3D printing, could even pose a black-swan risk for Asia in their own right.
Cheap labour isn’t forever. The act of taking advantage of it enriches the work force over time. At least, that’s what should happen. As America proved, a work force can, in effect, end up aiding its own overall decline due to a lack of competitiveness on wages and pensions. That sort of rigidity, whether good or bad, isn’t the only thing that can lead to a decline in manufacturing employment. Automation can too.
Comment, analysis and offerings from Wednesday’s FT, Martin Wolf: Ireland needs help with its debt “If I were you, I wouldn’t start from here.” Never can the punchline from the well-known Irish joke have been more apposite, writes the FT columnist. The Celtic Tiger has collapsed under a mountain of bad debt. This raises questions about where responsibility for financial excesses should lie. That is an issue in the Irish election today. It should be one for all of Europe tomorrow.