WORKFORCE DISRUPTION Global economist predicts economic turmoil, followed by accelerated growth
Is the digitization of business contributing to prolonged global economic sluggishness? Many economists believe that it is, and Stephen Koukoulas of Australian advisory firm Market Economics has been one of the most outspoken. Compass talked with him about the perils and pluses of removing inefficiencies from the marketplace.
COMPASS: Describe the mood of companies you work with in terms of how they view digital disruption. Are they more excited or nervous?
STEPHEN KOUKOULAS: Digital disruption is seeing winners and losers. The winners are moving with speed and agility to implement their business strategies. There is intense competition from firms looking to implement the next great idea. Their biggest fear is that some other new entrant will beat them to the punch with a new business model; thus, there is some risk that plans are implemented prematurely.
For the old establishment firms, the future is problematic. There is denial. They look for legal or other regulatory roadblocks to stop or slow the new disruptors rather than embracing change. They have generally been caught napping as the disruptors move in.
In your role as an economist, do you see a connection between digital disruption and sluggishness in the global economy? Can you explain the link?
SK : It’s definitely a contributor. At one level, the casual worker has less optimism about their financial position. The proportion of workers in regular 9-to-5 jobs with regular paychecks is falling, with more people earning erratic paychecks with no holiday pay, health care and the like. This is leading to what I call the ‘cautious consumer.’Even with low interest rates and a reasonable rate of economic growth, the consumer isn’t really spending at the speed they used to. They are saving more, not taking on too much debt. It’s not a traditional consumer-led economic growth story.
Stephen Koukoulas is managing director of Market Economics, a corporate economic advisory company based in Canberra, Australia. He works with Dun & Bradstreet, The Guardian and a range of corporate clients on big-picture business matters.
In 2010-2011, he was senior economic adviser to Australia’s prime minister. Before that, he worked in London as the global head of Research and Strategy for TD Securities. He also spent 10 years as a senior economist and then chief economist of Citibank Australia and chief strategist at TD Securities in Sydney.
In terms of business investment, digital disruption is a significant negative. An Uber driver, for example, doesn’t have to invest in a new car, unlike taxi and limo companies. They can drive their own car, which was otherwise underutilized, being parked on the street for 23 hours a day. There is not one cent more of capital expenditure, even though the supply of drivers, in this instance, is increasing rapidly. This is also the case with Airbnb. Apartments that may have been empty for half the year are now accommodating tourists, with no new investment in hotels or other accommodation. It goes to show that in some sectors, there was hidden slack in the economy. This is hampering capital expenditure and overall GDP growth. It’s a largely invisible drag on the economy.
Is there a double-edge sword to the immense digital disruption we’re seeing?
SK : From an economist perspective, the Ubers and Airbnbs are great for efficiency, and great for allowing new entrants into the market, and also for consumers, who are paying less for transportation and the like. And previously idle cars and apartments are now being used or rented out. But if you’re an owner of a hotel or a traditional taxi, you
are losing business and you need to discount to keep your market. This is important for the macro economy because it means downward pressure on inflation at a time when the overall performance of the economy is subdued.
What impact is digital disruption having on jobs?
SK : It’s not just the number of jobs, but the style of work that’s changing. Before, a worker would generally show up for work 9-5, had full-time jobs, paid leave, sick days and pensions. Now we’re seeing what I call the ‘casualization of the labor force,’ where individuals just do their job on a piecemeal basis and whenever they work, they get paid. This makes it a lot more difficult for many individuals to buy a house for example, or even get a loan.
It means that workers are even more vulnerable to the economic cycle. If the economy is weak, they will have less business and fewer hours. Previously, at least some workers were at least partly quarantined from the business cycle if they worked for a firm that may have kept them on during a period of weaker economic growth.
“IN TERMS OF BUSINESS INVESTMENT, DIGITAL DISRUPTION IS A SIGNIFICANT NEGATIVE. IT’S A LARGELY INVISIBLE DRAG ON THE ECONOMY.”MANAGING DIRECTOR, MARKET ECONOMICS
Give some perspective on who is being helped by this large disruption and who is being hurt.
SK : As an economist, I think Airbnb, Uber and the like are fantastic because consumers are paying less and using existing infrastructure, such as idle cars and previously empty apartments. This is great for productivity, but the transition is difficult. But many, such as bank tellers, are losing their jobs. It is almost all internet banking now. Before, we’d go into the bank and deposit our check and the teller was busy filling out the forms. I can’t remember the last time I went to a bank.
The job numbers for bank tellers are down around 75% in 15 years. The upside for the bank tellers is that in an economy that’s growing at a reasonable pace, they can find employment elsewhere.
Some people say some form of digital disruption transition has been happening since the Industrial Revolution with the production line of automobiles. Now building cars has become much more automated … and in many cases, we’re doing it now with robots.
What are the keys to workers staying competitive and relevant?
SK : Flexibility is critical. There’s a big debate in Australia about education funding, from kindergarten to university, and this is spreading to a debate about retraining the 40-50-year-old manufacturing worker who loses their job because of technology. Society needs retraining for these people, rather than having them stuck in chronic unemployment. More effort is needed to retrain that 50-year-old who was on the production line not to be a tech guru, but to be a semi skilled worker in a different industry. The big issue is how do we create a system so obsolete workers don’t become unemployed for 20 years?
Is there any silver lining to the situation? Are there upsides once we reach the other side of it?
SK : The progress in technology is fantastic, and it’s wonderful to see how the economy is changing so fast in front of our eyes. Our lives are being transformed for the better. There are people who lose out, of course. I feel there’s a huge role and obligation for policymakers to be looking after these people where this is happening. There should be an opportunity to be retrained if you’re in an industry that’s being overtaken by technology. And those who do benefit from all these changes will be part of a highly productive, efficient economy going forward. ◆Back to top