Dr Mark Blyth is at the top of my reading list these days. If you don't know him you should. He's a walking example of someone who came from the arse end of nowhere and made a successful career as a political economist who talks sense.
I will guess that most readers have little clue about economics as a study topic or its relevance to technology acquisition. Why would you? The world has been operating in much the same way for the last 30 plus years under an agenda that can loosely be described as 'the markets know best.'
I would love to see him keynoting a technology event because he has plenty to say that makes you think about robotics and globalization, two key themes that drive aspirational tech vendors and buyers alike. Why does this matter?
The lessons of 2016
If 2016 has taught me anything, it is that at least a passing knowledge of geo-political economics is vital as we try to understand the emergence of the neo-nationalist movements as a replacement for the neo-liberal hegemony that has been running the world's economies over the last 30 years. It matters way more than we might think today.
What woke me up to this topic and a focus on Blyth's work came in three parts: Brexit, Vinnie Mirchandani's Silicon Collar and Trump's victory in the 2016 US presidential election. These are followed by Renzi's defeat in the recent Italian constitutional referendum and the current demonetization crisis in India that almost nobody in the west is talking about.
I was stunned when I saw the Brexit result. Up until that time I'd paid little attention to the topic in the mistaken but widely held belief that Brexit wouldn't happen. As an aside, it may still not happen but you should not bet the farm on that outcome.
Colleagues who are far more politically attuned than I explained to me why Brexit happened. Once that sunk in and I heard for myself the disaffection among British people then it didn't take much lateral thinking to realize that Trump could win. It wasn't a popular position among my largely left leaning network of colleagues who made the same mistake I did by viewing a Trump victory as a logical impossibility. To make matters worse, it was impossible to have a sensible conversation with anyone about that possible outcome. Today it is a topic of conversation on everyone's lips.
In between, I read and reviewed Silicon Collar. For me, the book was a good catalog of the good that technology brings and the potential for a bright future. But, I saw a glaring omission:
At the risk of jumping feet first into a bucket of political crap, I think that Silicon Collar could have delivered a knock out punch to its thesis by looking more closely at the role of government rather than extolling the reader to get off his or her proverbial backside and look at the world of opportunity.
The sad truth for many is that Mirchandani’s vaunted world of opportunity is far from real in 2016. That was painfully obvious during my recent trip to Europe where the mood among the working population I met was far from rosy and gloomier still among those who do not have work. It is all good and well for Silicon Collar to reference the ‘gig economy’ of Uber, AirBnB et al, but it ain’t going to happen any time soon across large parts of the world outside the huge cities.
Those in the UK who genuinely felt disadvantaged did the one thing they could do that was within their power and let elected officials know the ‘sum of their fears.’ The US electorate might follow suit. The fact this is giving rise to all sorts of economic gyrations matters little to those who have ‘missed out’ or who are on the brink of exhaustion from holding down multiple jobs. Those people want to be given hope and while the book points firmly in that direction, the impact outside the cognoscenti is barely perceptible, let alone imaginable.
I was thinking about the way government can influence the direction that markets take. More important, I expressed concern about the way in which well paying jobs for the mainstream of the working population have been hollowed out and how advances in robotics promise tremendous gains in productivity but at the cost of displacing many more workers. We have talked about this at length - check this curated landing page - and will continue to do so. Enter Mark Blyth.
Blyth and austerity
Blyth is one of those rare people who can take incredibly difficult topics and make them accessible to anyone. Economics is nothing if not complex, even while it may be founded upon relatively simple principles. Blyth doesn't sugar coat his analysis in politically correct language which makes the things he has to say more potent.
If you want to stop here then here's the TL:DR - Blyth believes that we are where we are today for one central reason - bank bailouts and their knock on effects.
Crucially - at least for me - he joined the dots in 2013 between the financial crisis of 2008, the actions of the US government in response and what happened to the southern states of Europe into a cohesive argument about the impact of austerity measures, which as we know, hurt many people.
In his 2013 book - Austerity, the History of a Dangerous Idea Blyth switches between economic theory and what those mean for practical outcomes in a convincing set of arguments. Try this for a US-EU summary:
If the US had banks that were too big to fail, Europe has a system of banks that are collectively too big to bail. That is, no sovereign can cover the risks generated by its own banks because the banks are too big and the sovereign doesn’t have a printing press. In this world there can be no bailout big enough to save the system if it starts to fail. Consequently, the system cannot be allowed to fail, which is the real reason we must all be austere. In the United States we were afraid of the consequences of the banks failing. In Europe they are terrified of the same thing.
Blyth goes into the many reasons why austerity has kind of worked in the US and not in Europe but the political outcomes remain the same. Regardless of where you look among European states and now in America, we see the rise of movements that captured the disaffection of those who have been squeezed to the point where 'no more' is an increasingly important response.
