WHAT’S GOING ON

This post isn’t specifically about either Trump or populism, but it’s related to the broader forces driving both. Over the last couple of years the undercurrent of radical change drove me to spend a lot of free time reading as much as I can about the nature of the new global network. Just as after Brexit, the lesson here isn’t the nihilistic view that ‘all analysis is futile’, instead maybe that most ‘experts’ just didn’t see the whole picture. Over the course of the last year or so I’ve read about 50 books, thousands of articles and engaged in hundreds of conversations. To my surprise, a fairly coherent world-view has dropped out of the bottom.

I’ve tried to condense all of this into 7 points and a roughly 20min read. The conclusion first:

Bottom line: The world is undergoing 4 massive disruptions simultaneously: mass urbanization, accelerating technological change, worsening demographics and significantly greater global interconnectedness. Because these shifts are increasingly connected to each other through the same global network, they are amplifying one another, making them difficult or impossible to reverse. The good news is that this massive increase in connectedness provides an incomprehensibly larger platform for idea exchange, and is therefore exponentially accelerating the rate of human progress. These gains have been disproportionately accruing to the world’s poorest people. The bad news is that this is going to continue to be exceptionally negatively disruptive to individuals, especially developed-world workers. And that’s driving a sustained backlash. Many of the thinkers I have read believe that these forces are so powerful that they might actually end up breaking the current system. This stance seems less and less outrageous. So I end with a quick discussion of 3 interesting ideas for what kinds of system might be next.

1) Why we are experiencing this unfathomable acceleration in global change. First, some optimism and a quick reminder of why the futurists are so excited. The principal insight of Yuval Noah Harari’s book on the history of humanity, Sapiens, is that ‘we control the world basically because we are the only animals that can cooperate flexibly in very large numbers.’ That cooperation is based on our ability to communicate and motivate using abstract myths and ideas, such as money, religions and laws. ‘Over those 20,000 years humankind moved from hunting mammoth with stone-tipped spears to exploring the solar system with spaceships not thanks to the evolution of more dexterous hands or bigger brains (our brains today seem actually to be smaller). Instead, the crucial factor in our conquest of the world was our ability to connect many humans to one another.’ Progress results from combining existing tools and ideas to make better ones. Economist Paul Romer argues real sustainable economic growth doesn’t stem from new resources but from existing resources that are rearranged to make them more valuable. In The Rational Optimist, Matt Ridley describes it as ‘mating minds’.

The Internet is the ultimate idea-combining machine, and it allows for incomprehensibly more idea combinations, faster, than at any time in human history. This isn’t a linear process, it isn’t even an exponential process- it’s a ‘combinatorial explosion’. There are a conservative 10 to the 750,000,000 possible groups of interacting users on the internet. Human brains don’t forecast well using these kinds of numbers. The direct relevance for the market is that mass network connection correspondingly increases complexity and decreases predictability. More potential combinations means dramatically higher odds of surprising outcomes- in both directions. Complexity theory states that when you connect something to a network it moves from being complicated to being complex, and complex entities are inherently unpredictable. “The benign act of connection makes complicated objects into complex ones. The moment an object — a cargo package, a share of stock — clicks into a network, it becomes subject to all the wildness of complexity that may lie there: cascades, whipping external forces, unexpected internal faults revealed only under the pressure of connection” — from The Seventh Sense by Joshua Cooper Ramo.

Understanding the sheer size of the new network is therefore important. As Kevin Kelly puts it in The Inevitable: “The scale of what we are becoming is simply hard to absorb. It is the largest thing we have made…..Already in 2015 a grand total of 15 billion devices have been wired up into one large circuit…the human brain has roughly 86 billion neurons, or a trillion times fewer than the holos…and our brains are not doubling in size every few years, the holos mind is…..

…..Every second of every day we globally manufacture 6,000 square meters of information storage material — disks, chips, DVDs, paper, film — which we promptly fill up with data. That rate — 6,000 square meters per second — is the approximate velocity of the shock wave radiating from an atomic explosion. Information is expanding at the rate of a nuclear explosion, but unlike a real atomic explosion, which lasts only seconds, this information explosion is perpetual, a nuclear blast lasting many decades.’

