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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.

Callum Connects

Mikyung Kim, TV Commercial Producer

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Mikyung Kim is a savvy producer who runs her own TV and print production business, based in Hong Kong.

What’s your story?
I am a TV commercial and print producer working with advertising agencies and brands to bring their communication needs to the screen. My background is in film production and I started my career in Hollywood working with Oscar winning directors Michel Gondry and Alejandro González Iñárritu. Before starting my own company last year to produce content directly with agencies and brands, I was with Ogilvy & Mather Hong Kong for nearly five years as the Senior Producer and Head of TV running the film production department.

What excites you most about your industry?
How it’s constantly evolving! Every day is different and it’s certainly never boring. I love that it’s a creative industry and that my job involves talking to people with creative minds on how we can bring a story on paper to life. It’s exciting that the advertising industry places high value on the creativity and effectiveness of content. I’ve produced a few commercials that creatively push the envelope with fun and sometimes wild ideas that have converted into positive brand awareness. Ever heard of KFC Finger Lickin’ Good…Nail Polish that yes, tastes like chicken? https://www.adweek.com/creativity/kfc-just-made-edible-finger-lickin-good-nail-polish-yeah-tastes-chicken-171245/

What’s your connection to Asia?
I was born in Seoul and raised in Hong Kong until graduating from high school at HKIS. I spent my university years in Boston at Emerson College and worked in Los Angeles at Anonymous Content and Partizan Entertainment. But on a brief visit back to Hong Kong in 2010, I decided to move back and continue my career here, and it was the best decision I ever made.

Favourite city in Asia for business and why?
Hong Kong is my home so it will always be my favourite city for business and for me personally. What I love about Hong Kong is that while I am based here, I can actually work with agencies and brands from anywhere in APAC. If I need to attend an important meeting, I can just hop on a quick flight easily. I spent most of 2017 working in Seoul with Korean agency Cheil and Samsung, and currently I am working with Japanese agency ADK and Toyota based in Singapore.

What’s the best piece of advice you ever received?
“Fake it until you become it,” from Amy Cuddy’s TED talk. Worth a watch. This helped me early in my career when I felt like I was under qualified for the job I was in. I learned to fake my confidence and fake a powerful body language until I truly felt that confidence became something real. It was nerve wracking at first but it worked and now I don’t have to fake it.

Who inspires you?
My friends. Noelle who worked part time jobs while being a full time student to pay her own tuition while we were in college together. Osti who is a lawyer focused on supporting developing nations and a board member of Redress, an environmental NGO working to reduce waste in the fashion industry. Vanessa who runs a real estate company, co-owns the gym Crossfit Asphodel, started a health foods business called Quo and NGO The Keep Moving Project to promote wellness in our community. Cathy who will be the first Asian woman to direct a big budget superhero film starring Margot Robbie with Warner Bros and DC. And too many more to name!

What have you just learnt recently that blew you away?
5.2 million plastic bottles are thrown away in Hong Kong every day. Plastic pollution is a major issue for the environment and we as responsible citizens can do our small part by reducing our consumption of unnecessary plastic. I do mine by having a water filter at home and carrying my own reusable water bottle with me everywhere I go. I love the brand Hydroflask because the stainless steel material keeps water hot or cold for hours, so I don’t feel tempted to buy a cold water at 7-11 on those hot, humid days we have here.

If you had your time again, what would you do differently?
About five years ago I purchased my very first stock and put one month’s salary into it, which at the time was a lot of money for me. Knowing how that stock has performed now, I would have put all my savings into it.

How do you unwind?
Exercise is essential in my daily life to help clear my head and de-stress. My go to is a workout at Crossfit Asphodel, running outdoors, yoga and hiking. But a glass of red wine and live music at Soiree in Soho on Sunday night works pretty well too!

Favourite Asian destination for relaxation? Why?
One of the best trips I ever took was to the island of Lombok in Indonesia. Two girl friends and I did a 3 day 2 night hiking and camping trip to summit the Mount Rinjani Volcano. It was physically challenging but mentally relaxing. There was no cellphone reception, no distractions, we had the company of nature and nights with skies full of shooting stars. It was pretty magical. We then went to the Gili Islands for a few days of scuba diving, yoga and sitting on the beach doing nothing but sipping on coconuts. That was pretty relaxing too.

