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Archive for the ‘Bidness, and Other Current Economic Realities’ Category

In a recent article from Trends eMagazine entitled “China’s Day Never Came” editors there make the point that, despite a 2017 report from PwC projecting that China will become the world’s largest economy “by a significant margin” by 2050, it all depends on how you measure.

PwC uses a measure called “DGP at PPP,” or Gross Domestic Product at Purchasing Power Parity to adjust for price level differences across countries, thus providing what they believe to be a better measure of the volume of goods and services produced.  But Trends argues that according to a different measure that includes market exchange rates, the U.S. economy will still be twice as large as China’s by 2050.

Without drilling down into the economic arcana, and the abstruse nature of Chinese economic data to begin with, it’s interesting to note Trends’ very different conclusions about the growth of the U.S. vis a vis China and others.  In a nutshell, they point to the accelerated return of the U.S. manufacturing sector as among four critical reasons why the U.S. will hold its own in the decades ahead:

  • China’s key advantages – the size of its population and low cost of labor – will erode by the end of the next decade. Thanks in part to the one-child edict of the 1970s, population will begin to decline in 2030.  Meanwhile, wages will continue to rise, and China’s low-cost-leader position will become ever more difficult to maintain.  Already wages in China average about five times those in India, and more elsewhere, according to a recent report by CNBC.
  • Automation will accelerate the return of the U.S. manufacturing industry while causing the decline of China’s manufacturing. This is a big one, according to Trends’ editors.  Robotics and additive (or 3-D) manufacturing are making the U.S. competitive in high-value goods.  Lower costs of distribution from shorter transportation distances and cheap fuel means U.S. companies can now manufacture products for domestic consumption at prices competitive to imports.
  • China’s birth rate will fall while its elderly population will expand. By 2030, one-fifth of Chinese will be over 65.  Consumer spending will lack its expected potential given only one child to support both elderly parents as well as their own families, even with rising wages, putting increased competitive pressure on the Chinese economy.
  • The wealthiest Chinese won’t boost their homeland’s economy, but will move assets to other countries instead. It’s already happening.  In fact, The Wall Street Journal reported in 2014 that nearly two-thirds of ‘high net worth individuals’ polled were already emigrating or planning to do so.

These trends bode well for the strength of the U.S. economy and particularly our manufacturing sector in a global competitive environment.  Once again, automation is helping to lead the way, and if history is any guide, that will only open up still more jobs, not fewer, in the decades ahead.

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The influence of technology in areas from retail to manufacturing is frequently blamed for everything from income inequality to the bifurcation of America.  But as the statistics show, nothing could be further from the truth.

And the truth is…

  • In E-commerce… brick and mortar employees today perform many of the same tasks as their predecessors in the 1980s, and their real wages reflect that lack of change. In fact, they earn about the same today in inflation-adjusted dollars as they did then.  Meanwhile, workers in e-commerce fulfillment equipped with tech tools and better information earn, on average, over 30% more than their brick-and-mortar counterparts (according to researchers at Progressive Policy Institute).
  • Over the past two years, brick-and-mortar employment has fallen by about 1%, or 123,000 jobs, while e-commerce has added 178,000 jobs. If you add in the new wave of express delivery workers required today, it adds another 58,000 jobs.
  • While e-commerce employment will continue to soar, increased automation of fulfillment centers will bring down distribution costs which today have been estimated to be as much as half of the final purchase price on a wide range of consumer goods. Driving down those prices of course helps customers.
  • And that fulfillment automation will then lead to changes in manufacturing too. When individual items can be sorted and delivered inexpensively, the economics of small-batch and custom manufacturing become ever more attractive and persuasive.  It’s also likely these small-batch custom manufacturers will be located closer to the ultimate consumer.
  • We’re fast moving into an Internet of Goods era, states Michael Mandel, a senior fellow at the Mack Institute for Innovation Management at the Wharton School, in an article he wrote in the October 16th issue of The Wall Street Journal .
  • And finally, if e-commerce is the indicator we think it is, tech-savvy jobs that simply require workers who “have a good mix of physical and cognitive skills, just the like the industrial jobs of the early-20th century” will mean plenty of jobs for folks that don’t have a college education. It’s all just an example once again of how the march of progress, while not a straight line, inevitably replaces old jobs with newer, better-paying ones.

And the real lesson in all this?  For the willing, tech is your friend, and it will be your future.  It will be the source of more and more (and better-paying) jobs.  It’s nothing to fear.  But it is something to learn.