2) The good news: this process favours EM over DM; the world is shifting Eastwards. This has been obvious for years, but once again, the scale is so enormous to be worth explicitly quantifying. “The original Industrial Revolution, hatched in the mid-1700s, took two centuries to gain full force. Britain, the revolution’s birthplace, required 150 years to double its economic output per person; in the United States, locus of the revolution’s second stage, doubling GDP per capita took more than 50 years. A century later, when China and India industrialized, the two nations doubled their GDP per capita in 12 and 16 years, respectively. Moreover, Britain and the United States began industrialization with populations of about ten million, whereas China and India began their economic takeoffs with populations of roughly one billion. Thus the two leading emerging economies are experiencing roughly ten times the economic acceleration of the Industrial Revolution, on 100 times the scale — resulting in an economic force that is over 1,000 times as big.”- McKinsey.

Therefore the opportunity in growth and consumption from mid-tier EM cities is likely significantly underestimated. “Nearly half of global GDP growth between 2010 and 2025 will come from 440 cities in emerging markets — 95% of them small and medium-sized cities. 46 of the global top 200 cities will be in China by 2025.” As you can see in Parag Khanna’s Connectography (good maps here and here), the shift Eastward is stark. China now has 2 dozen different megacity clusters of up to 100m people. “For the first time in world history, the number of people in the consuming class will exceed the number still struggling to meet their most basic needs.” McKinsey estimates that annual consumption in EM will rise to $30 trillion in 2025, up from $12 trillion in 2010, and account for nearly 50% of the world’s total, up from 32% in 2010. It seems especially appropriate that the most-visited location in the world is now a consumption hub at the nexus of East and West: the Mall of Dubai.

More generally, McKinsey estimates that by 2025, 45% of the Fortune Global 500 could be based in emerging regions (up from 5% in 1990 and 17% in 2010). Recently Weiss CIO Jordi Weiss wrote a typically excellent paper making the secular case for EM, due to a rebalancing of economic power driven by the aging of the developed world and the democratization of technology. He also makes an eloquent case for why, despite many of these trends being so obvious, they may not be reflected in the capital markets yet. “Why should the benchmark weighting be about 10% in emerging markets?….EM has 85% of the population, is 60% of global GDP and has been 80% of the global growth since 2008!”

3) The bad news: this process has been particularly negative for individuals- leading to the developed world backlash. McKinsey spoke about these trends amplifying one another, and this has been clearly demonstrated by increased connectivity globalizing the labour force while technology accelerates automation. The key lesson from technological globalization is that if something can be done or made cheaper somewhere else or by something else, it eventually will be. “This is the real austerity project: to drive down wages and living standards in the West for decades, until they meet those of the middle class in China and India on the way up.“- Paul Mason. The graphical expression of this phenomenon is the famous Globalization Elephant Chart , which has been justifiably hailed as the most important chart for understanding politics today. “The future is already here- it’s just not very evenly distributed.”- William Gibson.

It’s not specifically that ‘robots are taking the jobs’ or even that ‘China is taking all the jobs’, but that technology is driving down the costs of information and automation. The NYT noted that from 2000 to 2010, the US lost 5.6m manufacturing jobs, yet only 13% of those job losses can be explained by trade. The rest were casualties of automation. US factories produced more goods than ever last year, yet employed the same number of workers as in 2009, when production was roughly 75% what it is today. Those jobs aren’t coming back.

The first wave of globalization destroyed developed world blue-collar jobs. But as trade flows move from physical to digital, and automation increases, higher paid white collar information jobs are going to deflate even faster. By one estimate, 60% of the US workforce’s main job function is to aggregate and apply information. ‘One of the lessons that we’ve learned in AI painfully and that everybody should be aware of is that we used to think 30 years ago that the easiest jobs to automate were going to be the blue collar ones. We thought that the white collar jobs, which require education, were going to be hard to automate. That has it exactly backwards. The hardest jobs to automate are things like construction work because they require dexterity, moving around, not stumbling, seeing things that we take completely for granted. These are tasks that took hundreds of millions of years to evolve. On the other hand, doctors, lawyers, analysts, engineers, scientists, these are hard because we didn’t evolve to do them. We have to go to college to learn how to do them. But that also means that the computers can learn that much more than we can because we are evolving them for that purpose. So there are already a lot of white collar jobs that have shrunk or disappeared and more of them will.’- Pedro Domingos. The ETF is an illustrative example of this trend: technology has created a low-cost, scalable alternative to active management that is deflating prices for consumers while simultaneously putting high-wage financial employees out of work.

