1 00:00:01,840 --> 00:00:05,760 Speaker 1: The lowest US unemployment rate since I was in diapers, 2 00:00:05,880 --> 00:00:09,000 Speaker 1: and month after month of two hundred thousand plus new 3 00:00:09,000 --> 00:00:13,960 Speaker 1: American jobs. That's a great thing. It also obscures underlying 4 00:00:14,120 --> 00:00:17,080 Speaker 1: changes in the nature of the workforce, both in the 5 00:00:17,200 --> 00:00:21,080 Speaker 1: US and abroad, that will shape society for decades to come. 6 00:00:22,079 --> 00:00:26,000 Speaker 1: Bain and Company calls this coming period a great transformation, 7 00:00:26,920 --> 00:00:31,560 Speaker 1: a shrinking and aging domestic workforce, the decline of a 8 00:00:31,600 --> 00:00:35,760 Speaker 1: global market for labor, and you guessed at rise of robots. 9 00:00:36,360 --> 00:00:38,880 Speaker 1: This will shape things in ways that might be surprising. 10 00:00:38,960 --> 00:00:42,919 Speaker 1: For instance, the state will become more, not less active, 11 00:00:43,360 --> 00:00:47,000 Speaker 1: as voters demand the shift be managed, and watch out 12 00:00:47,040 --> 00:00:50,640 Speaker 1: for conflict between those who have invested in this new 13 00:00:50,680 --> 00:01:03,800 Speaker 1: era and those disenfranchised. Welcome to Benjamin, a show about 14 00:01:03,800 --> 00:01:08,240 Speaker 1: the global economy. I'm Daniel Moss, columnist of Bloomberg Opinion 15 00:01:08,360 --> 00:01:11,800 Speaker 1: in New York, and I'm Scott Lanman and economics editor 16 00:01:11,880 --> 00:01:15,240 Speaker 1: with Bloomberg News in Washington. Our guest this week is 17 00:01:15,319 --> 00:01:18,600 Speaker 1: Andrew Twiddel, a partner at Bain and Company in New York, 18 00:01:19,040 --> 00:01:22,120 Speaker 1: peace chair of their Macro Trends Group, and co author 19 00:01:22,160 --> 00:01:27,480 Speaker 1: of the report Labor The Collision of the Demographics automation 20 00:01:27,640 --> 00:01:32,520 Speaker 1: and inequality. Andrew, Welcome to Benchmark. Thanks for having me down, Scott. 21 00:01:32,560 --> 00:01:35,280 Speaker 1: Happy to be here, Andrew, no one can accuse you 22 00:01:35,360 --> 00:01:39,160 Speaker 1: of thinking small. So do you just ignore the employment 23 00:01:39,200 --> 00:01:43,240 Speaker 1: report that's published the first frauday of every month. Well, 24 00:01:43,240 --> 00:01:45,320 Speaker 1: we're not. We're not quite glued to the to the 25 00:01:45,440 --> 00:01:47,440 Speaker 1: radio or to the TV to watch it. But we 26 00:01:47,560 --> 00:01:50,320 Speaker 1: do pay attention obviously to what happens in the nearer term, 27 00:01:50,320 --> 00:01:52,640 Speaker 1: but we try to put it in context of bigger, 28 00:01:52,760 --> 00:01:56,600 Speaker 1: longer term trends that really affect our clients, corporations and 29 00:01:56,640 --> 00:02:00,960 Speaker 1: investors planning and investment horizons. And in every monthly number 30 00:02:01,000 --> 00:02:04,440 Speaker 1: there are gems of these long term trends. Absolutely we 31 00:02:04,520 --> 00:02:07,200 Speaker 1: see things playing through and and the story gets clearer 32 00:02:07,240 --> 00:02:09,040 Speaker 1: and clearer over time, but we think it will still 33 00:02:09,080 --> 00:02:11,760 Speaker 1: take a few years to play out. Andrew, I just 34 00:02:11,760 --> 00:02:13,560 Speaker 1: have to take a step back for a second before 35 00:02:13,560 --> 00:02:16,519 Speaker 1: we get into the nitty gritty. I've read a number 36 00:02:16,520 --> 00:02:20,120 Speaker 1: of these consulting firms reports throughout my career on big 37 00:02:20,160 --> 00:02:23,520 Speaker 1: macro trends. They really tend to be pretty dryly written, 38 00:02:23,960 --> 00:02:27,960 Speaker 1: bland in their views, pretty safe in their conclusions, and 39 00:02:28,000 --> 00:02:30,640 Speaker 1: that is just not the case with this report that 40 00:02:30,680 --> 00:02:34,240 Speaker 1: you guys put out, it's it's actually pretty provocative. I'm 41 00:02:34,280 --> 00:02:36,200 Speaker 1: wondering did you set out to do that or was 42 00:02:36,280 --> 00:02:38,520 Speaker 1: this just kind of where you ended up after doing 43 00:02:38,560 --> 00:02:41,840 Speaker 1: a thorough analysis of all the data and predictions that 44 00:02:41,880 --> 00:02:44,799 Speaker 1: you were thinking about. Well, thanks, thanks for the comment. 45 00:02:44,919 --> 00:02:46,639 Speaker 1: First of all, we um you know, I don't think 46 00:02:46,639 --> 00:02:49,119 Speaker 1: we try to set out to be provocative per se, 47 00:02:49,840 --> 00:02:53,079 Speaker 1: but we do always ask ourselves when we see conventional 48 00:02:53,120 --> 00:02:56,760 Speaker 1: wisdom coalescing in one direction, where could that be wrong? 