Speaker 1: The lowest US unemployment rate since I was in diapers,
Speaker 1: and month after month of two hundred thousand plus new
Speaker 1: American jobs. That's a great thing. It also obscures underlying
Speaker 1: changes in the nature of the workforce, both in the
Speaker 1: US and abroad, that will shape society for decades to come.
Speaker 1: Bain and Company calls this coming period a great transformation,
Speaker 1: a shrinking and aging domestic workforce, the decline of a
Speaker 1: global market for labor, and you guessed at rise of robots.
Speaker 1: This will shape things in ways that might be surprising.
Speaker 1: For instance, the state will become more, not less active,
Speaker 1: as voters demand the shift be managed, and watch out
Speaker 1: for conflict between those who have invested in this new
Speaker 1: era and those disenfranchised. Welcome to Benjamin, a show about
Speaker 1: the global economy. I'm Daniel Moss, columnist of Bloomberg Opinion
Speaker 1: in New York, and I'm Scott Lanman and economics editor
Speaker 1: with Bloomberg News in Washington. Our guest this week is
Speaker 1: Andrew Twiddel, a partner at Bain and Company in New York,
Speaker 1: peace chair of their Macro Trends Group, and co author
Speaker 1: of the report Labor The Collision of the Demographics automation
Speaker 1: and inequality. Andrew, Welcome to Benchmark. Thanks for having me down, Scott.
Speaker 1: Happy to be here, Andrew, no one can accuse you
Speaker 1: of thinking small. So do you just ignore the employment
Speaker 1: report that's published the first frauday of every month. Well,
Speaker 1: we're not. We're not quite glued to the to the
Speaker 1: radio or to the TV to watch it. But we
Speaker 1: do pay attention obviously to what happens in the nearer term,
Speaker 1: but we try to put it in context of bigger,
Speaker 1: longer term trends that really affect our clients, corporations and
Speaker 1: investors planning and investment horizons. And in every monthly number
Speaker 1: there are gems of these long term trends. Absolutely we
Speaker 1: see things playing through and and the story gets clearer
Speaker 1: and clearer over time, but we think it will still
Speaker 1: take a few years to play out. Andrew, I just
Speaker 1: have to take a step back for a second before
Speaker 1: we get into the nitty gritty. I've read a number
Speaker 1: of these consulting firms reports throughout my career on big
Speaker 1: macro trends. They really tend to be pretty dryly written,
Speaker 1: bland in their views, pretty safe in their conclusions, and
Speaker 1: that is just not the case with this report that
Speaker 1: you guys put out, it's it's actually pretty provocative. I'm
Speaker 1: wondering did you set out to do that or was
Speaker 1: this just kind of where you ended up after doing
Speaker 1: a thorough analysis of all the data and predictions that
Speaker 1: you were thinking about. Well, thanks, thanks for the comment.
Speaker 1: First of all, we um you know, I don't think
Speaker 1: we try to set out to be provocative per se,
Speaker 1: but we do always ask ourselves when we see conventional
Speaker 1: wisdom coalescing in one direction, where could that be wrong?