“We have globalized trade and manufacturing, and we have introduced robots and artificial intelligence systems, far faster than we have designed the social safety nets, trade surge protectors and educational advancement options that would allow people caught in this transition to have the time, space and tools to thrive. It’s left a lot of people dizzy and dislocated.”- Thomas Friedman.

The standard futurist response to this nihilistic view is that you’re just repeating the Luddite fallacy. The developed world jobs will eventually be created, you just lack the imagination to anticipate what they may be. For their part, McKinsey is optimistic on the gig-economy, based on their supply-side analysis. But the gig economy also means more wage transparency, which is having a deflationary impact on globally fungible jobs. A bidder on Topcoder based in Bangladesh clearly doesn’t have the same living costs as one in Manhattan- but both can have the same skill rating. Moreover, the rub this time is that, not only is information is trending towards free, but intelligence is decoupling from individuals. As Harari says “We are on the brink of a momentous revolution. Humans are in danger of losing their value, because intelligence is decoupling from consciousness… …Humans will lose their economic and military usefulness, hence the economic and political system will stop attaching much value to them ….The age of the masses may be over.” His prediction that human worthlessness results in increased usage of drugs and video games is already playing out in the US on a staggering scale.

California, Massachusetts and Nevada recently legalized marijuana , the CDC has already declared a nationwide opioid epidemic. One of the most illustrative statistics I’ve seen this year is that US high-school drop-outs are progressively opting out of work, because very low cost technology is increasing the value of their free time. Erik Hurst calculates that they are filling up to 75% of their leisure time with video games. There’s further proof that it’s about willingness to work, not ability to work: immigrants are increasingly replacing native drop-outs in the labour force. And it’s not just at the low-end of the educational spectrum: today, approximately 25% of US college graduates don’t have a job and aren’t even looking.

4) Who benefits from the backlash? Domestic deglobalizing technologies. Any populist backlash against globalization obviously initially favours the beneficiaries of protectionism. But it’s not clear how subsidizing a globally uncompetitive commodity industry is a sustainable long-term strategy, especially for smaller nations. So how can a country de-globalise constructively, rather than destructively (eg through tariffs, subsidies and walls)? Maudlin Economics has argued that the beneficiaries should be ‘deglobalizing technologies’; renewable energy, vertical farms, 3D printing, robotics, VR travel (even if all have been overhyped at one point or another). These are technologies can localise production, for example distributed manufacturing or distributed power. Last year I travelled to Oak Ridge National Labs (ORNL), a DoE skunkworks focused on using domestic US technology to compete with foreign imports. They are very focused on 3D printing. The Gartner hype cycle is a graphical expression of ‘short-term overhyped, long-term underhyped’. Over the last couple of years the Hype Cycle for 3D printing has been especially savage, but Enterprise 3D printing is the most advanced on the ‘Slope of Enlightenment’. McKinsey agrees with the inherent potential in the technology: ‘In the decade ahead, the global goods trade may continue to decline relative to world GDP. At a minimum, it is unlikely to resume rapid growth. Not only are factor costs changing, but 3D printing and other technologies also have the potential to transform how — and where — goods such as electronics, vehicle parts, other transportation equipment, machinery and electrical equipment, medical instruments, and apparel are produced.’

Jordi Visser also argues that global tourism is increasingly replacing global trade; 200 million Chinese will travel abroad annually by 2020, according to CLSA. ‘Experiences over stuff’ is getting to be a tired trope, but Kevin Kelly argues: ‘The only things that are increasing in cost while everything else heads to zero are human experiences — which cannot be copied. Everything else becomes commoditized and filterable.’ Consequently, Kelly thinks the key technological transition is from an ‘internet of information’ to an ‘internet of experiences’. He argues technologies that facilitate that transition- virtual, augmented or mixed reality- are therefore long-term under-hyped, with Magic Leap being the most exciting. The same trend is also helping to drive eSports- widely forecast to be the next tech phenomenon. Perhaps those high-school drop outs spending all their time on Video Games will finally be able to generate some income from their hobby. It’s a very polarizing topic, but the most optimistic advocates of Blockchain essentially believe that it will provide the critical mechanism to decentralize the transfer of information (here’s the most positive essay I’ve read in Aeon). This view is consistent with the theme of digital flows replacing physical flows. ‘Globalization hasn’t gone into reverse. It’s gone digital. Cross-border data flows have grown by a factor of 45 over the past decade, and they’re projected to post another ninefold increase by 2020.’ -Harvard Business Review.

