Davos: the rich are worried

I can’t wait to see how the incoming administration deals with AI (artificial intelligence), said US Secretary of State John Kerry in a less-than-gracious reference to the fact that Donald Trump’s team has no clue about the real driving force in the changing world economy.

What was striking was that Kerry didn’t have to clarify his remark for the 2 000 “global leaders” – politicians, bureaucrats, business representatives and public intellectuals – who were in the Swiss alpine town of Davos for the annual World Economic Forum. They all knew what he was talking about.

This year’s gathering focused on the rise of populism and simple-minded attacks on globalisation (Trump, Brexit et al.). That’s only to be expected, since the world’s ultrarich are potentially threatened by that sort of thing. But they didn’t get rich by being stupid and they have a fairly sophisticated analysis of what’s causing it.

The headline event on the first day of Davos was an hour-long speech by China’s President Xi Jinping, in which he laid claim to the leadership role on free trade, globalisation and the struggle – being abandoned by the US under Trump – to contain climate change. His main concern was to fight the rise of protectionism: “No one will emerge as a winner in a trade war,” he said.

But Xi didn’t go into the sources of the anger that fuel the populist revolt – for China is not a democratic country and it hasn’t happened there yet. Kerry did, and went beyond the usual platitudes about rising unemployment and underemployment, stagnating wages and the widening gulf between the rich and the rest.

“Trade is not to blame for job losses,” he said.

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Automation is. Quite a few American manufacturing jobs did go abroad in the early stages of globalisation, in the 1980s and 1990s, but that’s old news. At least 85% of the almost 6 million American manufacturing jobs that disappeared between 2000 and 2010 did not go anywhere; they just evaporated. The workers were replaced by tireless, uncomplaining machines that could do their jobs more cheaply.

So, Trump is barking up the wrong tree, as are the other populists emerging across Europe, and their emulators who are beginning to appear in the developing world. Why do they blame free trade and globalisation instead of automation? Because you can’t do anything about automation.

If you are a politician, then it’s better to blame globalisation because you can do something about that. You can build walls, impose tariffs, make all sorts of impressive gestures to stop the free trade that is allegedly destroying the good jobs. Or more precisely, you can win political power by claiming you will do those things and thereby solve the problem.

But recent Citibank research forecasts that automation will eliminate 57% of all existing jobs in the developed countries within the next 20 years. In China, 77% of manufacturing jobs are at risk over the same period.

If more than half the workforce ends up unemployed – and humiliated and broke – then their anger could sweep away the comfortable world of the ultrarich. Which is why there are sessions at Davos considering radical ideas like a “universal basic income”.

To stop the populism, first you have to deal with the anger.