Speaker 1: And so I think in all of our reports, whether
Speaker 1: it's Labor twenty thirty or um a World of Washing
Speaker 1: Money which was our look at capital Superabundant several years ago,
Speaker 1: and spatial economics, we try to take a little bit
Speaker 1: of a perspective of where could people be wrong and
Speaker 1: where there are some things that are surprising and maybe
Speaker 1: counterintuitive to talk about it's a great transformation, sounds profound,
Speaker 1: but just to be clear, we're talking about trends already
Speaker 1: observable that are going to accelerate. Yes, yep, this is
Speaker 1: not something that's out there in the future. It's happening
Speaker 1: now and it will accelerate. In this case, really We
Speaker 1: use that phrase to describe the period between now and
Speaker 1: roughly so think of this as the next ten to
Speaker 1: fifteen years and kind of a turbulent time, especially in
Speaker 1: the twenties. But it's it's all stuff that has started
Speaker 1: already and will accelerate. And when you say twenties, you twenties,
Speaker 1: not the Roaring twenties. We're here, well, you know, maybe
Speaker 1: maybe echoes of that, the turbulent twenties. Let's say, can
Speaker 1: you just go over what what the main conclusions are
Speaker 1: for our listeners who probably haven't sure, so if I
Speaker 1: can try to boil it down, I'd say we are
Speaker 1: coming from a period that you know, many people have
Speaker 1: called the Great Moderation. If you think about the last
Speaker 1: forty fifty years, there were a lot of really positive
Speaker 1: developments for business, for investors. There's a lot of global growth,
Speaker 1: increasing globalization, and macro was calmed. You know, that was
Speaker 1: the environment most of us grew up in and learned
Speaker 1: to navigate in. And that period clearly ended in two
Speaker 1: thousand eight, and we've had this kind of choppy transition time,
Speaker 1: I would say, over the last ten years or so,
Speaker 1: and so now we're entering this phase we call the
Speaker 1: Great Transformation, and you know, there are several things that
Speaker 1: are happening there. One is we're shifting to this new
Speaker 1: world of labor scarcity driven by demographics, and that's you
Speaker 1: know the reference you made at the start of the program.
Speaker 1: That's gonna have big implications for the workforce. We're really
Speaker 1: seeing automation increase uh and and that's going to reshape
Speaker 1: the economy and profound ways. We're seeing an end to
Speaker 1: this period really of capital superabundance and probably a reset
Speaker 1: so higher interest rates over time, and we're seeing the
Speaker 1: decline in this globalization era. That's a cyclical pattern, by
Speaker 1: the way, this happens throughout history, and now we're entering
Speaker 1: one of those cycles where there is a retreat from
Speaker 1: globalization into what we're calling kind of a post globalization
Speaker 1: area area era, which will have more volatility, more geopolitical volatility,
Speaker 1: macroeconomic volatility. And so we can get into all of
Speaker 1: these trends, but they're going to really shift the way
Speaker 1: we think about running our companies and where we invest,
Speaker 1: and the role of the state with respect to corporate
Speaker 1: the corporate sector. What's this big capital spending an investment
Speaker 1: boom that you full see were used to hearing about
Speaker 1: how capital spending has underperformed and there's not enough investment
Speaker 1: in plant and machinery. How do you square that right?
Speaker 1: You can see the productivity everywhere except in the statistics, right.
Speaker 1: So I think the capital spend boom is going to
Speaker 1: be in response to this labor shortage. So as the
Speaker 1: price of the workforce goes up, there will be more
Speaker 1: incentive for businesses to spend and automate, and the automation
Speaker 1: will become more capable, particularly in the service sector. So
Speaker 1: there's been a lot of automation for many years in
Speaker 1: the manufacturing sector. That's a small part of the economy today,
Speaker 1: certainly from an employment standpoint. And as service sector robotics
Speaker 1: really takes off in terms of capability, the cost of
Speaker 1: developing those robots and cobots falls and the cost of
Speaker 1: labor goes up, it will lead do you know, large
Speaker 1: incentives for companies to automate in a significant way. Andrew,
Speaker 1: you're you're kind of playing right into some of our
Speaker 1: favorite topics here on Benchmark. Dan and I have spent
Speaker 1: a lot of time talking about demographics, automation, and Japan
Speaker 1: as well. And you know, this kind of strikes me
Speaker 1: that a lot of these trends that you're talking about
Speaker 1: are already underway in Japan. Did that strike you as
Speaker 1: all at all as you were putting together this report? Absolutely,
Speaker 1: Japan was, you know, the most demographically far down the
Speaker 1: curve market in the world, and you've seen it for many,
Speaker 1: many years in Japan, as you say, And it's not
Speaker 1: limited to the US and Japan, this is going to
Speaker 1: be all over Western Europe. It's even gonna be in China. Right.
