Newsreels of the 1970s show thousands of workers flooding out of factory gates at closing times. Today, those same factories show dozens or, at most, hundreds of such workers leaving permanently. Whether it be steel plants, car factories or manufacturers of white products, more goods are now being made than ever before, but with fewer and fewer workers.
The cycle of the world
This is why neither President Trump nor other optimistic world leaders will ever replace those jobs. Human muscle has been replaced by stronger, and more accurate, mechanical muscle.
It was not offshoring to Asia that destroyed those 1970s hordes of workers, but the need to maintain and improve profit margins. And what has already happened to blue-collar jobs is now happening to white-collar jobs and their superiors in the professional classes.
This is the nature of the world. Once, hunter-gatherers had to become farmers, and then some farmers became artisans or shopkeepers to support the farming industry, but until the 19th century the vast majority of society needed to grow food for the rest of us. Finally, over the 100 years until around 1950, the world turned to mechanical food production. Therefore, the rest of us turned to jobs in manufacturing.
Of course, the job outlook for a sacked farm worker was not promising, whether it was in the Britain of the 1870s or continental Europe of the early 1900s. All they had to rely on was the assurances of the economists that there was no such thing as a lump of labour, and new jobs would sooner or later appear.
Governments were a little more caring, and insisted on free education for children so that these children would be ready for the new jobs, whatever they might be.
Yesterday’s fears are today’s
The fears that were once expressed over the precipitous decline of the agricultural work force are being expressed again today. What will happen to all of us as machines and robots replace our muscles and our brains? What new jobs can or will be found for us? And can we be educated well enough to keep up with the digital world in which we find ourselves?
Society is beginning to think about this problem – with suggestions of life-long learning proposals and free basic incomes for everyone – but the process of implementing solutions is a long way off. Fortunately, demographics might come to the rescue.
The aged society of Japan already needs robots to compensate for a shortage of human workers, and the West is ageing almost as fast.
So investors need to think differently: less about food and retailing basics, or raw materials, or manufacturing, and more about technology in all its guises. It is not only that digitisation is threatening professional careers, but also that it threatens to disrupt professional activities such as law, medicine, finance and education. This is the only growth market in our rich, but over-indebted economies.
Changing the mindset
The problem is made more urgent by the slowing of GDP growth in most of the developed world. The reason for this has much in common with the unexpected success of the Donald Trump presidential campaign. Over the last three decades not only has the great mass of digital profits within the US gone to the richest 1 per cent, but academic research has also shown that the remaining 99 per cent have lost their political as well as their earning (and spending) power.
Donald Trump won because he was able to articulate the rage of the large, white, male working class at the success of interest groups – whether that be gender, race or otherwise – seen as disadvantaged.
As president, Donald Trump’s State of the Union message to Congress reflected this understanding – money will be spent on arms and infrastructure, and it will be printed by the Treasury, whether ‘sound-money’ Republicans like it or not. This inflationary splurge will certainly give a boost to demand. This is also the hope of European populists.
The fourth industrial age
Disruptive technology is frequently observed via the impact made by small and medium-sized enterprises (SMEs) with nothing to lose but the world to gain. Often these are spawned in the hothouse of a university or the entrepreneurial fizz of a Silicon Valley.
But well before that there was Route 11 in Massachusetts, the source of the microcomputer and nemesis of IBM and the mainframe-computing world.
If Mr Trump is right, hope and money will kick-start the entrepreneurial energies of the rustbelt, satisfying the needs of his core voters, but also getting the US growth moving again. Japan may have the robotics, but it is the US that has the software.
Table 1 shows investment trust members of the Association of Investment Companies with an interest in small companies, technology and the US. There is no great hurry to invest: the Trump effect has pushed markets to dangerously high levels, with strategists at UBS saying it is becoming “impossible to ignore” the risks of the US junk bond yield pricing in “too much good news”. Meanwhile, the cyclically adjusted price-to-earnings (Cape) ratio is now at a level not seen since the internet boom.
So this is the time to research these AIC companies, through their annual reports and statements made by their boards and investment managers. The aim should be to discover those companies with a vision of the future, other than a simple closet-indexing fund of some kind, as well as a board strategy that ties in with the investment tactics.
Almost any vision makes sense, although biotechnology seems to be one of the most promising, and environmental strategies the least, given the focus of the Trump presidency.
The mapping of the human genome achieved some 15 years ago is leading to all sorts of ways of improving human life and inheritance, and the costs of healthcare for rapidly ageing populations has created a desperate need for simplifying and cheapening healthcare systems.
Doctors may not like what is going to happen, but governments will.