49 00:02:56,960 --> 00:02:59,200 Speaker 1: And so I think in all of our reports, whether 50 00:02:59,240 --> 00:03:02,680 Speaker 1: it's Labor twenty thirty or um a World of Washing 51 00:03:02,720 --> 00:03:05,640 Speaker 1: Money which was our look at capital Superabundant several years ago, 52 00:03:05,680 --> 00:03:08,960 Speaker 1: and spatial economics, we try to take a little bit 53 00:03:09,000 --> 00:03:11,080 Speaker 1: of a perspective of where could people be wrong and 54 00:03:11,120 --> 00:03:13,160 Speaker 1: where there are some things that are surprising and maybe 55 00:03:13,200 --> 00:03:18,080 Speaker 1: counterintuitive to talk about it's a great transformation, sounds profound, 56 00:03:18,360 --> 00:03:22,080 Speaker 1: but just to be clear, we're talking about trends already 57 00:03:22,120 --> 00:03:26,160 Speaker 1: observable that are going to accelerate. Yes, yep, this is 58 00:03:26,200 --> 00:03:28,760 Speaker 1: not something that's out there in the future. It's happening 59 00:03:28,800 --> 00:03:31,920 Speaker 1: now and it will accelerate. In this case, really We 60 00:03:32,040 --> 00:03:34,120 Speaker 1: use that phrase to describe the period between now and 61 00:03:34,200 --> 00:03:37,120 Speaker 1: roughly so think of this as the next ten to 62 00:03:37,200 --> 00:03:40,560 Speaker 1: fifteen years and kind of a turbulent time, especially in 63 00:03:40,560 --> 00:03:43,720 Speaker 1: the twenties. But it's it's all stuff that has started 64 00:03:43,720 --> 00:03:47,760 Speaker 1: already and will accelerate. And when you say twenties, you twenties, 65 00:03:47,840 --> 00:03:51,480 Speaker 1: not the Roaring twenties. We're here, well, you know, maybe 66 00:03:51,520 --> 00:03:54,960 Speaker 1: maybe echoes of that, the turbulent twenties. Let's say, can 67 00:03:55,000 --> 00:03:57,760 Speaker 1: you just go over what what the main conclusions are 68 00:03:58,280 --> 00:04:02,800 Speaker 1: for our listeners who probably haven't sure, so if I 69 00:04:02,840 --> 00:04:04,960 Speaker 1: can try to boil it down, I'd say we are 70 00:04:05,000 --> 00:04:07,600 Speaker 1: coming from a period that you know, many people have 71 00:04:07,640 --> 00:04:09,760 Speaker 1: called the Great Moderation. If you think about the last 72 00:04:09,840 --> 00:04:13,000 Speaker 1: forty fifty years, there were a lot of really positive 73 00:04:13,000 --> 00:04:16,560 Speaker 1: developments for business, for investors. There's a lot of global growth, 74 00:04:16,600 --> 00:04:20,120 Speaker 1: increasing globalization, and macro was calmed. You know, that was 75 00:04:20,160 --> 00:04:22,160 Speaker 1: the environment most of us grew up in and learned 76 00:04:22,160 --> 00:04:24,839 Speaker 1: to navigate in. And that period clearly ended in two 77 00:04:24,880 --> 00:04:28,520 Speaker 1: thousand eight, and we've had this kind of choppy transition time, 78 00:04:28,839 --> 00:04:30,680 Speaker 1: I would say, over the last ten years or so, 79 00:04:31,360 --> 00:04:33,240 Speaker 1: and so now we're entering this phase we call the 80 00:04:33,279 --> 00:04:36,200 Speaker 1: Great Transformation, and you know, there are several things that 81 00:04:36,240 --> 00:04:39,320 Speaker 1: are happening there. One is we're shifting to this new 82 00:04:39,360 --> 00:04:43,320 Speaker 1: world of labor scarcity driven by demographics, and that's you 83 00:04:43,360 --> 00:04:46,440 Speaker 1: know the reference you made at the start of the program. 84 00:04:46,480 --> 00:04:49,400 Speaker 1: That's gonna have big implications for the workforce. We're really 85 00:04:49,440 --> 00:04:52,880 Speaker 1: seeing automation increase uh and and that's going to reshape 86 00:04:52,920 --> 00:04:55,960 Speaker 1: the economy and profound ways. We're seeing an end to 87 00:04:56,040 --> 00:04:59,880 Speaker 1: this period really of capital superabundance and probably a reset 88 00:05:00,279 --> 00:05:04,159 Speaker 1: so higher interest rates over time, and we're seeing the 89 00:05:04,240 --> 00:05:07,840 Speaker 1: decline in this globalization era. That's a cyclical pattern, by 90 00:05:07,880 --> 00:05:10,159 Speaker 1: the way, this happens throughout history, and now we're entering 91 00:05:10,240 --> 00:05:12,200 Speaker 1: one of those cycles where there is a retreat from 92 00:05:12,200 --> 00:05:15,800 Speaker 1: globalization into what we're calling kind of a post globalization 93 00:05:15,839 --> 00:05:21,600 Speaker 1: area area era, which will have more volatility, more geopolitical volatility, 94 00:05:21,640 --> 00:05:25,160 Speaker 1: macroeconomic volatility. And so we can get into all of 95 00:05:25,200 --> 00:05:27,120 Speaker 1: these trends, but they're going to really shift the way 96 00:05:27,120 --> 00:05:29,760 Speaker 1: we think about running our companies and where we invest, 97 00:05:29,839 --> 00:05:32,799 Speaker 1: and the role of the state with respect to corporate 98 00:05:33,040 --> 00:05:38,000 Speaker 1: the corporate sector. What's this big capital spending an investment 99 00:05:38,160 --> 00:05:41,520 Speaker 1: boom that you full see were used to hearing about 100 00:05:41,600 --> 00:05:47,080 Speaker 1: how capital spending has underperformed and there's not enough investment 101 00:05:47,200 --> 00:05:49,840 Speaker 1: in plant and machinery. How do you square that right? 102 00:05:49,880 --> 00:05:53,240 Speaker 1: You can see the productivity everywhere except in the statistics, right. 103 00:05:53,960 --> 00:05:56,640 Speaker 1: So I think the capital spend boom is going to 104 00:05:56,680 --> 00:05:59,680 Speaker 1: be in response to this labor shortage. So as the 105 00:05:59,720 --> 00:06:02,120 Speaker 1: price of the workforce goes up, there will be more 106 00:06:02,120 --> 00:06:05,960 Speaker 1: incentive for businesses to spend and automate, and the automation 107 00:06:06,000 --> 00:06:10,080 Speaker 1: will become more capable, particularly in the service sector. So 108 00:06:10,200 --> 00:06:11,960 Speaker 1: there's been a lot of automation for many years in 109 00:06:11,960 --> 00:06:15,599 Speaker 1: the manufacturing sector. That's a small part of the economy today, 110 00:06:15,600 --> 00:06:20,480 Speaker 1: certainly from an employment standpoint. And as service sector robotics 111 00:06:20,560 --> 00:06:23,839 Speaker 1: really takes off in terms of capability, the cost of 112 00:06:23,920 --> 00:06:28,159 Speaker 1: developing those robots and cobots falls and the cost of 113 00:06:28,240 --> 00:06:31,120 Speaker 1: labor goes up, it will lead do you know, large 114 00:06:31,120 --> 00:06:34,839 Speaker 1: incentives for companies to automate in a significant way. Andrew, 115 00:06:34,880 --> 00:06:36,760 Speaker 1: you're you're kind of playing right into some of our 116 00:06:36,800 --> 00:06:39,880 Speaker 1: favorite topics here on Benchmark. Dan and I have spent 117 00:06:40,000 --> 00:06:44,039 Speaker 1: a lot of time talking about demographics, automation, and Japan 118 00:06:44,240 --> 00:06:47,240 Speaker 1: as well. And you know, this kind of strikes me 119 00:06:47,400 --> 00:06:49,960 Speaker 1: that a lot of these trends that you're talking about 120 00:06:49,960 --> 00:06:53,920 Speaker 1: are already underway in Japan. Did that strike you as 121 00:06:53,920 --> 00:06:57,280 Speaker 1: all at all as you were putting together this report? Absolutely, 122 00:06:57,360 --> 00:07:00,440 Speaker 1: Japan was, you know, the most demographically far down the 123 00:07:00,440 --> 00:07:02,680 Speaker 1: curve market in the world, and you've seen it for many, 124 00:07:02,680 --> 00:07:05,159 Speaker 1: many years in Japan, as you say, And it's not 125 00:07:05,279 --> 00:07:07,880 Speaker 1: limited to the US and Japan, this is going to 126 00:07:07,920 --> 00:07:11,440 Speaker 1: be all over Western Europe. It's even gonna be in China. Right. 127 00:07:11,480 --> 00:07:13,600 Speaker 1: People like to talk a lot about China getting rich 128 00:07:13,680 --> 00:07:15,960 Speaker 1: before they get or getting old before they get rich, 129 00:07:16,640 --> 00:07:19,040 Speaker 1: and I think that's true U And even in China 130 00:07:19,240 --> 00:07:23,520 Speaker 1: in companies that have had a labor cost advantage, there's 131 00:07:23,560 --> 00:07:27,600 Speaker 1: a big pushed automation. Fox con the electronics manufacturer going 132 00:07:27,640 --> 00:07:31,440 Speaker 1: to be putting in a million robots by so huge 133 00:07:31,480 --> 00:07:34,400 Speaker 1: investments to be able to figure out how to deploy 134 00:07:34,440 --> 00:07:36,800 Speaker 1: this technology. And just to come back to your point 135 00:07:36,800 --> 00:07:40,440 Speaker 1: about what where's the productivity growth? Historically, when you see 136 00:07:40,560 --> 00:07:43,960 Speaker 1: major advances in technology, it does take a few years 137 00:07:44,440 --> 00:07:47,560 Speaker 1: before management teams really figure out how to take advantage 138 00:07:47,560 --> 00:07:50,040 Speaker 1: of it and get those improvements in productivity. So we 139 00:07:50,080 --> 00:07:53,000 Speaker 1: do see it coming really and especially in the next 140 00:07:53,000 --> 00:07:55,520 Speaker 1: five to seven years. Let's say, you know, I'm glad 141 00:07:55,560 --> 00:07:59,520 Speaker 1: you mentioned China. That might strike many of our general 142 00:07:59,560 --> 00:08:03,880 Speaker 1: listeners as pretty strange. There has been an idea that's 143 00:08:03,880 --> 00:08:05,920 Speaker 1: been prevalent in the West for a long period of 144 00:08:05,920 --> 00:08:09,880 Speaker 1: time that China is this vast pool of sweatshop labor. 