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2. Do We Have a Growth Problem — Economic, Employment or Both?

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Do we have a growth problem – economic, employment or both?     

Why or why not ?

In his book The Rise and Fall of American Growth, Robert Gordon has famously claimed that we’ve seen the end of ever-increasing innovation gains and the economic growth that attends them.  Alternatively, in The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, Erik Brynjolfsson and Andrew McAfee write that we’re at the dawn of a new era where the full impact of digital technologies will drive profound economic and societal gains that enrich our lives.  Who’s right, and how can we tell?

There is compelling data that can be interpreted to support either of these arguments. Growth has remained stubbornly weak since the financial crisis, and real wages have stagnated for nearly four decades.  Conversely, global poverty levels are estimated to be at the lowest levels in history, and traditional measures of economic growth may overlook important technological advancements.  Finally, with the advent of the sharing economy, robotics, automation, artificial intelligence, and more, it’s unclear whether economic growth will continue to lead to employment growth. Oh, and the U.S. economy is nearing full employment—at least according to the metrics we use to track employment.

So: Do we have a growth problem? Why or why not? If we do, is it economic, employment, or both?

10 thoughts on “2. Do We Have a Growth Problem — Economic, Employment or Both?

  1. Great question that really relates to Prof. Christensen’s theory of Jobs to Be Done, and where value exists in the chain.

    I think robotics and artificial intelligence are just another step in an evolution that we’ve been experiencing for most of our lifetime. There are no more shoe repairers, no more milkmen, and sooner than we think – there will be no more taxi drivers. Taking this to the larger perspective, perhaps mankind will not need to be “employed” the way it is now, and the “value” in the “chain of life” will not be by clocking-in to one’s workplace. Will this reduce growth? I doubt. Will it make humans “useless”? I don’t think so. Growth will inevitably continue and technology will improve, just not relative to number of hours spent at work.

    1. YuvalG, great post, and I definitely share your view that economic growth and employment growth may not move in a perfectly coincident fashion – and may even become de-linked as a result of technological advancement, as you stated. I do wonder whether brand new great ideas and innovations, supported by low costs of capital generally, might find it lucrative to tap into an increase in available human capital as technology removes the need for that human capital to be focused on traditional tasks. Taxi drivers could either enjoy more free time, or they could participate in new MCIs that require them to refocus their energy toward learning new skills. As farm harvesting technology expanded, didn’t farm laborers essentially become…well, taxi drivers? I still agree with your broader point that we may need less labor in a future era, but that labor will still be available to become trained and productive, and it seems some enterprising, entrepreneurial entity might benefit from an MCI that taps into it. What do you think?

  2. Intriguing question — and as I think about it, a better way to reframe the question perhaps is

    How do we balance the economic growth and jobs growth, and better yet, how do we balance the productivity(that primarily causes economic growth) and inequality (that primarily causes the jobless growth)?

    The short answer is, we have a balancing problem…

    What do I mean?

    As we all know, the key components of economic growth are

    1) Productivity

    Driven by the following 5 I”s
    – innovation,
    – investment,
    – institutional Impetus,
    – inertia breaking from linear to circular economy resulting in 3 key shifts (five capitals creating a criss-cross flow, five capitals trying to converge on the same SPACE/TIME coordinate resulting in a whirlwind flow, five capitals trying to synchronize as a platform flow), thanks to the advances in 3-D (Digital, Data and Design) in the last 10 years.
    – Inertia breaking inspirations from nature/scriptural first principles

    2) Pop Growth

    – Accelerated by younger population with high skills
    – De-accelerated by aging population

    With the fact population usually growth with a steady state progression contributing 1-2% of GDP growth, for now let us focus on the following 5 drivers.

    Driver #1: Innovation -> Most companies are putting their time and energy on efficiency innovation partly due to how we measure success using ROIC: Implication here is jobless growth especially in the last 10 years since the financial crisis

    Driver #2: Investment -> Most companies are assuming capital is financial capital and so, not paying enough attention to the other capitals (human, P&S, customer and purpose). Implication here is value leakage and so, growth leakage.