Blyth and Trump
If the thought of reading a political economics book like Austerity leaves you cold then check this article Blyth penned in Foreign Affairs last month. In it he summarizes the history of how we got to the current point and why we are entering a new period of political positioning. There is so much to absorb from this piece that I have chosen to steal liberally from the story but with my emphasis added:
Consider that since the 2008 crisis the world’s major central banks have dumped at least $12 trillion dollars into the global economy and there is barely any inflation anywhere. Almost a quarter of all European bonds now have negative yields. Unsurprisingly, interest rates are on the floor, and if it were not for the massive purchasing of assets in the Eurozone by the European Central Bank, deflation would be systemic. In sum, we may have created a world in which deflation, not inflation, is the new normal, and that has serious political consequences, which brings us back to Trump.
In a world of disinflation, credit became very cheap and the private sector levered up—massively—with post-crisis household debt now standing at $12.25 trillion in the United States. This is a common story. Wage earners now have too much debt in an environment where wages cannot rise fast enough to reduce those debts. Meanwhile, in a deflation, the opposite of what happens in an inflation occurs. The value of debt increases while the ability to pay off those debts decreases.
Seen this way, what we see is a reversal of power between creditors and debtors as the anti-inflationary regime of the past 30 years undermines itself—what we might call “Goodhart’s revenge.” In this world, yields compress and creditors fret about their earnings, demanding repayment of debt at all costs. Macro-economically, this makes the situation worse: the debtors can’t pay—but politically, and this is crucial—it empowers debtors since they can’t pay, won’t pay, and still have the right to vote.
The traditional parties of the center-left and center-right, the builders of this anti-inflationary order, get clobbered in such a world, since they are correctly identified by these debtors as the political backers of those demanding repayment in an already unequal system, and all from those with the least assets. This produces anti-creditor, pro-debtor coalitions-in-waiting that are ripe for the picking by insurgents of the left and the right, which is exactly what has happened.
In short, to understand the election of Donald Trump we need to listen to the trumpets blowing everywhere in the highly indebted developed countries and the people who vote for them.
The global revolt against elites is not just driven by revulsion and loss and racism. It’s also driven by the global economy itself. This is a global phenomenon that marks one thing above all. The era of neoliberalism is over. The era of neonationalism has just begun.
I see no value in adding commentary other than to say that when viewed through Blyth's lens, much of what we see happening in the world today comes into sharp focus. It makes sense. There's no point in railing against the outcomes, they're done. What matters is how this impacts the world in which we live going forward and how technology will continue to play its part.
The technology dividend?
Today it is business as usual to the extent that's possible. Yes, some decisions are being deferred as a result of Brexit and we have yet to see whether Trump's election has a similar impact. But as one of my colleagues correctly pointed out - the world hasn't caved in. The trouble with that argument is that things can change very quickly.
Witness what happened to GBP in the aftermath of Brexit. An immediate fall of more than 10% against the USD making imports more expensive but exports cheaper. As a net importer the UK suffers and when profits go south, so do investments.
More broadly, technology innovation isn't going to stand still although I suspect that based upon Germany's incremental approach to innovation and the most recent outpourings from DSAG, we will see an entrenchment in investments that slows down cloud based technology adoption in some parts of Europe but will not materially slow down the taking up of advanced technologies where those can be usefully tacked onto existing.
But then when we see the destabilizing effect of Italy's referendum result upon the Euro's exchange rate now what? Once again, net importers are faced with problems as are those loaded down with debt like Greece and Italy. What we don't know is whether Italy becomes the trigger for the final meltdown of the Euro.
That's a whole different thread but in my view the Euro is a zombie currency. It's done and it is only a matter of time before another crisis brings its end. Why? Because as Blyth points out, you cannot reliably run a mish mash of economies based upon a single model that only works for that model and expect a good outcome. Check out the book to better understand these ideas.
In the US, the march towards improved productivity through the radical adoption of robotic technology will continue but if it also means a displacement of more jobs then what? And what about the H1B visa upon which the Indian heritage vendors rely and yet which looks set to become a target for Trump's 'Not Invented Here' syndrome. Check this interesting H1-B discussion on Quora.
The US is the world's largest net importer but according to many, if Trump attempts to penalize companies like Apple for their offshore manufacture, how will that work in practice? Does anyone seriously think that Trump can take on Apple and get a win? Nobody knows.
And then there is the demonetization in India which has shattered production at Foxconn and others, forcing companies to send entire work forces home while they wait for domestic demand to pick back up. Does anyone seriously think that won't trip global trade ripples?
Blyth has not only articulated a convincing argument as to why we are seeing a change in the geo-political landscape but he points towards changes that have significant economic impact. Technology has had a huge part to play in how the world is shaped but it was technology delivered in a relatively stable period of well understood positions.
I'm not convinced that it is business as usual albeit many believe the markets will continue to exercise undue influence in the coming years, regardless of individual country political leanings.
In the meantime, I am looking forward to seeing how Blyth parses events alongside others who have intellectual skin in the game. If you're a buyer, now might be a very good time to consider getting familiar with Blyth's work, along with that of economists who are referenced at Evonomics. It may be an unwelcome crash course in a topic that has not had much relevance but in an uncertain world, knowing there are alternative thought processes that can usefully inform buying strategies is just good business.
Endnote - hat tip to Hugh MacLeod for pointing me in Blyth's direction
Bonus points: check this video as a starting point: