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Technology’s Relationship with Wealth

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There is a question so important to the modern economy that it often hides in plain view. I’m talking about the role that technology plays in the distribution of wealth. This connection between our distribution of societal resources and our rapidly evolving technology centers on two fundamental phenomena:

  1. The way technology displaces labor
  2. The way technology concentrates profits

Technology and Jobs

The primary way that technology displaces labor centers on productivity, which amongst most economists today is usually framed as “labor productivity,” or the amount of goods and services produced in one hour of human labor.

Labor productivity gains happen by:

a) Holding the amount of labor steady and increasing the flow of goods and services;
b) Holding the flow of goods and service steady and decreasing the amount of labor; or
c) Some combination of the two

Economists focus on “labor productivity” because, historically speaking, human labor has accounted for the largest portion of the total cost of production. As corporations have concentrated on maximizing profits over the last several decades through downsizing, restructuring and the like, it’s usually been with a heavy reliance on option “b” – i.e. replacing humans, first with hardware, and now increasingly, with software.

When a business makes a fixed investment in a new manufacturing robot or in automation software for taking airline reservations, its ongoing variable costs of operation typically decrease. With smart investments, over time these new automated processes make the firm more efficient and more productive than when these processes were done with human labor. That leads to increased profits. But more on that later.

The question that concerns us first, though, is what happens to the earnings power of those people who’ve been displaced by these investments in automation. The answer, of course, is that the job loss leads to an immediate inability to earn income, which if uncorrected, eventually erodes any wealth these employees may have once built up over the course of their working life.

I should note two things here. First, technology isn’t the only cause of job eliminations, but it is the only way of eliminating jobs without cutting into the firm’s ability to deliver economic value over time.

Second, there are questions about what happens to these employees over time; specifically with regard to their re-employability, and how easily they learn new skills that haven’t yet been addressed by automation. This is the the race against the machine,” and history has shown that we humans are pretty good at it finding hitherto unimagined, new sources of employment. Buggy whip assemblers get re-trained and go on to build Model T’s.

This argument is hard to counter, of course, because history has demonstrated it time again and again. And yet, looking at our current stage of economic development, there is something quite different from where we were even just a few short decades ago. It’s the pace and interconnectedness of technology’s evolution. You don’t have to necessarily believe in the Singularity to understand how the accelerating pace of technology won’t just eat into more and more jobs that have traditionally been done by humans, but that it will also make it harder and harder for humans to keep up with machines in learning the new jobs that the technology itself makes possible.

Just twenty years ago, most of us would have been puzzled at the idea that technology might lead to out-of-work bookshop and movie rental store employees, just as today it seems hard to believe that New York City taxi drivers will be looking for new work in not too many years. As human jobs are displaced at a faster and faster pace, ever larger portions of our population will lose their ability to generate wealth, as income disparity accelerates from the bottom up.

Technology and Profits

This is only half of the story, however, and it may not even be the most important way that technology accelerates the concentration of wealth. To understand the rest of the story, we need to look back at what happens to the increased profits that resulted from those investments in labor-saving technologies, and to do that, we need to take an accountant’s perspective.

When a company buys equipment to automate its processes, the cost of that purchase isn’t treated as an expense. Instead it’s treated as a “capital expenditure” which increases the assets on the firm’s balance sheet. As an investor, we no longer allow you to own the people who make a profit for you, but you can own the machines that displace those people. And, as the firm makes more labor saving investments in technology, its operating costs go down and its productivity – and profits – go up.

Where do the increased profits from these technology-driven productivity increases go? They go to the owners of the firm, naturally. And so, as long as the technology investments don’t somehow harm the firm’s revenue streams and as long as they result in lower operating costs – which are both pretty good bets – then, the owners of the firm generate greater earnings, either in the form of more dividends or capital gains.

That investors are entitled to a return on their investments isn’t really a point of contention – at least for me. What is is allowing investor returns to transcend all other factors as the driver of modern day capitalism. This “shareholder primacy” perspective elevates maximizing returns for shareholders as the primary purpose of the firm.

Here’s the interesting part as it relates to technology though. Within today’s ascendent shareholder primacy perspective, the main reason to make technology investments is to increase productivity and profits, and the main reason for doing that is to pass those profits on to shareholders. If those shareholders aren’t the employees or other long-term stakeholders of the firm, then technology investments essentially act as a powerful force for extracting profits from businesses and concentrating them in the hands of outside investors who are part of a rapidly shrinking percentage of the population.

As investors generate more returns, they invest in more firms, perpetuating the process in one industry after another and skewing the wealth-generating capacity of more and more sectors of our economy. As this happens, wealth is concentrated into ever fewer hands. Seemingly oxymoronic phrases like a “jobless recovery” also start to make sense as sector after sector begins generating healthy returns for investors without necessarily adding new jobs. Remember, in the United States, 88% of investment assets (excluding residential homes) are owned by just 10% of the population and more than 50% of assets are owned by just the top one percent.