    Driver #3: Institutional Impetus -> For now, let us assume it is driven by ideology of the government (left vs. right) and philosophy of the central bank (rules vs. discretion)

    Driver #4: Inertia breaking inspirations from linear to circular economy -> Explained in the previous question, but will cover here as well

    Driver #5: Inertia breaking inspirations from nature/scriptural principles -> will explore in this answer below

    Let us start from the driver #5 first, an often overlooked driver in most economics circles.

    What do I mean?

    As part of this discovery process, we decided to to the origins of economics(to discover the root causes) and asked ourselves the following question

    – Where does the idea and/or the discipline of economics come from?

    This is where, we ended up going to the origin of the universe itself — and as we did so, it just dawned on us that root node was the creator node itself i.e. our universe was created by the “first cause, no course source” called creator of our Universe — and depending upon one’s worldview, one can call that source as God or “first cause, no cause source”.

    In other words, our creator was the first scientist, first economist, first strategist and above all, leader as outlined in this article ((https://www.linkedin.com/pulse/sowho-our-creator-againa-best-better-yetsomeone-else-first-prabakar)

    If we subscribe to this type of a worldview (from where much of the modern economics is derived from, as explained in the article above), our creator has instilled a set of motivators and beliefs within our hearts and minds, so that we will voluntarily multiply and manage resources for the collective good (as per the multiply command given to Adam and Eve ).

    In other words, our creator co-runs this world in partnership with mankind using natures’s first principles driven motivators and beliefs, as I had explained in this article (https://www.linkedin.com/pulse/economys-invisible-handsame-our-creators-handwa-wo-charles-prabakar?trk=mp-reader-card)

    Yet another way to comprehend it is using our nature’s first principles driven, worldview framework called MBA (Motivation Belief and Action) within our firm’s larger framework called Virtual Ocean.

    Just to give an overview ,

    1. Motivation in this context is the trigger that makes our heart (or spirit) to do certain action and those motivations are usually governed by nature’s first principles. If I have to paint a spectrum, it is a pain/pleasure spectrum (aka carrot and stick). In other words, we inherently act based on pain and/or pleasure (some examples like hunger, greed pleasure, urge to procreate, thirst for God etc. can be plotted within that spectrum).These motivational drivers can be classified into foundational(that one is born with), educational (that we are taught) and situational(case by case basis)

    2. Belief in this context is the set of laws that are hidden in our mind(or soul).We as humans usually validate our motivations against our belief systems in our mind, before committing an action. When we are born we are instilled with nature’s consciousness and it is later refined by one’s own religious worldview.These belief drivers can be classified into foundational(that one is born with), educational (that we are taught) and situational(case by case basis)

    3. Action in this context is the final manifestation and it occurs after we validate our motivation and belief system and act (it could be a good economic action and/or bad action).

    An implication:

    The economic growth is directly proportional to the collective motivation and belief system strength of the people within a society/country/world — and so, it is important that we motivate/inspire people with this type of first principles mindset driven MBA worldview framework, before focusing on other four drivers.

    Turns out, we had answered this question exactly so, by focusing on driver #4 and driver #5 in this article (https://www.linkedin.com/pulse/how-does-vos-solve-21st-centurys-1-economic-dilemma-three-prabakar) by answering the question below

    – How do we balance the productivity(that primarily causes economic growth) and inequality (that primarily causes the jobless growth)

    To give some more examples of the types of jobs, we need to create to balance this productivity/inequality dilemma effectively,I have created another one page exhibit with 5 different “job types” using skills in X axis and jobs in Y axis as follows in this article(https://www.linkedin.com/pulse/what-types-jobs-we-need-create-grow-economy-manner-charles-prabakar)

    With most of the audience here are savvy business leaders, I am sure, you get the idea here and so, without preaching to the choir any longer, let me stop here for now .

    In closing, as they say OLD IS GOLD and I would augment it and say ROOTS (principles) are GOLD as well.