Speaker 1: People like to talk a lot about China getting rich
Speaker 1: before they get or getting old before they get rich,
Speaker 1: and I think that's true U And even in China
Speaker 1: in companies that have had a labor cost advantage, there's
Speaker 1: a big pushed automation. Fox con the electronics manufacturer going
Speaker 1: to be putting in a million robots by so huge
Speaker 1: investments to be able to figure out how to deploy
Speaker 1: this technology. And just to come back to your point
Speaker 1: about what where's the productivity growth? Historically, when you see
Speaker 1: major advances in technology, it does take a few years
Speaker 1: before management teams really figure out how to take advantage
Speaker 1: of it and get those improvements in productivity. So we
Speaker 1: do see it coming really and especially in the next
Speaker 1: five to seven years. Let's say, you know, I'm glad
Speaker 1: you mentioned China. That might strike many of our general
Speaker 1: listeners as pretty strange. There has been an idea that's
Speaker 1: been prevalent in the West for a long period of
Speaker 1: time that China is this vast pool of sweatshop labor.
Speaker 1: Now you mentioned fox Con. Let's talk a little bit
Speaker 1: about that company and it's iconic role in China's industrialization
Speaker 1: and what you think it's doing with robots is so important. Well,
Speaker 1: it's it's just part of the toolkit to continue to
Speaker 1: be cost competitive and to have a place at the
Speaker 1: center of global supply chains. You can't rely forever on
Speaker 1: a low cost uh you know, wage model. That's not
Speaker 1: what the Chinese government wants to do. That's not going
Speaker 1: to promote social stability in China. So they're trying to
Speaker 1: innovate number one, and all the China made in initiatives
Speaker 1: are partly about how do you add more value and
Speaker 1: they're trying to maintain a cost advantage, and automation is
Speaker 1: clearly going to have to be a big part of that.
Speaker 1: So this iPhone I've just taken out of my pocket
Speaker 1: purchased on Montague Street in Brooklyn. Fox Con had a
Speaker 1: key role in this fund didn't talk about that well.
Speaker 1: It had a key role, particularly in the production and
Speaker 1: assembly of the phone. It didn't really have a lot
Speaker 1: of the I P around the software, the customer experience,
Speaker 1: and so that's a point that sometimes lost in the
Speaker 1: global trade debate as well. But China understands this. China
Speaker 1: wants to be able to add more of the value
Speaker 1: in the content, the intellectual property. And to your point
Speaker 1: about is it just a series of you know, large
Speaker 1: pools of labor, low cost labor. Some of the most
Speaker 1: cutting edge new economy companies in the world are in China,
Speaker 1: and I'm thinking not just of of manufacturers like fox Con,
Speaker 1: but certainly the technology companies Ali Baba, ten Cent, b
Speaker 1: I do UH, financial services companies paying on the Global
Speaker 1: Insurance Company and Financial which was started by Ali Baba
Speaker 1: and is now would be the eighth largest bank in
Speaker 1: the US if it were a standalone bank. Um Higher
Speaker 1: which is an impliance company and they bought g S
Speaker 1: appliance business. That's not really a new economy company, but
Speaker 1: they have one of the most cutting edge approaches to
Speaker 1: organization and leadership in the world. So you've got this
Speaker 1: very robust corporate sector in at least the private part
Speaker 1: of the market there that is innovating at the same
Speaker 1: time as as people maybe still think of them as
Speaker 1: just a source of low cost labor. Andrew, let me
Speaker 1: shift gears to another important conclusion in your report. You
Speaker 1: say that over the long term there's going to be
Speaker 1: an expansion in the role of government as a result
Speaker 1: of all these changes. You see the upper class and
Speaker 1: and lower class kind of replacing what's now upper class,
Speaker 1: middle class and lower class. Automation really making high skilled
Speaker 1: jobs in high demand, and yet there's going to be
Speaker 1: an even further hollowing out of of lower paid jobs.