If the critical driver of progress is idea-combinations, the global winners will be those that can combine the highest volume of ideas the fastest. This is also an EM story. Witness the astounding rapidity of Chinese innovation, as exemplified by Shenzhen. By 2013, 40% of the world’s electronic devices had some portion of assembly done in Shenzhen. Post declaring Shenzhen a Special Economic Zone in 1970 the population has grown to 15m people, with a 100x increase in per capita GDP in 30 years. The Pearl River Delta (map here from Connectography) is forecast to reach 80m people and $2tr GDP by 2030. Shenzhen has been a principal beneficiary of what Chris Dixon has coined ‘the peace dividend of the smartphone wars’; the Economist has declared it the best place in the world for a hardware innovator to be. Chinese tech companies are now iterating so fast they are knocking-off Kickstarter products before they even exist. “The whole Chinese system has developed around the idea that you have instantaneous communication and basically infinite information….Back in the ’80s people were talking about ‘just-in time’ manufacturing” as something to aspire to…But now, the Chinese don’t even know any other way”- Bunnie Huang.

The historical perception was that China succeeded primarily just by knocking off other people’s IP. But there are many signs that this is an increasingly outdated view. For example, China has already surpassed the US in the global supercomputer rankings, and for the first time the fastest supercomputer in the world was using solely Chinese-made processors. ZTE and Huawei are in the top 3 global companies in international patent applications. One particularly wonderful example is the staggering popularity of WeChat, and its integrated functionality relative to more silo’ed Western apps. “More than 760m people use it regularly worldwide; it’s basically how people in China communicate now. It’s actually a lot of trouble not to use WeChat when you’re there, and socially weird, like refusing to wear shoes. In China, 90% of internet users connect online through a mobile device, and those people on average spend more than a third of their internet time in WeChat.” Kevin Kelly also thinks that China is on the cusp of producing a truly mass-market global brand within the next 5 years. But if all the bulk of the growth is going to be within domestic EM markets, domestic brand-leadership is just as important. The narrative of globalization was that the rise of EM consumers would benefit DM multinationals, but in a deglobalizing world, it just as likely to benefit local brands tailored to local needs. As the totem of the connected world, smartphone handsets make a good illustrative example: Apple and Samsung only have 25% shipment share in China, with domestic brands dominating the remainder.

5) Who does the backlash hurt the most? The obvious answer is beneficiaries of global free trade. But rising global inequality inevitably leads to an increase in relative comparisons. With developed-world electorates losing so badly in relative terms, the focus is naturally shifting to scrutinizing the few winners domestically and abroad. In purely financial terms, the biggest winners of all the trend towards global connectivity have been internet monoliths; those that can digitally distribute information across the massive new system at close to zero marginal cost. In Postcapitalism, Paul Mason argues ‘The equilibrium state of an info-tech economy is one where monopolies dominate and people have unequal access to the information they need to make rational buying decisions…… The main contradiction today is between the possibility of free, abundant goods and information and a system of monopolies, banks and governments trying to keep things private, scarce and commercial.’ The new tech “Superstar Companies” are hardly mass-employers either. As The Economist recently noted: “In 1990 the top three carmakers in Detroit between them had nominal revenues of $250 billion, a market capitalization of $36 billion and 1.2m employees. In 2014 the top three companies in Silicon Valley had revenues of $247 billion and a market capitalization of over $1 trillion but just 137,000 employees.”

Digital critic Jaron Lanier has argued that we’ve created only half of the new economic system, while moving from a bell curve to a Zipf distribution (a “winner take all” or a “long tail”).‘You can’t have an economy in which there’s just a tiny, hyper-fortunate formal part, and then a vast, not necessarily impoverished, but insecure, informal part…..It’s not economically stable… there aren’t going to be any customers to buy your stuff, eventually’. Prices are falling so fast that most developed societies are close to a state of abundance in all major subsistence goods. But the question is what will happen to middle-class incomes. That brings to mind an appropriate, but probably apocryphal, anecdote: in the 1950s Henry Ford and Walter Reuther, the head of the UAW, were touring a new engine plant in Cleveland. Ford gestured to a fleet of machines and said, “Walter, how are you going to get these robots to pay union dues?” The union boss famously replied: “Henry, how are you going to get them to buy your cars?”