  3. Observations from the front

    Something new is happening.

    Historically there has been a fairly good correlation between GDP and where concentrations of labour were employed. We have seen that over time with the introduction of machines how productivity has jumped and share of labour in the value chain has decreased.

    It may be a worth while exercise to look at the correlation between economic growth across multiple economies (developed vs developing) to test whether a shift is occurring between the industries that are experiencing growth and to see whether there are visible signs of the impact of digital automation.

    What may be starting to happen is that as industries are starting to pick up, rather than employing more people like they may have done in the past, they may be instead marginally employing more people while implementing significant digital automation platforms and tools that significantly reduce the work force size.

    Robotics, Machine Learning and AI platforms are a new form of disruptive innovation that is perhaps for the first time in human history displacing white collar workers in very high skilled occupations as wide ranging as tax auditors, accountants, neuro-surgeons and actuaries.

    this is a very complex area to investigate as there is a very high chance that we are on the verge of a new cusp of industrial revolution that may challenge the very nature of capitalism itself and perhaps even lead towards a post-capitalist world where fiat currencies are no longer the main means of value exchange between participants in society.

    Breaking down whats happening to a high degree of detail may be required at an industry level to understand the effects on growth and employment the introduction of certain types of technology is having.

    Another area of exploration this may naturally lead to is what happens to our current economic model when millions of people globally are displaced without work for a significant period of time?

  4. We have all of the above because western society is currently experiencing a heuristic obesity problem. I’ve coined this term based upon a generalised augmentation of human behaviour. Instant gratification, and instinctive decision-making has been augmented by marketing junk that feeds western society like a sugar addiction.

    Being rewarded and recognised has displaced the value of intrinsic motivation of altruism. Values and ethics are influence by our environment, and we’ve focused our attention on structure and regulation to organise irrational behaviour of humans, rather than designed triggers and mechanisms to drive the “right” outcomes.

    With the rise of free markets such as uber, air bnb, task rabbit, hipages, and digital identity, wealth and employment growth is trending towards social enterprises. In time, memorable experiences will be valued more than material goods.

  5. I think we are experiencing underinvestment in three areas: corporate R&D, infrastructure, and human capital. The first two are pretty well understood so I want to focus in on human capital. My personal experience is that the vast majority of companies do not have the willingness — and thus the capability — to train employees. We have more unfilled job openings than ever because companies are unwilling to hire smart, motivated people and invest in teaching them the skills they need to be productive. They want every job candidate to exactly fit the job description. Anecdotally, I know of several job openings at various companies that have literally been unfilled for years. Think of the opportunity cost and economic waste! During this time they could have hired someone, addressed their skills gap, and been more productive. This unwillingness to train people also contributes to widening inequality. You have a group of people who are lucky or smart enough to get some experience under their belt in a desirable skill set early on in their careers and then become part of a scarce supply of labor for those jobs. The demand keeps going up but the supply remains steady so their wages increase rapidly while equally bright people who didn’t get on the career track early enough are shut out due to the Catch 22 of no one hiring someone without prior experience.

    Companies are externalizing the cost of training and workers are often picking up the tab. People who cannot afford to pay for certifications, degrees, training, or education fall behind. This system is also particularly brutal for entrepreneurs. The cost of entrepreneurial failure is compounded when the labor market is unwilling to absorb ex-entrepreneurs who do not fit the mold of employees they are looking for. And if these entrepreneurial folks are unable to cycle through corporate America to recover, inject their ingenuity into companies, and try again to build new businesses then we all suffer from the loss of corporate innovation and new business formation.

    We have seen in recent years the advent of coding academies and I am hopeful that the emerging academies with success-based fees will expand rapidly. These academies do not require up-front payment and instead take a percentage of the students’ salaries at their new jobs. These companies are cleverly taking advantage of the arbitrage opportunity created by companies’ unwillingness to invest in human capital, and I sincerely hope that their business model is emulated across every industry, role, and skill set where there is an inefficient labor market heretofore unable to invest in human resources and bridge the gap between potential and productivity.