As the primary source of the productivity gains and the profits these investment assets create, technology is the catalyst for most of this growing concentration of wealth.

What Do We Do?

In short, technology plays a critical role in the distribution of wealth. It erodes income generation in lower income families while concentrating profits into the hands of those with the greatest financial assets.

One of the solutions to this dilemma is to design technologies so that humans are better able to race with machines rather of just against them. Remember, labor productivity can increase by either cutting labor costs or by increasing the value of the goods and services that that labor creates. That means thinking a lot harder about how to build our technologies to better augment our human capacities rather than eliminate them.

There are clearly limits here, however. As the race with our technological progeny accelerates, there will only be so much racing with that we will be able to do. The machines will eventually outpace our ability to learn the new jobs and may one day even run our firms.

It’s my view that the real answer to this dilemma is less about technology and jobs and more about how we handle the second question – the question of technology and profits. And here, we get down to some tough questions about ownership and equity. For if ownership of the machines and their earnings potential were more broadly held, then so too would their ability to generate and maintain wealth across a broader base of humanity.

Equity is the central question that now confronts us. Do we really want a world where all of our engines of wealth generation are closely held by a minuscule segment of our citizens? The accelerating pace of technological development lends a certain urgency to this question. How far will it go?

This all raises a fundamental question about the operating instructions for the entities that now create most of our technology: our assumptions about the purpose of businesses. If it truly is shareholder primacy and simply maximizing returns for external shareholders, then we are hard-coding the next evolution of intelligence on the planet for one goal: concentrating wealth.

Surely, there must be some more noble aspiration for the Promethean fire we now hold in our hands.

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About the Author

This article was written by Gideon Rosenblatt of The Vital Edge. Gideon ran an innovative social enterprise called Groundwire for nine years. He worked at Microsoft for ten years in marketing and product development, and created CarPoint, one of the world’s first large-scale e-commerce websites in 1996. The Vital Edge explores the human experience in an era of machine intelligence.

Entrepreneurship

Women on Top in Tech – Tara Velis, Growth Hacker and Digital Innovation Strategist

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

I am talking to Tara Velis, Growth Hacker and freelance Digital Innovation Strategist. Tara was selected and recognized by TheNextWeb.com as one of the 500 most talented young people in the Dutch digital scene during the 2017 TNW edition. Tara is known for her creative, entrepreneurial spirit, which she is using to her advantage in leading the change in SMEs and corporates around the globe.

What makes you do what you do?

I tend to see life as a big, complex puzzle. Because of my curious nature, I am in constant development, looking for new angles and new approaches to business problems. Innovation through technology is exploring ideas and pushing boundaries. The most radical technological advances have not come from linear improvements within one area of expertise. Instead, they arise from the combination of seemingly disparate inventions. This is, in fact, the core of innovation. I love going beyond conventional thinking practices. Mashing up different thoughts and components, connecting the dots, and transforming that into something useful to businesses.

How did you rise in the industry you are in?

I consistently chose to follow my curiosity, which has led me to where I am today. If you want to succeed in the digital industry, you need to have a growth mindset. Seen the fact that the industry is evolving in an astoundingly quick rate, it’s crucial to stay current with the trends and forces in order to spot business opportunities. I believe taking responsibility for your own learning and development is key to success.

Why did you take on the role of Digital Innovation Strategist?

The reason for this is twofold. On the one hand, I got frustrated with businesses operating in the exact same way they did a couple of decades ago. Right now we are in the midst of a technology revolution, and the latest possibilities and limitations of cutting-edge technologies are evolving every single day. This means that companies need to stay current and act lean if they want to survive. On a more personal level, I noticed that I felt the need to use my creativity and problem-solving skills to their maximum capacity. In transforming businesses at scale, I change the rules of the game. I love breaking out of traditional, old-fashioned patterns by nurturing innovative ideas. This involves design thinking, extensive collaboration and feedback, the implementation of various strategies and tactics, validated learning, and so on. I get a lot of energy from my work because it is aligned with my personal interests.

Do you have a mentor that you look up to in your industries?

Yes, I look up to Drew Boyd. He is a global leader in creativity and innovation. He taught me how to evaluate ideas in order to select the best ones to proceed with. This is crucial because otherwise,you run the risk of ideas creating the criteria for you because of various biases and unrelated factors. He also taught me a great deal on facilitation of creativity workshops.

How would you describe your leadership style?

I tend to have the characteristics of a transformational leader. People have told me that my enthusiasm and positive energy is motivating and even inspiring to them. Even though I take these comments as a huge compliment, I am not sure how I feel about referring to myself as a leader. To me, it still has a somewhat negative connotation. I guess I associate the concept with being a boss who’s throwing around commands. But if a leader means listening to others and igniting intrinsic motivation in people, then yes, I guess I’m a charismatic leader.

Do you consciously or unconsciously support diversity and why?