As Lanier puts it in the excellent local-global flip: ‘basically, people can expect free stuff from the Internet but they don’t expect wealth from the Internet. It’s funny to say that because I’ll often get a lot of pushback and they’ll say, “No, no, no. There are all these people who are being empowered by all this stuff on the Internet that’s free”, and I’ll say, “Well, show me. Where’s all the wealth? Where’s the new middle class of people who are doing this?” They don’t exist.” Lanier’s proposed solution is for government to intervene and help citizens get paid more of the value of the data they are providing to the systems that exploit it. The one especially resonant example of the lack of real opportunity in the digital economy was from this extraordinary account of 18 months embedded in the gangs of Chicago. Many of the gangs are using gun violence to boost their social media presence, to then try and exchange it for cash from their fans. Even the global hub of techno-utopianism, San Francisco, has less than 10% of Bangkok’s population but 6x as many homeless people.

Typically two-thirds of the benefits of new technologies accrue to consumers in the form of lower prices. As GMO’s James Montier says: ‘There’s always been this insane mania-like thing associated with these big technological innovations because people have always thought they were going to capture the profits. Invariably they didn’t. They end up transferring the surplus to the consumer and benefiting the consumer through the engine of lower prices.’ So, with mass price deflation and stagnating incomes the few standout sources of inflation are finding their position increasingly unsustainable. ‘Capitalism’s response….is to artificially inflate the price and profitability of labour inputs: so housing becomes the major thing wages are spent on- and healthcare and university education’- Paul Mason. Indeed- since 1990, 88% of US inflation boils down to 4 sectors of the US economy: healthcare, higher education, real estate and prescription drugs. Mason thinks that if governments are unwilling to attack the income side- via something like a universal basic income- it will increasingly be compelled to deflate the cost side. As we have already seen this year; it’s been an especially bad time to be a middleman in US healthcare.

When technology is deflating prices, the surviving models will either drive that deflation or provide a better user experience for consumers. What better way for internet companies to survive populism than to lower prices for the people? Stratechery’s Ben Thompson describes it as ‘Aggregation Theory’; that power in the digital age is derived by owning the final link in the consumer market value chain: consumers. Therefore the most important factor in determining success is the user experience; with a current cautionary example being the rapid erosion of the traditional ad-driven cable bundle. Live-event and sports viewership is dropping precipitously, US domestic Netflix sub volume is expected to surpass total cable subs. Thompson thinks this is a really big deal, and is quite hyperbolic in making his point. “I would argue sports are the linchpin holding the entire post-war economic order together. Because sports are consumed live, with significantly higher advertising load and viewer retention, sports are increasingly the only viable place for mass-market consumer companies to reach customers at scale and fight off niche e-commerce companies slicing off their customer base. That in turn helps preserve retailers, themselves both big advertisers and big targets for internet-based companies, particularly Amazon, and so on down the line. This effect is magnified by sports’ role in preserving the cable bundle, which keeps more channels — and thus more inventory — viable (not to mention that some of TV’s biggest advertisers — entertainment companies — also own the cable channels).”

Meanwhile the remaining publicly-traded incumbents are behaving much as you would expect if you were facing a world of bewilderingly rapid change. Record M&A transactions seem increasingly defensive; either to buy your disruptor or to acquire growth in a stagnant world. ‘Conventional wisdom is that this activity is all about cheap money…..But forget about shareholder value; the top priority of any chief executive is to remain employed. And in a sluggish economy with few obvious opportunities, a big merger has become the only way to acquire growth or a new product or new technology and ensure that the chief executive holds on to power.”- Steven Davidoff Solomon. In The Third Wave, Steve Case argues the 2 most lucrative verticals are going to be partnerships either between disruptor and incumbent or the government.

For the remainder of the listed stock market universe, dramatically increased uncertainty means increased demand for more immediate investor gratification. That’s being demonstrated by the increased capital return in the form of dividends and buybacks. As Art Cashin puts it: “It would not take a great philosophic leap to note that if corporate America was going to liquidate itself in front of a long-term stagnation, it would be following just the kind of policies that it seems to be following right now.” And as Bloomberg’s Matt Levine has eloquently articulated: ‘My toy theory of stock buybacks is that the public equity markets are for returning cash to investors, and that those investors can then re-allocate that cash to earlier-stage, more innovative companies that need money in private markets. So if S&P 500 companies are spending almost all of their income on buybacks, that is not a sign that American capitalism is out of ideas; it is just a sign that the ideas are elsewhere.’

6) What could derail these trends? Cheap energy and sufficient infrastructure are the key growth constraints. Beyond political intervention, war or rebellion, there are a few key constraints to be aware of. In terms of digital growth, Moore’s Law is showing some signs of slowing. Although I think this concern sometimes neglects the relative importance of the speed with which computers are being connected to each other, rather than the speed of any once device. In the physical world, the basic infrastructure necessary to support the breakneck pace of EM urbanization is nowhere close to existing, and requires a major divergence from current trends. Something has to give. “The global level of infrastructure investment needed to simply keep up with the pace of economic growth over the next two decades will rise to between $57 trillion and $67 trillion, or 60 percent more than the historical amount over the same period….India would need to invest $1.2 trillion in capital expenditure — eight times the current per capita level — in its cities by 2030.”

The rub is that we are running out of cheap, abundant energy. Bill Gates has made the case that a historical key to human productivity is actually energy intensity. “When I was trying to figure out why lives have improved so much in the last 300 years, where we’ve gone from a third of kids dying before 5 to — by 1990 it was down to 10% — now it’s down to 5%. And saying why, over all of history, there were smart people, but that number didn’t change. Average life span didn’t change. What’s magical about what’s been deemed the Industrial Revolution? It’s really energy intensity……It’s energy intensification, where we essentially have, through our light bulbs and cars, the manpower of [hundreds of] people working on our behalf, helping our food being created, helping our materials like steel and plastic and wood and paper be created. Our lifestyles are incredibly energy intense.”

Gates cites Vaclav Smil as his favourite author on this topic (he’s read all 36 of his books), I found this relatively short PDF a good introduction: “The utterly impossible option is to extend the benefits of two North American high energy societies to the rest of the world. This would require nearly 2.3 ZJ of primary energy, or slightly more than five times the current global supply. Neither the known resources of fossil fuels nor the available and prospective extraction and conversion techniques could supply such an energy flux by 2030 or 2050….Two much-discussed strategies commonly seen as effective solutions are energy conservation and massive harnessing of renewable sources of energy. Unfortunately, neither of these strategies offers a real solution.” Diminishing cheap hydrocarbons means structurally lower productivity, and this must be a critical limiting factor to the global growth bull case of EM urbanization. And this is assuming no global coordination on climate change, which sadly seems like a fair assumption.

7) Saving the most speculative section for the conclusion. If liberalism and capitalism cannot survive- what’s next? Any claim that “this time it’s different” opens you up to a lot of potential ridicule. Most of us have never known anything but liberalism and capitalism. But that’s not been a consistent global experience even in the relatively recent past. Take the example of Leipzig in Germany. In the 20th century alone, a citizen of Leipzig would have experienced 5 completely different regimes: the Kaiser, Weimar, Nazism, Communism and Capitalism. But the primacy of the individual, through the concepts of democracy, equality, humanism and liberalism, is the utterly entrenched narrative of our society. But what are the potential alternatives? 3 interesting ideas I’ve read about:

a. Deglobalization, protectionism & populism. This has been covered a lot here already, because if history and current events are any guide, this is the most likely outcome. If you are facing confusingly rapid change, and a strongman promises to return you to ‘the way things were’, that’s an appealing electoral platform. How you actually unscramble the egg in practice is a different question. Almost half of the adults in 12 European countries now hold anti-immigrant, nationalist views, according to new data from YouGov. ‘Politics in Europe are no longer a battle between the “left” and “right”, but increasingly between those who fight for “open societies” and “closed societies”- Guy Verhofstadt. This is being exacerbated by an increasingly partisan media and social media echo-chambers. In the US, Ben Bernanke recently flagged a meaningful divergence between the reality of improving individual attitudes towards personal finances and the increasingly negative perception of ‘the way things are going for the US’. He thinks “Americans are self-selecting into non-overlapping communities (real and virtual) of differing demographics and ideologies, served by a fragmented and partisan media”. The FT studied 22 advanced economies and the combined centrist vote share has fallen by an average of 12% since the 1990s. “We find evidence that falling support for the political centre is related to stagnant median incomes, and that trade and immigration may have played a role in leaving behind middle earners in advanced economies. But, we find that a deeper cause of voter rage is a sense of political disenfranchisement, particularly among the less educated.” Protectionism has been the result. A WTO report released in June found that between October 2015 and mid-May of 2016 G20 economies had introduced new protectionist trade measures at the fastest pace seen since the 2008 crisis, rolling out the equivalent of 5 each week. Literal barriers are increasing in number as well. Ron Hassner and Jason Wittenberg found that of 51 national enclosures built since the end of World War II more than half were constructed in a rush between 2000 and 2014.