  6. A core tenet of capitalism includes continual growth; however, much of the mechanisms of capitalism are currently focused on reducing costs for the appearance of growth. While capital might no longer be a scarce resource, many of the other mechanisms are still fixed resources: raw resources, labor, and established markets. As Western populations head toward a decline as we approach the retirement and their addition to the system begins to become a subtraction and the next generation is insufficient to replace them in the marketplace, we are heading toward a potential labor decline. This labor decline will also coincide with a consumption decline in the Western world as fewer workers also means a more limited market to sell goods and services into while very little investment has been made (by Western companies) into the markets of Africa and less populated Asian countries to create new labor and consumer markets. Colonization of space might also be an opportunity to expand, primarily through a combination of increasing natural resources from mining other worlds as well as the unique market needs of these first colonists; however, that is unlikely to come in time for the decline in growth that will coincide with the retirement of the Boomers.

  7. What an interesting question! …
    I think a question like this requires to be examines from a system’s perspective, this is a complex problem, and as so it requires to be analyzed considering different variables like production, sales, consumption, sustainability, finance, social inequality. Briefly I can say after looking at many experts in many different fields: we have been very good at getting better on producing more and more stuff (we are now entering the 4th Industrial Revolution, and is important to take into account that producing has not only changed technically, but geographically in a on open economy). Also, we have been very good at selling many things, including stuff we don’t need and at quantities and sizes that surpass our needs as individuals. In summary, we have lived by the paradigm of ‘infinite growth’ in isolation, and not as a system.
    We do have a economic challenge, growth is slowing down worldwide – and this is even more serious for a developing country like Colombia. We have a serious challenge in employment as well. Nevertheless, I prefer more than thinking on this as a catastrophe, I think it is a necessary opportunity to rethink our metrics, our goals, the consequences of our actions, to evaluate what we have had – and have offered to others, like the jobs we have had, specially in low-skilled labor.
    We do have a have present economic problem, but it is not enough to think on how to fix the present, we should think on a better future that do not put us all at risk as humans.
    ———-
    Joi Ito, director of the MIT Media Lab talks about ‘unchecked growth’ and its consequences: https://www.youtube.com/watch?v=RQhGcSeLtGw).

  8. I am of the view that we definitely not have a growth problem.

    However, we are stuck in a period where the new entry of alternative energy solutions from automotive to housing are creating growth potentials but the slow fading existence of oil keeps everything at bay.

    I believe we need a major push forward something that will drastically push us in the need to create something new in various aspects of our economy.

    Too much capital is created and stored, that means at least to me few investment opportunities are realized or even less are believed to be essential or investment friendly.

    Moreover, I believe there are no hot opportunities available just because the already existing ones are probably boring or not convincing enough.

  9. Without a doubt, we are in an economic–and employment flat-line period. Perhaps the connection between hurdle rates and cash levels are a big contributing factor.
    When companies hold high levels of cash, it effectively becomes a scarce resource. In order to protect this “scarce” resource, companies establish high hurdle rates to justify spending it. These constraints effectively lead them to do nothing or acquire businesses that have already expended cash to develop their markets or products. The result is a lot of companies sitting on the sidelines waiting for a startup to fill a business niche. This translates to fewer jobs and lower economic growth.
    Another angle that should be examined by TCD is the macroeconomic effect of high hurdle rates and cash levels causing flat employment and lackluster economic growth. When companies sit on cash and do not re-allocate it back to shareholders, the multiplier effect of it is gone forever. And when they set high hurdle rates for investments, the economic benefit in terms of jobs and growth is gone too.
    There is a growing belief among economists that the reason why the Great Depression was so deep was because the Federal Reserve required banks to keep large levels of cash on hand out of a fear of a “run on the banks.” This approach, despite a population willing to work–and spend, kept the economy and job markets in decline. Perhaps the focus on treating cash as a scarce resource and the accompanying high hurdle rates are doing the same thing today?

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