Everyone in business should read this book:
“Nice Girls Don’t Get the Corner Office” by Lois P. Frankel and “Lean In” by Sheryl Sandberg. Essential reads for every working woman and/or man who wants to know how to support the working women in their life.

Shameless plug for your business:
I am a TV commercial and print producer that can plug into an existing advertising agency or brand team to produce their communication needs. Many advertising agencies these days are scaling down so they have creative directors and account services but may not have an in-house producer, so I can fill that gap by becoming a part of the existing agency team. For brands that want to produce content directly without involving an agency, I can also bridge the gap by bringing my production knowledge in-house and working as part of the marketing/brand team and liaising with the other departments in the company such as product team and ecomm.

How can people connect with you?
They can email me at [email protected]
or visit my website at mkimproducer.com

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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Callum Connects

Renne Ballard, Owner of Renée Ballard Communications

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Renne Ballard runs a social media agency working with business women, helping them find their business’s voice.

What’s your story?
I began my career in PR/communications ten years ago in Australia, after arriving home from two years in Dubai. In Dubai I was working for Emirates Airlines as a flight attendant and flying around the world non-stop for two years. This really sparked my interest for how people communicate. I started out as a community manager for an online advertising company, then moved into the corporate world of outdoor advertising, managing internal and external PR and communications. After having a baby four years ago, I decided to leave the safety net of corporate, and stride out on my own. I now run a social media agency and I specialise in working with business women, helping to find their business’ voice so they can use social media to achieve their business goals.

What excites you most about your industry?
I love the open accessibility online provides. It’s free for businesses to get online and connect with their target audience. Twenty years ago, advertising and PR was insanely expensive and quite elitist, but through incredible platforms like Facebook or Twitter, any business can connect with who is looking for their product/solution. Social media is particularly effective for small businesses because they have the edge when it comes to authenticity and a clear voice.

What’s your connection to Asia?
I’m in Hong Kong because I’m a trailing spouse. I know it’s such a daggy term, but I love it, it makes me sound so dedicated to my husband! Alas, we came to Hong Kong for my husband’s work. He’s the Design Director of Asia for an international retail design agency. We’ve been here for almost two years and it’s been a huge learning curve in terms of business and culture. We love the fast-paced nature of Hong Kong and the fact that everything is open late – it suits me perfectly because I’m nocturnal.

Favourite city in Asia for business and why?
That’s easy, Hong Kong. It’s the perfect blend of start-ups and mothership-sized institutions. I love the small business side, watching the collaborations between workshare spaces with galleries, networking groups and foodies; it’s a hothouse of creative partnerships here.

What’s the best piece of advice you ever received?
When you’re are feeling scared about your next step, lean in and feel the difference. Is it fear mixed with excitement? Or fear mixed with dread? Always go with the former and cut loose the latter.

Who inspires you?
I love Tamara Mellon (Jimmy Choo founder). She has created multiple empires and she never stops trying new business models and pushing her limits. It helps that I love shoes too.

What have you just learnt recently that blew you away?
I just turned 40 years old. At best, I’m probably halfway through my life. It makes me constantly question, “Am I where I want to be?”

If you had your time again, what would you do differently?
I would have asked more questions to the people I looked up to, and listened less to the people telling me I won’t achieve my goals.

How do you unwind?
In this day and age, it’s scandalous to say, but I love sunbaking. At any chance, you’ll find me poolside, laying in the sun in a trance-like state.

Favourite Asian destination for relaxation? Why?
Northern Danang in Vietnam. We were there at Christmas, at the foot of the mountains and it was beautiful. Heaps of wildlife and jungles and enough five star resorts that I was never parched once.

Everyone in business should read this book:
‘The E Myth’ by Michael Gerber. It’s an oldie but a goodie because it succinctly outlines how to transition from a one person operation to a global business like McDonalds. Once you see how important systems and processes are, you can recognise shambolic companies a mile off.

Shameless plug for your business:
Renée Ballard Communications is a social media agency that works with business women who are ready to make social media work for them. We create effective, powerful social media strategies that are tailored to the people who will be breathing life into them. We hand on heart promise to never use annoying, marketing buzzwords and that we value laughter above everything else.

How can people connect with you?
[email protected] or www.reneeballard.com or +85296670115

Twitter handle?
@ballard_comms

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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