Is It Different This Time?

There is an old saying in the stock market that  shrewd players say should always be avoided. It is simply "this time it is different." Time and time again, market prognosticators have been proven wrong as they claim we are in a new paradigm and yes, this industry or specific stock will grow to the sky.


Well, when it comes to structural changes in the economy, I would say that this time things will truly be different.


My topic, of course, is mechanization joined by robotization. Changes are beginning to take shape that may well open up a unique labor situation in the developed world.


Prominent socialists led by Marx and Engels forecast that mechanization in the mid-19th century would lead to massive displacement of middle class labor. They projected that people would revolt and socialism would take the place of the free market. They were wrong. They did not foresee Carnegie's steel mills, Rockefeller's inexpensive oil, or Henry Ford's $280 roadster fueled by gasoline. Additionally, they did not see the emergence of millions of white collar and clerical jobs emerging and the growth of educated professionals as well.


What now? Here is where I think things could be different. This time around the while collar jobs will be eliminated. True, new technology does create new jobs to a certain degree and some small new sectors job-wise will emerge from our new wave of technology. * Yet, the losses inevitably appear to be greater than the new positions (for humans) created.


Joseph Schumpeter popularized the term "Creative Destruction." His thesis was that new improved technology and products wiped away the old and were major sources of profit. Can anyone argue that Microsoft, Apple, Amazon, Facebook and Alphabet (Google) have not been wildly profitable? Now, what gnaws at me almost daily is that the changes to come will be profitable for stakeholders but the number of new jobs will not replace the millions lost as old markets are destroyed.


Everyone understands that self drive trucks will eliminate maybe 350,000 jobs in the U.S. over the next 20 years. Yet, what about the office jobs lost with the new tech?


Ad agencies will need far fewer people. Some day (will not forecast when), the broadcast market will be replaced by online exchanges similar to what is happening with online advertising trading. Far fewer people are needed and the "bust your chops negotiators" from central casting may find themselves unemployable sooner than you think. Big Data analytics will take some or much of the fun out of advertising and marketing but why spend $375,000 to shoot a high quality commercial and $10 million to run it on programming where attentiveness is very low? As Big Data improves, Amazon and fellow travelers will help us reach the Holy Grail of marketing--reaching the right people, with the right message, at the right time for far less money than now.


I have another conclusion regarding the rise of robots et al that invariably generates a lot of flak from existing marketers, media salespeople and emerging entrepreneurs.


My thesis is that in addition to the elimination of millions of white collars jobs over the next two decades, existing global brands will be in an even more powerful position than they are right now. With so many platforms out there, young and questionably funded upstarts cannot build brand awareness or trial easily. Yes, a few upstarts will break through as they always seem to do. Those success stories will be even fewer than today.


Big players such as Nestle, General Mills, Coke, Pepsi, P&G, Colgate-Palmolive, Unilever and Kraft may simply resort to line extensions to expand their brand families.


Now, if million of white collar or middle class jobs are eliminated, how will our economy be affected given that some 72% of it is consumer driven?


Some people are saying that the robot revolution will take the entire economy down as far fewer people will be able to purchase many consumer products.


A solution of sorts has been floated in recent months by many people including Mark Zuckerberg of Facebook, Ray Dalio of Bridgewater Associates (large hedge fund) and Sir Richard Branson of the Virgin group of companies. It is Universal Basic Income. The concept is that everyone gets an income whether they work or not. These three billionaires are essentially saying that as Robotics and Artificial Intelligence grow, there will be huge and unprecedented dislocations in the labor market. Millions will be out of work with no hope for employment. So, a basic income must be provided.

I have issues with this. Some milennials have told me that a Universal Basic Income will be necessary. Yet, they are excited about it as young people will have a basic income and can pursue entrepreneurial or scholarly ideas. I agree that a guaranteed income could produce the next Hemingway or Fitzgerald or perhaps Steven Spielberg. At the same time, I think that many will become idle and drink too much, watch TV and not accomplish a lot in life. If you think we have an opiate crisis now, image if millions more, especially in economic depressed areas now,  are displaced with little hope for a leg up via a good job?  Also, what type of cycle of dependency would be created if people knew they had an income (very modest) for life? It would seem that income inequality would have to soar far beyond what it is today. Experiments are now going on in both Finland and Ontario, Canada with the Universal Basic Income.

Recently, I ran this idea by someone whom I admire very much but who is far more liberal politically than I (not hard). She surprised me by having the same concern about a long term cycle of dependency. Also, she stated that unless you are old or handicapped, you need to do something. She suggested a revival of something similar to the Works Progress Administration (WPA) from the Great Depression years as a link to Universal Basic Income. Yes, it might create still another bureaucracy but it might save the spirit of millions.

So, the next 20 years may truly be different. Businesses are going to squeeze costs out and answer to shareholders by increasing profits. Robots and Artificial Intelligence will likely not be stopped.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

*this concept was best illustrated to me in the writings of Professor Randall Collins of the University of Pennsylvania