145 00:08:10,400 --> 00:08:13,360 Speaker 1: Now you mentioned fox Con. Let's talk a little bit 146 00:08:13,400 --> 00:08:19,240 Speaker 1: about that company and it's iconic role in China's industrialization 147 00:08:19,320 --> 00:08:24,000 Speaker 1: and what you think it's doing with robots is so important. Well, 148 00:08:24,080 --> 00:08:26,400 Speaker 1: it's it's just part of the toolkit to continue to 149 00:08:26,440 --> 00:08:29,920 Speaker 1: be cost competitive and to have a place at the 150 00:08:29,960 --> 00:08:33,240 Speaker 1: center of global supply chains. You can't rely forever on 151 00:08:33,280 --> 00:08:36,440 Speaker 1: a low cost uh you know, wage model. That's not 152 00:08:36,480 --> 00:08:38,600 Speaker 1: what the Chinese government wants to do. That's not going 153 00:08:38,640 --> 00:08:41,320 Speaker 1: to promote social stability in China. So they're trying to 154 00:08:41,360 --> 00:08:45,520 Speaker 1: innovate number one, and all the China made in initiatives 155 00:08:45,520 --> 00:08:48,720 Speaker 1: are partly about how do you add more value and 156 00:08:48,760 --> 00:08:51,720 Speaker 1: they're trying to maintain a cost advantage, and automation is 157 00:08:51,800 --> 00:08:54,280 Speaker 1: clearly going to have to be a big part of that. 158 00:08:54,640 --> 00:08:57,160 Speaker 1: So this iPhone I've just taken out of my pocket 159 00:08:57,520 --> 00:09:02,280 Speaker 1: purchased on Montague Street in Brooklyn. Fox Con had a 160 00:09:02,360 --> 00:09:06,360 Speaker 1: key role in this fund didn't talk about that well. 161 00:09:06,520 --> 00:09:08,959 Speaker 1: It had a key role, particularly in the production and 162 00:09:09,000 --> 00:09:11,520 Speaker 1: assembly of the phone. It didn't really have a lot 163 00:09:11,520 --> 00:09:15,040 Speaker 1: of the I P around the software, the customer experience, 164 00:09:15,120 --> 00:09:17,640 Speaker 1: and so that's a point that sometimes lost in the 165 00:09:17,640 --> 00:09:20,920 Speaker 1: global trade debate as well. But China understands this. China 166 00:09:20,960 --> 00:09:23,199 Speaker 1: wants to be able to add more of the value 167 00:09:23,559 --> 00:09:27,400 Speaker 1: in the content, the intellectual property. And to your point 168 00:09:27,400 --> 00:09:30,520 Speaker 1: about is it just a series of you know, large 169 00:09:30,960 --> 00:09:34,240 Speaker 1: pools of labor, low cost labor. Some of the most 170 00:09:34,480 --> 00:09:38,560 Speaker 1: cutting edge new economy companies in the world are in China, 171 00:09:38,840 --> 00:09:42,320 Speaker 1: and I'm thinking not just of of manufacturers like fox Con, 172 00:09:42,800 --> 00:09:47,400 Speaker 1: but certainly the technology companies Ali Baba, ten Cent, b 173 00:09:47,440 --> 00:09:51,880 Speaker 1: I do UH, financial services companies paying on the Global 174 00:09:51,880 --> 00:09:55,400 Speaker 1: Insurance Company and Financial which was started by Ali Baba 175 00:09:55,440 --> 00:09:57,720 Speaker 1: and is now would be the eighth largest bank in 176 00:09:57,760 --> 00:10:01,080 Speaker 1: the US if it were a standalone bank. Um Higher 177 00:10:01,760 --> 00:10:04,679 Speaker 1: which is an impliance company and they bought g S 178 00:10:04,720 --> 00:10:07,680 Speaker 1: appliance business. That's not really a new economy company, but 179 00:10:07,760 --> 00:10:10,000 Speaker 1: they have one of the most cutting edge approaches to 180 00:10:10,120 --> 00:10:12,760 Speaker 1: organization and leadership in the world. So you've got this 181 00:10:12,920 --> 00:10:16,480 Speaker 1: very robust corporate sector in at least the private part 182 00:10:16,480 --> 00:10:19,160 Speaker 1: of the market there that is innovating at the same 183 00:10:19,160 --> 00:10:21,199 Speaker 1: time as as people maybe still think of them as 184 00:10:21,240 --> 00:10:23,720 Speaker 1: just a source of low cost labor. Andrew, let me 185 00:10:23,760 --> 00:10:27,600 Speaker 1: shift gears to another important conclusion in your report. You 186 00:10:27,679 --> 00:10:30,559 Speaker 1: say that over the long term there's going to be 187 00:10:30,640 --> 00:10:33,560 Speaker 1: an expansion in the role of government as a result 188 00:10:33,600 --> 00:10:38,240 Speaker 1: of all these changes. You see the upper class and 189 00:10:38,240 --> 00:10:41,040 Speaker 1: and lower class kind of replacing what's now upper class, 190 00:10:41,080 --> 00:10:46,600 Speaker 1: middle class and lower class. Automation really making high skilled 191 00:10:46,679 --> 00:10:50,000 Speaker 1: jobs in high demand, and yet there's going to be 192 00:10:50,040 --> 00:10:54,600 Speaker 1: an even further hollowing out of of lower paid jobs. 193 00:10:54,640 --> 00:10:57,920 Speaker 1: Basically that's going to you know, really force some big 194 00:10:58,000 --> 00:11:01,440 Speaker 1: questions on society, you know, as all this as the 195 00:11:01,480 --> 00:11:06,440 Speaker 1: aging demographics happen. My question is we're recording this in 196 00:11:06,440 --> 00:11:10,319 Speaker 1: a week where the US midterm election looms over everything, 197 00:11:10,800 --> 00:11:14,240 Speaker 1: and yet you know, over the long term, you know, 198 00:11:14,720 --> 00:11:17,599 Speaker 1: you make these conclusions that seem like they're you know, 199 00:11:17,880 --> 00:11:20,360 Speaker 1: you're going to have an expansion of the government's role 200 00:11:20,800 --> 00:11:25,040 Speaker 1: regardless of you know, whatever the short term political impact 201 00:11:25,200 --> 00:11:28,280 Speaker 1: is in the US or anywhere else how how did 202 00:11:28,280 --> 00:11:32,320 Speaker 1: you arrive at this particular conclusion about the role of government. 203 00:11:32,960 --> 00:11:34,640 Speaker 1: It's a it's a great question, and I'm glad you 204 00:11:34,640 --> 00:11:36,000 Speaker 1: asked that, because I want to make it clear we're 205 00:11:36,040 --> 00:11:38,880 Speaker 1: not trying to make a commentary on short term political wins. 206 00:11:39,320 --> 00:11:41,840 Speaker 1: But the broad story we see here is, you know, 207 00:11:41,880 --> 00:11:45,280 Speaker 1: you've got labor scarcity leading to a rise in labor 208 00:11:45,360 --> 00:11:48,439 Speaker 1: costs and wage growth, all else equal, that would reduce 209 00:11:48,559 --> 00:11:52,720 Speaker 1: inequality and probably help with some of the political stability. However, 210 00:11:53,040 --> 00:11:55,680 Speaker 1: just as that's really taking hold, you've got this huge 211 00:11:55,720 --> 00:11:58,800 Speaker 1: wave of automation that's going to be coming that will 212 00:11:59,200 --> 00:12:04,120 Speaker 1: outright this place probably of the jobs in the country, 213 00:12:04,240 --> 00:12:09,200 Speaker 1: and it will put downward wage pressure on another. Let's say, 214 00:12:09,360 --> 00:12:12,000 Speaker 1: the people who will really benefit the most from and 215 00:12:12,040 --> 00:12:15,559 Speaker 1: can take advantage of the automation are the best educated, 216 00:12:16,320 --> 00:12:20,760 Speaker 1: highly paid people today. And so we enter this period 217 00:12:20,880 --> 00:12:24,880 Speaker 1: with historically high levels of inequality, and all of these trends, 218 00:12:25,000 --> 00:12:27,040 Speaker 1: you know, we haven't even talked about life cycle and 219 00:12:27,080 --> 00:12:30,680 Speaker 1: better health, where the outcomes are also very skewed and unequal, 220 00:12:31,160 --> 00:12:36,560 Speaker 1: will reinforce the pressure on equality or inequality um and 221 00:12:36,640 --> 00:12:39,320 Speaker 1: so you know, given that trend, I guess. The final 222 00:12:39,360 --> 00:12:42,000 Speaker 1: point I would say is this transition will happen very 223 00:12:42,080 --> 00:12:46,120 Speaker 1: very fast by historic standards. So waves of automation and 224 00:12:46,160 --> 00:12:49,600 Speaker 1: new technology are nothing new. But if you look at 225 00:12:49,640 --> 00:12:52,400 Speaker 1: previous shifts, you know, you can go back and look 226 00:12:52,400 --> 00:12:54,719 Speaker 1: at the movement from the farm to the factory a 227 00:12:54,800 --> 00:12:57,360 Speaker 1: hundred years ago. You could look at the shift from 228 00:12:57,360 --> 00:13:00,720 Speaker 1: a manufacturing economy to a service economy. We took one 229 00:13:00,760 --> 00:13:02,920 Speaker 1: other example, which is a more recent and narrow one, 230 00:13:02,960 --> 00:13:05,280 Speaker 1: but a sharp correction, which was the impact on the 231 00:13:05,320 --> 00:13:09,520 Speaker 1: construction sector in the wake of the housing bust. In 232 00:13:09,559 --> 00:13:11,199 Speaker 1: each of those cases, if you just look at the 233 00:13:11,280 --> 00:13:14,600 Speaker 1: number of jobs that were displaced each year, and you 234 00:13:14,640 --> 00:13:16,840 Speaker 1: look at what we see coming in the next ten years, 235 00:13:17,520 --> 00:13:20,200 Speaker 1: this new shift is going to be twice as big 236 00:13:20,360 --> 00:13:24,160 Speaker 1: and twice as fast as anything we've seen before. And 237 00:13:24,200 --> 00:13:27,560 Speaker 1: the question is can the political system handle that when 238 00:13:27,600 --> 00:13:31,200 Speaker 1: you're entering that period with historically high levels of inequality. 239 00:13:31,360 --> 00:13:34,200 Speaker 1: Our view is it's not really wise to count on that, 240 00:13:34,320 --> 00:13:37,040 Speaker 1: And if you're a business leader today, you should expect 241 00:13:37,120 --> 00:13:39,240 Speaker 1: that one way or another there will be a more 242 00:13:39,280 --> 00:13:43,360 Speaker 1: interventionist role of the state in the economy, if only 243 00:13:43,400 --> 00:13:45,960 Speaker 1: to keep the folks with pitch folks away from the 244 00:13:46,000 --> 00:13:49,400 Speaker 1: c suite well to try to manage the transition and 245 00:13:49,480 --> 00:13:52,600 Speaker 1: help preserve social stability. You know, this is also playing 246 00:13:52,600 --> 00:14:29,960 Speaker 1: out just there you go. Now, you also talk about 247 00:14:30,000 --> 00:14:34,240 Speaker 1: the possibility of a spike in interest rates as this 248 00:14:34,320 --> 00:14:37,720 Speaker 1: process occurs. That really fascinates me as a student of 249 00:14:37,800 --> 00:14:41,720 Speaker 1: the Federal Reserve. We've become so obsessed lately with you 250 00:14:42,000 --> 00:14:46,280 Speaker 1: where our star is? Where is the new neutral level 251 00:14:46,320 --> 00:14:49,480 Speaker 1: of interest rates? And gosh, you know, at this point 252 00:14:49,480 --> 00:14:52,280 Speaker 1: in the economic cycle, shouldn't rates be higher so that 253 00:14:52,320 --> 00:14:56,760 Speaker 1: there's ammunition there for the next recession. You're actually saying 254 00:14:57,200 --> 00:15:01,200 Speaker 1: rates are going to go considerably higher. Talk about well, 255 00:15:01,240 --> 00:15:03,560 Speaker 1: just to be clear, I'm talking about long term rates, 256 00:15:04,200 --> 00:15:07,320 Speaker 1: and I'm talking about a multi year view. So I 257 00:15:07,360 --> 00:15:11,560 Speaker 1: think yes, and and and a trend that will play 258 00:15:11,560 --> 00:15:14,480 Speaker 1: out really over call at the next three, five, seven years. 259 00:15:14,520 --> 00:15:17,160 Speaker 1: In the very near term, there's likely to be a 260 00:15:17,200 --> 00:15:20,480 Speaker 1: cyclical recession at some point in the next twelve eighteen, 261 00:15:20,600 --> 00:15:24,320 Speaker 1: maybe twenty four months. When that happens, probably short term 262 00:15:24,400 --> 00:15:27,080 Speaker 1: rates will come back down a bit again. Uh. Now, 263 00:15:27,200 --> 00:15:29,880 Speaker 1: to your point, government has limited ammunition, but but there's 264 00:15:30,040 --> 00:15:32,720 Speaker 1: some ammunition. And in a cooling economy to expect short 265 00:15:32,800 --> 00:15:36,600 Speaker 1: term rates at least to be low. But as this 266 00:15:36,680 --> 00:15:40,240 Speaker 1: automation trend plays out and there's a huge new demand 267 00:15:40,480 --> 00:15:43,440 Speaker 1: for capital, one other thing is going to be happening 268 00:15:43,480 --> 00:15:45,440 Speaker 1: at the same time, and that is that the supply 269 00:15:45,520 --> 00:15:47,800 Speaker 1: of capital won't be growing at the same rate it 270 00:15:47,840 --> 00:15:51,480 Speaker 1: has historically. And again that comes back to demographics. So 271 00:15:51,600 --> 00:15:54,880 Speaker 1: this long period of low and falling interest people saving 272 00:15:54,920 --> 00:15:58,000 Speaker 1: for the pensions and actually living that pation. Fewer people 273 00:15:58,040 --> 00:16:01,160 Speaker 1: in their peak saving years. So when we look around 274 00:16:01,200 --> 00:16:04,680 Speaker 1: the world in any given country, it's the share of 275 00:16:04,680 --> 00:16:07,360 Speaker 1: the population that's called it forty five to sixty or 276 00:16:07,400 --> 00:16:12,000 Speaker 1: sixty five, that's the peak savers. When that share peaks, 277 00:16:12,640 --> 00:16:15,560 Speaker 1: that's when you get maximum savings. Remember Ben Burnanki talking 278 00:16:15,600 --> 00:16:18,680 Speaker 1: about a savings glut that was the global population, you know, 279 00:16:18,720 --> 00:16:21,440 Speaker 1: peaking in that in that age segment. Well, guess what, 280 00:16:21,680 --> 00:16:23,480 Speaker 1: as we continue to age, we're now coming out of 281 00:16:23,480 --> 00:16:26,320 Speaker 1: that segment. Japan was the first to get there. And 282 00:16:26,400 --> 00:16:28,920 Speaker 1: as you continue to age, you actually start consuming again. 283 00:16:29,000 --> 00:16:31,320 Speaker 1: You have to draw down your savings, so we won't 284 00:16:31,320 --> 00:16:34,280 Speaker 1: be getting this huge build up of savings from demographics. 