In the long-run this isolationist trend will be significantly complicated by the relationship between immigration and demographics. According to Mason, to make the OECD’s central growth scenario work, Europe and the US have to absorb 50m migrants each between now and 2060, with the rest of the developed world assimilating another 30m. Without them, the workforce and tax base of the West shrinks so badly that states are at risk of insolvency. Japan is forecast to lose 1/3rd of its population by 2060; they are currently closing 500 schools a year. Only 1.7% of the population is foreign. In contrast, the UK has a very high developed world fertility rate of 1.96, primarily because of immigration. Germany has been able to mask its workforce decline by attracting immigrants from Russia, Turkey & Africa.

b. ‘Postcapitalism’. Paul Mason argues that ‘capitalism is a complex, adaptive system which has reached the limits of its capacity to adapt’. Jaron Lanier agrees- ‘the rise of networking has coincided with the loss of the middle class, instead of an expansion in general wealth, which is what should happen. But if you say we’re creating the information economy, except that we’re making information free, then what we’re saying is we’re destroying the economy.’ Mason argues that we are on the cusp of Postcapitalism, and it’s a somewhat persuasive stance. “Postcapitalism is possible because of three impacts of the new technology in the past twenty-five years. First, information technology has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. Second, information goods are corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant. The system’s defence mechanism is to form monopolies on a scale not seen in the past 200 years — yet these cannot last. Third, we’re seeing the spontaneous rise of collaborative production: goods, services and organizations are appearing that no longer respond to the dictates of the market and the managerial hierarchy.” Wikipedia and YouTube are 2 key examples of collaborative ‘free’ information products. With a Universal Basic Income probably politically unpalatable, an alternative interesting fiscal policy idea is the introduction of a government ‘minimum jobs’ programme. For example, this could be guaranteed vocational training or manual labour for ~40hrs a week and a ~$20k annual wage. What form will Postcapitalism take? It’s a bit vague but Mason thinks ‘Postcapitalism could take many different forms. We’ll know it’s happened if a large number of goods become cheap or free, but people go on producing them irrespective of market forces. We’ll know it’s underway once the blurred relationship between work and leisure, and between hours and wages, becomes institutionalized.’ Summary of Mason’s argument here and an LSE podcast here].

c. ‘Dataism’. If connection to other humans has been our evolutionary trump-card, it’s easy to conclude that this trend towards more interconnectivity accelerates rather than reverses. The exact opposite of deglobalization. In the excellent Homo Deus, Harari argues that one expression of this outcome could be called ‘Dataism’. “If the Liberal Story promised salvation through globalization and liberalization, the new meta-narrative promises salvation through Big Data algorithms. Given enough biometric data and enough computing power, an external algorithm can understand humans better than we understand ourselves, at which point authority will shift away from humans to algorithms.”- Harari in the New Yorker recently. ‘Dataism says that the universe consists of data flows, and the value of any phenomenon or entity is determined by its contribution to data processing.’ Rather than individuals being the key source of meaning, connection to the network may take its place. ‘As the global data-processing system becomes all-knowing and all-powerful, so connecting to the system becomes the source of all meaning.’ There’s a good summary of this view in a Wired excerpt from his book here.

If you want to read more about any of the concepts mentioned, it’s probably fairly obvious that the most influential books have been:

1) The Inevitable- by Kevin Kelly

2) No Ordinary Disruption- by the McKinsey Global Institute

3) Homo Deus- by Yuval Noah Harari

4) Postcapitalism- by Paul Mason

I have summaries of the key points of each, on request. As will also be also obvious, the visionary work of Jordi Visser at Weiss and McKinsey’s research have also been hugely influential.

• Some winners: ‘deglobalizing technologies’, large domestic employers, infrastructure, global tourism, domestic brand leaders, longer term: EM consumers, EM stock markets.
• Some losers: DM incumbents and middlemen, DM information workers, information monopolies, multinationals, price-inflationary forces, global trade.

Here to discuss, and I would love nothing more.