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In the third annual “Business IT Trends Annual Report,” with trends supported by findings by Gartner and International Data Corp. (IDC), analysts researched IT budgets across a variety of industries in a survey of businesses large and small.  Some key findings included:

  • Over a third of survey respondents reported spending about equal to that in 2016, and 37% reported an increase in 2017 over the previous year. On average, all industries planned to spend more on IT in 2017.
  • One-third plan to invest in technology “across the board.” 28% said they’ll invest in “hardware, software and cloud technologies.”
  • The highest growth rate was in health care, followed closely by manufacturing and finance.
  • To no one’s surprise, on the hardware side, desktops, laptops, servers and Wi-Fi were the most popular areas of expenditure.
  • Security, operating systems and backup ranked high in software.
  • Close on their heels, productivity and database software expenditures were quoted by one in four respondents.
  • Over 60% are spending on hardware and the same figure is spending on software. About 40% were spending on ‘cloud.’

Overall IT spending trends were up in 2017, and the authors suggested that the amounts varied between those who simply wanted to “stay up to date” versus those who “rely on technology as a core component of their service and view it as an asset rather than a necessary fixed cost.”

Reported expenditure amounts in the small business sector appear to have ranged from “under $10,000” to over $200,000 (the two highest dollar-class categories, respectively).  About one in ten reported they simply “did not know.”

 

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In our prior post we noted tech writer Greg Ip’s recent comments in an article in The Wall Street Journal, pointing out the little-known fact that automation today is actually creating more jobs than it is displacing.  We noted in particular the retail and banking sectors which, counterintuitively, have employed technology for their own gains, but in the process actually created greater hiring of people, due to the increased productivity that such automation has created.  Let’s continue to illustrate…

James Besson, an economist at Boston University created an early desktop publishing program in 1983 that great simplified typesetting and graphical design.  When Sears purchased his program, it eventually laid off 100 employees, and Mr. Besson worried about those job losses.

But it turns out customers used his software to expand the number of variety of their publications.  Supermarket chain A&P used it to publish dozens of versions of circulars in Atlanta with different promotions for different neighborhoods.  Mr. Besson learned that while typesetting jobs fell by about 100,000 in the 1980s, the number of designers eventually quadrupled to more than 800,000, making up for the losses many times over.

Of course, the disruption was still devastating to those whose jobs were lost.  The people displaced by automation – then as now – are rarely the same people employed in the new industries made possible by the new automation.  But over time, the net effect has been shown to be consistently positive.

Today, retail is the largest industry being displaced.  Yet evidence is beginning to show that e-commerce has probably added to overall employment.  While over the past decade about 140,000 jobs have been sliced from brick-and-mortar displacements, according to think tank Progressive Policy Institute, about 126,000 have been added in the e-commerce space.  However, that fails to count warehouse and fulfillment job gains, which have increased by 274,000 jobs during the same period.  And, they note, those jobs pay about 30% better than the ones they displaced.

As the WSJ’s Ip points out, this begs the question: “If online retailers, based on sales per employee, are much more productive than regular retailers, how can they on net add to total retail employment?  And how can they both pay more and keep prices low?”

Ip says the answer is complicated, but it comes down to this: E-commerce doesn’t just sell the same product as a store did at a lower price.  It “enables customers to peruse a vast array of products and select precisely the one they want and have it delivered in a day or two, saving the time, cost and inconvenience of visiting multiple stores.”  It’s estimated that saves the average adult about 15 minutes a week and uncovered the hidden demand for shopping from home.

None of this adds to price.  It simply results in people consuming more retail services, once adjusted for improved quality, than before.  Then, the e-commerce suppliers spur demand by using their greater efficiencies to absorb more of the delivery costs.  Amazon uses the margin it earns on goods to build and operate the logistics centers needed to profitably serve customers – and those centers are creating ever more jobs than they displace.  The day when Amazon will need fewer humans appears far off.  In fact, last month Amazon in a one-day nationwide job blitz accepted 100,000 applications and has already made 40,000 job offers.

The e-commerce boom is as real as the brick-and-mortar decline.  But the job displacements are turning out not to be doom and gloom, as the new jobs prove greater in number and pay than those displaced.

Just as it’s been happening for at least 500 years.

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For all the fears about lost jobs and the sea changes occurring in manufacturing and retail as the Internet changes everything in its path, it’s worth noting that each successive transition in society’s economic underpinnings – be it farming or steam engine, industrial revolution or information – eventually disrupts everything around it and then, inevitably, produces more opportunities, different challenges and, ultimately, more (and newer) jobs.  The Wall Street Journal’s tech writer Greg Ip points this out in a recent article.

Ip points out that as Amazon grows (and a few others), tens of thousands lose their jobs in retail.  Stores close across the community, state, country, and world.  But then again, to cite one of Ip’s examples, workers in former textile towns like Fall River, MA, find new beginnings.  There, Amazon planned to hire 500 workers for a new fulfillment center last year.  Already employment there has soared to 2,000.  And workers there are earning more than at previous retail jobs.

The demise of brick-and-mortar has been accompanied it seems by the less well-publicized boom in e-commerce that has actually created more jobs in the U.S. than traditional stores have cut.  And those jobs, it turns out, pay better because workers there, augmented by the latest in software and hardware technology, are so much more productive.

Throughout history automation often creates more jobs – and better-paying ones –than those it displaces.  Ip points out the critical reason, a point often lost in all the bad press and noise:

“Companies don’t use automation simply to produce the same thing more cheaply.  Instead, they find ways to offer entirely new, improved products.  As customers flock to these new offerings, companies have to hire more people.”

The underlying angst over job displacements goes back 500 years as each successive new generation of revolutionary technology displaces the former, along with its adherents and workers.  It is interesting to note that in 1589 Queen Elizabeth I refused to grant the inventor of a mechanical knitting machine a patent for fear of putting knitters out of business.  More recently, in the 1930s economist John Maynard Keynes warned of tech unemployment due to the modern ability to economize the use of labor faster than new users for labor could be found.

These fears have repeatedly proven baseless.  When ATMs first appeared in the 1970s it was thought to lead to fewer branches and fewer staff.  Wells, Fargo itself predicted as much for the new cost-cutting technology initiative.  And indeed, the average branch used one-third fewer workers by 2004.  But… ATMs made it so much cheaper to operate a branch that banks ended up opening 43% more branches!  The result: today, banks employ more tellers than they did in 1980 and those jobs have expanded into more interesting roles that ATMs can’t duplicate today, like “relationship banking.”

We are in a watershed period for technology, with its pace increasing steadily.  This is scary stuff.  People are rightly concerned.  But if the past is prologue to the future – and it often is – there will once again be silver linings.

This topic is, we think, important enough to extend into a follow-up post, which we’ll do in our next one. Stay tuned…

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Tomorrow, the company I started out of a spare bedroom in 1987 celebrates something of a milestone: 30 years in business.  We’ll spare you the “long, strange trip…” metaphors, but you have to admit: that’s a long time to do anything — let alone the same thing.  Yet, here we are.  Any business that makes it 30 years has some bumps and bruises, and a few stories to tell.  Here’s a bit of ours…

Starting out as one guy in a back room, I bootstrapped a little software firm that came to be known as “PMI.”  Within a few years we were adding customers in need of custom software, spreadsheets and accounting applications, while also adding a motley crew of smart, energetic people to satisfy those (very patient) customers.  We did good work and over the years won industry awards and business accolades – even the Small Business of the Year.  We earned national software awards like “Killer VAR” (we’re a Value-Added Reseller for accounting and manufacturing software solutions), “Technology Pacesetter” (many times), and a “Family Values in Business Award” (for being ‘a company that never refused an employee a day off for any reason’).

We grew for 20 years until one day I thought it might be time to move on – maybe even retire –when a case of misplaced trust and questionable judgment led me to turn the business over to a few key employees who proved utterly unfit to run it.  (You can read a quick synopsis of that story here, first published in 2009 in a post on ‘integrity’.)

The sale was a disaster, economically and emotionally.  Within a few months my successors had nearly destroyed the company and threw in the towel.  I came racing back from the Caribbean to pick up what pieces remained.  I still remember that first day back in April ’07 as I gathered together the handful of my earliest co-workers – the ones who had remained loyal and would meet with me that morning.  There were some glum faces in that room as I explained how we’d been bled and left for dead.  Over the next few months we started sifting through the wreckage to see what we could rescue of our little outfit.

But here’s where it gets good.  Out of the ashes of that disaster arose PMI’s successor “PSSI” (yes, we did briefly consider naming it “Phoenix Software”) which I’ve had the privilege to lead for the past 10 years – so, 30 altogether.  Of course, on the heels of that 2007 debacle came the Great Recession, when business mostly just froze up.  We worked hard scrambling around for enough work to keep our team afloat.  That rebuild – these last ten years – has really defined us.

Today, all those awards noted earlier don’t mean that much.  Don’t get me wrong – they were very cool to receive in their time.  We felt honored, and more than a little proud.  They were mileposts on the road to what became a pretty successful business.  The little idea that started in a back room of my house in 1987 turned into a nearly $3M enterprise with over 25 employees at its peak.  People did good work, they got rewarded for it (often handsomely) and we all felt a part of something that was growing fast, a leader in the tech sector.

But it’s those glum faces in that room ten years ago – the ones that stuck it out with me all these years – those guys are the reason we’re here today, and therein lies the deeper meaning of our thirtieth.

In that first month back, I told the team that I wasn’t even sure how I was going to make payroll at month-end.  They mostly nodded, shrugged it off and went about their business.  But here’s the thing: not one person, all that dark cold month, ever once asked about their paycheck.  Not once. They just did the work, trusted in our mission, and at the end of the month trusted the money would somehow be there.  It was.  After that, we just kept putting one foot forward after the other…  a day, a week, a month at a time.

That team is still with me today (you know who you are), and they’re the real reason we are able to celebrate 30 years in business today.  Like most small business owners, I owe everything to those employees and customers.

I guess in the end, sometimes you just persevere because, honestly, you don’t know what the hell else to do.

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… of jobs being lost to the new wave of automation, robots and artificial intelligence, total aggregate employment in our nation continues to increase relentlessly, even with bumps along the way.  In other words, robots are not going to steal all our jobs.

With Elon Musk recently warning that robots will “do everything better than us,” and a 2013 paper from the Oxford Martin School claiming that 47% of all jobs are at high risk of falling to computerization in the coming decades, the fact is that jobs are constantly changing, shifting and evolving.  It’s nothing new, and it’s nothing that we – especially those involved in U.S. manufacturing – need panic over.

A recent analysis by the Information Technology & Innovation Foundation quantified the rate of job destruction and creation for every decade going back to 1850, based on census data.  Among other things the report showed that 57% of jobs that workers did as recently as 1960 no longer exist today (adjusted for workforce size).  The largest losses were suffered among office clerks, secretaries and telephone operators.  That’s a lot of Mad Men era folks out of work, right?   And let’s not forget elevator operations, bowling pin setters and gas station attendants.

The point is, we have a long tradition of losing jobs due to automation, but invariably we see new jobs take their places.  More often than not today, robots, artificial intelligence (AI) and the like are often automating discrete tasks more than they are jobs.  By 2055, McKinsey predicts, more than 50% of all work-related tasks will be subject to automation.

So why, with this long history of job attrition, do some continue to insist that the sky is falling, or that this time is different… that we are headed to some jobless future of mass unemployment?

The gist of the doomsayers’ argument voiced by many futurists and experts, according to a recent article in the Wall Street Journal (7-22-17) seems to be that the new wave of AI computers and robots can “do virtually any job that humans can do, so everyone’s job is on the chopping block.”  AI is getting so intelligent, the logic goes, that it’s smart enough to recognize cats, drive cars, identify cancers and translate across languages, notes the Journal.  So won’t it soon be capable of doing anything a person can?

Not so fast.  What these tasks have in common mostly is finding patterns within large data sets.  It would be a mistake to extrapolate from this big data analysis some giant leap in duplicating human intelligence.  Today’s AI is often just straining through massive bits of data, whether it’s recognizing a face or putting bunny ears on your selfie.  They are no more a threat to “human primacy” says the Journal, than “automatic looms, phonographs and calculators, all of which were greeted by astonishment and trepidation by the workers they replaced when first introduced.”

Moreover, as wealth continues to increase (as it historically always has) those consumers are likely to allot a growing share of their income to personal services, the very sector where face-to-face interactions are critical to the value delivered.  Says the article’s author, Stanford AI Professor Jerry Kaplan, “the irony of the coming wave of artificial intelligence may be that it heralds a whole new era of personal service.”

And that means: plenty of jobs.  After all, once over 90% of us were farmers; today it’s 3%.  And unemployment is near an all-time low, while employment is at an all-time high.  Meanwhile, standards of living around the world continue to improve as we shuffle jobs from one category to another in the familiar cycle of creation and destruction.

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