285 00:16:34,760 --> 00:16:36,920 Speaker 1: And at the same time, we'll be getting a huge 286 00:16:36,960 --> 00:16:40,040 Speaker 1: pull of those savings to fuel the investment boom. And 287 00:16:40,080 --> 00:16:42,480 Speaker 1: so that's where we see those two things over time 288 00:16:42,560 --> 00:16:45,160 Speaker 1: leading to a rise in rates at the back end 289 00:16:45,200 --> 00:16:48,480 Speaker 1: of that. Any good investment boom is usually followed by 290 00:16:48,480 --> 00:16:53,080 Speaker 1: an investment bust. Talked about this increasing pressure on employment 291 00:16:53,120 --> 00:16:55,480 Speaker 1: in the back half of the next decade, and so 292 00:16:55,560 --> 00:16:58,280 Speaker 1: I would expect rates to come down again, maybe pretty 293 00:16:58,280 --> 00:17:00,520 Speaker 1: sharply for at least for a period of time, but 294 00:17:00,560 --> 00:17:02,720 Speaker 1: between now and then there will be this rise we 295 00:17:02,760 --> 00:17:06,600 Speaker 1: believe as as those supply demand trends play out. Well, 296 00:17:06,600 --> 00:17:08,880 Speaker 1: there's that mention of Japan again. I want to come 297 00:17:08,920 --> 00:17:11,600 Speaker 1: back to Scott's question and broaden it. I mean, it's 298 00:17:11,680 --> 00:17:15,600 Speaker 1: Japan just the laboratory for everything right now, the canary 299 00:17:15,640 --> 00:17:19,240 Speaker 1: in the coal mine. I mean, there's there's I mean, 300 00:17:19,280 --> 00:17:21,840 Speaker 1: not just on labor, but the phenomenon you just described, 301 00:17:21,880 --> 00:17:27,439 Speaker 1: the savings or labor automation capital. You know, Japan has 302 00:17:27,560 --> 00:17:30,480 Speaker 1: has got some unique characteristics just in terms of their 303 00:17:30,480 --> 00:17:35,120 Speaker 1: geopolitical situation. Um, you know one one for example, immigration. 304 00:17:35,920 --> 00:17:39,240 Speaker 1: It's obviously very contentious in many Western countries now, but 305 00:17:39,400 --> 00:17:41,919 Speaker 1: in the boom years it provided a big part of 306 00:17:41,920 --> 00:17:45,680 Speaker 1: the labor force growth. Japan's never really had an openness 307 00:17:45,720 --> 00:17:49,000 Speaker 1: to large scale immigration, even when times were good. They're 308 00:17:49,000 --> 00:17:50,840 Speaker 1: tweaking that a bit at the moment. They're starting to 309 00:17:50,880 --> 00:17:53,320 Speaker 1: tweak that. They're talking about getting more women into the workforce, 310 00:17:54,200 --> 00:17:56,040 Speaker 1: but there's only so many levers you can pull, which 311 00:17:56,040 --> 00:17:58,040 Speaker 1: is another reason why you see them at the forefront 312 00:17:58,040 --> 00:18:02,119 Speaker 1: of automation. So to get back to this idea, of 313 00:18:02,160 --> 00:18:08,080 Speaker 1: the three trends which boosted the global labor market baby boom, 314 00:18:08,200 --> 00:18:12,080 Speaker 1: is China and India coming online, rise of women in 315 00:18:12,119 --> 00:18:15,760 Speaker 1: the workplace, Let's look at that middle one. Amid all 316 00:18:15,880 --> 00:18:20,560 Speaker 1: this talk about deglobalization and talk about a new competitive 317 00:18:20,560 --> 00:18:24,640 Speaker 1: relationship between the US and China, is it really appropriate 318 00:18:24,680 --> 00:18:28,360 Speaker 1: to talk anymore about a global labor pool. So one 319 00:18:28,359 --> 00:18:30,760 Speaker 1: of the other trends we talk about when we describe 320 00:18:30,800 --> 00:18:34,480 Speaker 1: the Great Transformation is this pullback from globalization. And that's 321 00:18:34,520 --> 00:18:39,000 Speaker 1: partly political, but it's partly economic as well. And some 322 00:18:39,080 --> 00:18:42,720 Speaker 1: of the outcomes of this technology growth are that it 323 00:18:42,840 --> 00:18:46,439 Speaker 1: allows companies to produce more closer to where the demand is, 324 00:18:47,280 --> 00:18:50,480 Speaker 1: and that is going to reduce the appeal of this 325 00:18:50,920 --> 00:18:53,159 Speaker 1: you know, call it the China development model. But it 326 00:18:53,240 --> 00:18:56,920 Speaker 1: was the Korean development model and the Japanese development model 327 00:18:56,960 --> 00:18:58,520 Speaker 1: before that, and if you go back far enough, it 328 00:18:58,560 --> 00:19:01,720 Speaker 1: was the US development model sentoting with the garment industry 329 00:19:01,720 --> 00:19:03,760 Speaker 1: and right, so that I don't think it's going to 330 00:19:03,800 --> 00:19:06,359 Speaker 1: be a viable growth model anymore for these countries with 331 00:19:06,480 --> 00:19:09,119 Speaker 1: large pools of cheap labor, and there's going to be 332 00:19:09,119 --> 00:19:12,040 Speaker 1: too much of the value added that comes from manufacturing, 333 00:19:12,160 --> 00:19:16,159 Speaker 1: that comes from local production, local distribution, more of a 334 00:19:16,200 --> 00:19:19,920 Speaker 1: digital and experience based economy. And so I think it's 335 00:19:20,000 --> 00:19:21,680 Speaker 1: it's a very fair question. You know, when we talk 336 00:19:21,720 --> 00:19:24,440 Speaker 1: about a global labor market and you know, huge free 337 00:19:24,440 --> 00:19:29,320 Speaker 1: flows of labor and migration and trade. You know, not 338 00:19:29,359 --> 00:19:31,480 Speaker 1: to say that that stuff goes away by any means, 339 00:19:31,520 --> 