Speaker 1: Basically that's going to you know, really force some big
Speaker 1: questions on society, you know, as all this as the
Speaker 1: aging demographics happen. My question is we're recording this in
Speaker 1: a week where the US midterm election looms over everything,
Speaker 1: and yet you know, over the long term, you know,
Speaker 1: you make these conclusions that seem like they're you know,
Speaker 1: you're going to have an expansion of the government's role
Speaker 1: regardless of you know, whatever the short term political impact
Speaker 1: is in the US or anywhere else how how did
Speaker 1: you arrive at this particular conclusion about the role of government.
Speaker 1: It's a it's a great question, and I'm glad you
Speaker 1: asked that, because I want to make it clear we're
Speaker 1: not trying to make a commentary on short term political wins.
Speaker 1: But the broad story we see here is, you know,
Speaker 1: you've got labor scarcity leading to a rise in labor
Speaker 1: costs and wage growth, all else equal, that would reduce
Speaker 1: inequality and probably help with some of the political stability. However,
Speaker 1: just as that's really taking hold, you've got this huge
Speaker 1: wave of automation that's going to be coming that will
Speaker 1: outright this place probably of the jobs in the country,
Speaker 1: and it will put downward wage pressure on another. Let's say,
Speaker 1: the people who will really benefit the most from and
Speaker 1: can take advantage of the automation are the best educated,
Speaker 1: highly paid people today. And so we enter this period
Speaker 1: with historically high levels of inequality, and all of these trends,
Speaker 1: you know, we haven't even talked about life cycle and
Speaker 1: better health, where the outcomes are also very skewed and unequal,
Speaker 1: will reinforce the pressure on equality or inequality um and
Speaker 1: so you know, given that trend, I guess. The final
Speaker 1: point I would say is this transition will happen very
Speaker 1: very fast by historic standards. So waves of automation and
Speaker 1: new technology are nothing new. But if you look at
Speaker 1: previous shifts, you know, you can go back and look
Speaker 1: at the movement from the farm to the factory a
Speaker 1: hundred years ago. You could look at the shift from
Speaker 1: a manufacturing economy to a service economy. We took one
Speaker 1: other example, which is a more recent and narrow one,
Speaker 1: but a sharp correction, which was the impact on the
Speaker 1: construction sector in the wake of the housing bust. In
Speaker 1: each of those cases, if you just look at the
Speaker 1: number of jobs that were displaced each year, and you
Speaker 1: look at what we see coming in the next ten years,
Speaker 1: this new shift is going to be twice as big
Speaker 1: and twice as fast as anything we've seen before. And
Speaker 1: the question is can the political system handle that when
Speaker 1: you're entering that period with historically high levels of inequality.
Speaker 1: Our view is it's not really wise to count on that,
Speaker 1: And if you're a business leader today, you should expect
Speaker 1: that one way or another there will be a more
Speaker 1: interventionist role of the state in the economy, if only
Speaker 1: to keep the folks with pitch folks away from the
Speaker 1: c suite well to try to manage the transition and
Speaker 1: help preserve social stability. You know, this is also playing
Speaker 1: out just there you go. Now, you also talk about
Speaker 1: the possibility of a spike in interest rates as this
Speaker 1: process occurs. That really fascinates me as a student of
Speaker 1: the Federal Reserve. We've become so obsessed lately with you
Speaker 1: where our star is? Where is the new neutral level
Speaker 1: of interest rates? And gosh, you know, at this point
Speaker 1: in the economic cycle, shouldn't rates be higher so that
Speaker 1: there's ammunition there for the next recession. You're actually saying
Speaker 1: rates are going to go considerably higher. Talk about well,
Speaker 1: just to be clear, I'm talking about long term rates,
Speaker 1: and I'm talking about a multi year view. So I
Speaker 1: think yes, and and and a trend that will play
Speaker 1: out really over call at the next three, five, seven years.