Yes, one hundred percent. I believe that creativity and innovation flourish when a highly diverse group of people bounces ideas off each other. Diversity in terms of function, gender,and culture is extremely valuable, especially in the ideation phase of a project, as it can help to see more possibilities and come up with better ideas.

Do you have any advice for others?

Yes, I have some pieces of advice I’d like to share.
First of all: Develop self-awareness. You can do so by actively seeking feedback from the people around you. This will help you understand how others see you, align your intentions with your actions, and eventually enhance your communication- and leadership skills.

Surround yourself with knowledgeable and inspiring people. They might be able to support you in reaching your goals, and help you grow both personally and professionally.

Ask “why?” a couple of times. This simple and powerful method is useful for getting to the core of a problem or challenge. Make sure to often remind yourself and your team of the outcome of this exercise to have a clear sense of direction and focus.

Data is your friend. Whether it’s extensive quantitative market research or a sufficient amount of in-depth consumer interviews (or both!), your data levels all arguments. However, always be aware of biases and limitations of research.

Say “Yes, and…” instead of “No”. Don’t be an idea killer. Forget about the feasibility and budget, at least in the ideation phase. Instead, encourage your team to generate ideas without restrictions. You can compromise certain aspects later.

Prioritization is key. There is just no way you can execute all your ideas, and, quite frankly, there is no point in trying to do so. Identify the high potential ideas and start executing those first.

Encourage rapid prototyping. Don’t wait too long to experiment, launch, and iterate your product or service. Fail fast and fail often. Adopt an Agile mindset.

If you’d like to get in touch with Tara Velis, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/taravelis/

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Callum Connects

Marek Danyluk, CEO of Space Ventures

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Marek Danyluk has a talent for assessing the competencies of management teams for other businesses and pulling together exceptional teams for his own businesses!

What’s your story?
I am the CEO of a venture capital business, Space Ventures, which invests in seed and pre-series A businesses. I also own and run Space Executive, a recruitment business focused on senior to executive hires across sales, marketing, finance, legal and change.

My career started as a trainee underwriter in the Lloyds market but quickly moved into recruitment where I set-up my first business in 2002. The business grew to around 100 people. I moved to Asia in 2009 as a board member of a multinational recruitment business with the mandate to help them scale their Asian entities, which helped contribute to their sale this year, in 2017.

My main talent is assessing the competencies of management teams as well as building high performing recruitment boutiques and putting together exceptional management teams for my own businesses.

What excites you most about your industry?
Building the business is very much about attracting the best talent and being able to build a culture which people find invigorating and unique. It’s an exciting proposition to be able to define a culture in that regard and salespeople are a fun bunch, so when you get it right it’s tremendous.

From a VC point of view there is just so much happening. South East Asia is a melting pot of innovation so the ideas and quality of people you have exposure to, is truly phenomenal. The exposure in the VC has taken me away from a career in recruitment. Doing something completely different has given me a new level of focus.

What’s your connection to Asia?
Whilst I came here with work, both my boys were born in Singapore and to them this very much is home. That said, my father in law spent many years in the East so coming and settling here was met with a good degree of support and familiarity.


Favourite city in Asia for business and why?
Possibly Hong Kong. It’s the closest I’ve been to working in London. Whilst there are massive Asian influences people will work with you on the basis you are good at what you do and work hard. I find that approach very honest and straightforward.

What’s the best piece of advice you ever received?
“Always treat people well on the way up!”

Who inspires you?
I like reading about people who have excelled in business such as Jack Ma, James Kahn, Phil Knight, Sir Richard Branson, Elon Musk, all have great stories to tell and they are all inspirational. No-one has inspired me more than my parents and they are well aware as to why…

What have you just learnt recently that blew you away?
Pretty much any technology innovation blows me away.

If you had your time again, what would you do differently?
Whilst it is important not to have regrets I do continually wake up thinking I’m still doing my A’ Levels. So, I’d have probably tried a little harder in 6th form.

How do you unwind?
I like the odd glass of red wine and watching sport

Favourite Asian destination for relaxation? Why?
Japan skiing. I love skiing and Japanese food and it’s a time when I can really enjoy time with the wife and kids. I recently tried the Margaret River which was divine, although not technically Asia.

Everyone in business should read this book:
Barbarians at the Gate

Shameless plug for your business:
Space Executive is the fastest growing recruitment business in Singapore focused on the mid to senior market across legal, compliance, finance, sales and marketing and change and transformation. Multi-award winning with exceptional growth plans into Hong Kong and London this year, and the US, Japan and Europe by the end of 2022. We are building a truly global brand.

Space Ventures is interested in any businesses that require capital or management and financial guidance or any or all of the above. We have, to date, invested in on-line training, food and beverages, peer to peer lending platforms, credit scoring as well as other tech and fintech start-ups. We are always interested in hearing about potential deals.

How can people connect with you?
[email protected]

Twitter handle?
@Spaceexecutive

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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