00:19:33,720 Speaker 1: but it doesn't have the same kind of rapid growth 340 00:19:33,720 --> 00:19:36,200 Speaker 1: and expansion that we've seen in the past. Two quick 341 00:19:36,280 --> 00:19:39,240 Speaker 1: questions come from that. Number One, I was in Vietnam 342 00:19:39,359 --> 00:19:42,240 Speaker 1: recently and the story was all about China being an 343 00:19:42,240 --> 00:19:47,520 Speaker 1: exporter of manufacturing labor to places like Vietnam. You seem 344 00:19:47,560 --> 00:19:50,600 Speaker 1: to be calling that into some sort of question. They're 345 00:19:50,600 --> 00:19:53,480 Speaker 1: saying China was sending labor to Vietnam where they were 346 00:19:53,520 --> 00:19:56,960 Speaker 1: putting capital into Vietnam to do production there. It's the latta, 347 00:19:57,040 --> 00:19:59,600 Speaker 1: but described as the form. Well, so I think the 348 00:19:59,640 --> 00:20:03,600 Speaker 1: latter clearly makes sense as China's own labor costs grow 349 00:20:04,280 --> 00:20:07,560 Speaker 1: and they become a producer of lots of capital if 350 00:20:07,560 --> 00:20:12,040 Speaker 1: they're looking for opportunities to invest that um. So there's 351 00:20:12,040 --> 00:20:14,639 Speaker 1: clearly going to be sectors where labor costs still matters 352 00:20:14,680 --> 00:20:16,920 Speaker 1: a lot and where there will be opportunities for lower 353 00:20:16,960 --> 00:20:20,879 Speaker 1: cost countries to produce. But at the scale and the 354 00:20:21,320 --> 00:20:23,760 Speaker 1: kind of broad based impact on the economy that we've seen, 355 00:20:24,359 --> 00:20:25,880 Speaker 1: it's going to be very hard. I like the way 356 00:20:25,920 --> 00:20:30,000 Speaker 1: you sketch this from a Japanese model, Korean model, Chinese model. 357 00:20:30,040 --> 00:20:32,520 Speaker 1: I guess in between that you could have squeezed Taiwan 358 00:20:32,600 --> 00:20:36,480 Speaker 1: as well. Now, some of the buzz at the moment 359 00:20:36,560 --> 00:20:38,520 Speaker 1: is that you know Africa is going to be next, 360 00:20:38,520 --> 00:20:41,199 Speaker 1: and people talk about what's going on in Ethiopia. Is 361 00:20:41,200 --> 00:20:44,119 Speaker 1: it too late for Africa? Has technology caught up with 362 00:20:44,160 --> 00:20:47,560 Speaker 1: this model? Well, again, I think there will be individual 363 00:20:47,640 --> 00:20:51,840 Speaker 1: countries Africa as many many countries in different situations, and 364 00:20:51,840 --> 00:20:54,920 Speaker 1: so it's more often reminded it's not a country. There 365 00:20:54,960 --> 00:20:57,320 Speaker 1: will be places where that model, you know, works well, 366 00:20:57,359 --> 00:20:59,080 Speaker 1: and I think there will tend to be places where 367 00:20:59,119 --> 00:21:03,080 Speaker 1: there's at least enough of a potential domestic market that 368 00:21:03,240 --> 00:21:07,840 Speaker 1: it's not just export dependent growth. But you know, if 369 00:21:07,880 --> 00:21:10,359 Speaker 1: you're asking, as you look across Africa, is there a 370 00:21:10,359 --> 00:21:13,040 Speaker 1: pool of labor there that can do for that region, 371 00:21:13,080 --> 00:21:16,840 Speaker 1: that continent what happened with China In our view, the 372 00:21:16,880 --> 00:21:20,240 Speaker 1: answer would be no. Andrew Shradel of Bain, thank you 373 00:21:20,359 --> 00:21:21,879 Speaker 1: very much for being with us. You can find the 374 00:21:21,920 --> 00:21:25,479 Speaker 1: report Labor twenty th at Bain dot com or just 375 00:21:25,560 --> 00:21:28,280 Speaker 1: punch that into your favorite search engine. Andrew, thanks for 376 00:21:28,359 --> 00:21:35,200 Speaker 1: joining us. Thank you. Benchmark will be back next week. 377 00:21:35,400 --> 00:21:37,720 Speaker 1: Until then, you can find us on the Bloomberg terminal, 378 00:21:37,920 --> 00:21:41,040 Speaker 1: Bloomberg dot com or Bloomberg App, as well as podcast 379 00:21:41,080 --> 00:21:45,160 Speaker 1: destinations such as Apple Podcasts, Spotify or wherever you listen. 380 00:21:45,680 --> 00:21:47,480 Speaker 1: We'd love it if you took the time to rate 381 00:21:47,560 --> 00:21:50,320 Speaker 1: and review the show. Some more listeners can find us, 382 00:21:50,720 --> 00:21:53,440 Speaker 1: and you can find us on Twitter, follow me at 383 00:21:53,640 --> 00:21:58,480 Speaker 1: Scott Landman Dan you're at Moss Underschool Eco. I think 384 00:21:58,520 --> 00:22:01,000 Speaker 1: you can follow up reports from Mark asked Andrew Schiddell 385 00:22:01,080 --> 00:22:05,119 Speaker 1: and his colleagues at Dane Insights. Benchmark is produced by 386 00:22:05,160 --> 00:22:09,119 Speaker 1: topor Forhez. The head of Bloomberg Podcasts is francesco Leavie. 387 00:22:09,600 --> 00:22:11,360 Speaker 1: Thanks for listening, See you next time.