Speaker 1: In the very near term, there's likely to be a
Speaker 1: cyclical recession at some point in the next twelve eighteen,
Speaker 1: maybe twenty four months. When that happens, probably short term
Speaker 1: rates will come back down a bit again. Uh. Now,
Speaker 1: to your point, government has limited ammunition, but but there's
Speaker 1: some ammunition. And in a cooling economy to expect short
Speaker 1: term rates at least to be low. But as this
Speaker 1: automation trend plays out and there's a huge new demand
Speaker 1: for capital, one other thing is going to be happening
Speaker 1: at the same time, and that is that the supply
Speaker 1: of capital won't be growing at the same rate it
Speaker 1: has historically. And again that comes back to demographics. So
Speaker 1: this long period of low and falling interest people saving
Speaker 1: for the pensions and actually living that pation. Fewer people
Speaker 1: in their peak saving years. So when we look around
Speaker 1: the world in any given country, it's the share of
Speaker 1: the population that's called it forty five to sixty or
Speaker 1: sixty five, that's the peak savers. When that share peaks,
Speaker 1: that's when you get maximum savings. Remember Ben Burnanki talking
Speaker 1: about a savings glut that was the global population, you know,
Speaker 1: peaking in that in that age segment. Well, guess what,
Speaker 1: as we continue to age, we're now coming out of
Speaker 1: that segment. Japan was the first to get there. And
Speaker 1: as you continue to age, you actually start consuming again.
Speaker 1: You have to draw down your savings, so we won't
Speaker 1: be getting this huge build up of savings from demographics.
Speaker 1: And at the same time, we'll be getting a huge
Speaker 1: pull of those savings to fuel the investment boom. And
Speaker 1: so that's where we see those two things over time
Speaker 1: leading to a rise in rates at the back end
Speaker 1: of that. Any good investment boom is usually followed by
Speaker 1: an investment bust. Talked about this increasing pressure on employment
Speaker 1: in the back half of the next decade, and so
Speaker 1: I would expect rates to come down again, maybe pretty
Speaker 1: sharply for at least for a period of time, but
Speaker 1: between now and then there will be this rise we
Speaker 1: believe as as those supply demand trends play out. Well,
Speaker 1: there's that mention of Japan again. I want to come
Speaker 1: back to Scott's question and broaden it. I mean, it's
Speaker 1: Japan just the laboratory for everything right now, the canary
Speaker 1: in the coal mine. I mean, there's there's I mean,
Speaker 1: not just on labor, but the phenomenon you just described,
Speaker 1: the savings or labor automation capital. You know, Japan has
Speaker 1: has got some unique characteristics just in terms of their
Speaker 1: geopolitical situation. Um, you know one one for example, immigration.
Speaker 1: It's obviously very contentious in many Western countries now, but
Speaker 1: in the boom years it provided a big part of
Speaker 1: the labor force growth. Japan's never really had an openness
Speaker 1: to large scale immigration, even when times were good. They're
Speaker 1: tweaking that a bit at the moment. They're starting to
Speaker 1: tweak that. They're talking about getting more women into the workforce,
Speaker 1: but there's only so many levers you can pull, which
Speaker 1: is another reason why you see them at the forefront
Speaker 1: of automation. So to get back to this idea, of
Speaker 1: the three trends which boosted the global labor market baby boom,
Speaker 1: is China and India coming online, rise of women in
Speaker 1: the workplace, Let's look at that middle one. Amid all
Speaker 1: this talk about deglobalization and talk about a new competitive
Speaker 1: relationship between the US and China, is it really appropriate
Speaker 1: to talk anymore about a global labor pool. So one
Speaker 1: of the other trends we talk about when we describe
Speaker 1: the Great Transformation is this pullback from globalization. And that's
Speaker 1: partly political, but it's partly economic as well. And some
Speaker 1: of the outcomes of this technology growth are that it
