Davos — the rich are worried

“I can’t wait to see how the incoming administration deals with AI,” said US Secretary of State John Kerry in a less-than-gracious reference to the fact that the Trump team has not got a clue about the real driving force in the changing world economy.

What was striking was that Kerry did not have to clarify his remark for the 2,000 “global leaders” — politicians, bureaucrats, business representatives and public intellectuals — who are in the Swiss alpine town of Davos for the annual World Economic Forum. They all know what he is talking about.

This year’s Davos gathering is actually focused on the rise of populism and simple-minded attacks on globalisation (Donald Trump, Brexit, et al). 

That is only to be expected, since the world’s ultra-rich are potentially threatened by that sort of thing.

But they did not get rich by being stupid, and they have a fairly sophisticated analysis of what is causing it.

The headline event on the first day of Davos was an hour-long speech by China’s President Xi Jinping in which he laid claim to the leadership role on free trade, globalisation and the struggle to contain climate change that is being abandoned by the US under Trump.

His main concern was to fight the rise of protectionism: “No one will emerge as a winner in a trade war,” he said.

But Xi did not go into the sources of the anger that fuels the populist revolt (for China is not a democratic country, and it has not happened there yet).

Kerry did get into it, and he went well beyond the usual platitudes about rising unemployment and under-employment, stagnating wages, and the widening gulf between the rich and the rest.

“Trade is not to blame for job losses,” he said. 

Automation is.

Quite a few American manufacturing jobs did go abroad in the early stages of globalisation, in the 1980s and 1990s, but that is old news. 

Eighty-five per cent of the almost 6 million American manufacturing jobs that disappeared between 2000 and 2010 did not go anywhere; they just evaporated.

The workers were replaced by tireless, uncomplaining machines that could do their jobs cheaper.

Although Kerry did not mention it, the same thing is now happening in China: relatively cheap Chinese labour is still more expensive than the automation that replaces it.

Even in India, where wages are lower still, there is now talk of “premature deindustrialisation”.

It is a misleading phrase, because it suggests that India will never become fully industrialised.

It probably will — but perhaps without ever creating a huge industrial working class with reasonably good and steady wages.

Further industrial growth is likely to come mainly through automation, and employment in manufacturing may be peaking right now.

So Donald Trump is barking up the wrong tree, as are the other populists emerging all across Europe, and their emulators who are beginning to appear in the developing world.

Why do they all persist in blaming free trade and globalisation instead of automation? Because you cannot do anything about automation.

It is like the old story about the man looking for his car keys under the street-light.

“Where did you lose them?”

“Over there.”

“Then why are you looking for them here?”

“The light is better here.”

If you are a politician, then it is better to blame globalisation because you can do something about that. You can build walls, impose tariffs, make all sorts of impressive gestures to stop the free trade that is allegedly destroying the good jobs.

Or, more precisely, you can win political power by claiming that you will do those things and thereby solve the problem.

Whereas nobody will believe you if you say that automation is what is really changing the economy, and so you are going to stop the automation. That is Luddism, and everybody (or at least, everybody at Davos) knows that it does not work. 

So the rich and the powerful are way out ahead of the pack in accepting that growing automation is really going to destroy large numbers of jobs.

A recent Citibank research note forecasts that automation will eliminate 57 per cent of all existing jobs in the developed countries within the next 20 years.

In China, 77 per cent of manufacturing jobs are at risk over the same period. And the notion that the economy will create other, better, jobs to replace them is just a comforting myth. Most of the new jobs that are being created are MacJobs.

If more than half the workforce ends up unemployed — and therefore humiliated and broke — then their anger will be so great that it could sweep away the comfortable world of the ultra-rich. Which is why there are sessions at Davos this year considering radical ideas like a “Universal basic income”.

To stop the populism, first you have to deal with the anger.

The writer is an independent journalist whose articles are published in 45 countries.