Speaker 1: allows companies to produce more closer to where the demand is,
Speaker 1: and that is going to reduce the appeal of this
Speaker 1: you know, call it the China development model. But it
Speaker 1: was the Korean development model and the Japanese development model
Speaker 1: before that, and if you go back far enough, it
Speaker 1: was the US development model sentoting with the garment industry
Speaker 1: and right, so that I don't think it's going to
Speaker 1: be a viable growth model anymore for these countries with
Speaker 1: large pools of cheap labor, and there's going to be
Speaker 1: too much of the value added that comes from manufacturing,
Speaker 1: that comes from local production, local distribution, more of a
Speaker 1: digital and experience based economy. And so I think it's
Speaker 1: it's a very fair question. You know, when we talk
Speaker 1: about a global labor market and you know, huge free
Speaker 1: flows of labor and migration and trade. You know, not
Speaker 1: to say that that stuff goes away by any means,
Speaker 1: but it doesn't have the same kind of rapid growth
Speaker 1: and expansion that we've seen in the past. Two quick
Speaker 1: questions come from that. Number One, I was in Vietnam
Speaker 1: recently and the story was all about China being an
Speaker 1: exporter of manufacturing labor to places like Vietnam. You seem
Speaker 1: to be calling that into some sort of question. They're
Speaker 1: saying China was sending labor to Vietnam where they were
Speaker 1: putting capital into Vietnam to do production there. It's the latta,
Speaker 1: but described as the form. Well, so I think the
Speaker 1: latter clearly makes sense as China's own labor costs grow
Speaker 1: and they become a producer of lots of capital if
Speaker 1: they're looking for opportunities to invest that um. So there's
Speaker 1: clearly going to be sectors where labor costs still matters
Speaker 1: a lot and where there will be opportunities for lower
Speaker 1: cost countries to produce. But at the scale and the
Speaker 1: kind of broad based impact on the economy that we've seen,
Speaker 1: it's going to be very hard. I like the way
Speaker 1: you sketch this from a Japanese model, Korean model, Chinese model.
Speaker 1: I guess in between that you could have squeezed Taiwan
Speaker 1: as well. Now, some of the buzz at the moment
Speaker 1: is that you know Africa is going to be next,
Speaker 1: and people talk about what's going on in Ethiopia. Is
Speaker 1: it too late for Africa? Has technology caught up with
Speaker 1: this model? Well, again, I think there will be individual
Speaker 1: countries Africa as many many countries in different situations, and
Speaker 1: so it's more often reminded it's not a country. There
Speaker 1: will be places where that model, you know, works well,
Speaker 1: and I think there will tend to be places where
Speaker 1: there's at least enough of a potential domestic market that
Speaker 1: it's not just export dependent growth. But you know, if
Speaker 1: you're asking, as you look across Africa, is there a
Speaker 1: pool of labor there that can do for that region,
Speaker 1: that continent what happened with China In our view, the
Speaker 1: answer would be no. Andrew Shradel of Bain, thank you
Speaker 1: very much for being with us. You can find the
Speaker 1: report Labor twenty th at Bain dot com or just
Speaker 1: punch that into your favorite search engine. Andrew, thanks for
Speaker 1: joining us. Thank you. Benchmark will be back next week.
Speaker 1: Until then, you can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com or Bloomberg App, as well as podcast
Speaker 1: destinations such as Apple Podcasts, Spotify or wherever you listen.
Speaker 1: We'd love it if you took the time to rate
Speaker 1: and review the show. Some more listeners can find us,
Speaker 1: and you can find us on Twitter, follow me at
Speaker 1: Scott Landman Dan you're at Moss Underschool Eco. I think
Speaker 1: you can follow up reports from Mark asked Andrew Schiddell
Speaker 1: and his colleagues at Dane Insights. Benchmark is produced by
Speaker 1: topor Forhez. The head of Bloomberg Podcasts is francesco Leavie.
Speaker 1: Thanks for listening, See you next time.