But is global economic connectivity really responsible for the demise of the middle classes and the rise of income inequality? Or is it much more a question of how we distribute the economic benefits? I believe it is the latter and that this is not just a question about the past. This issue will be even more important as we begin to navigate the imminent changes that the Fourth Industrial Revolution and associated megatrends bring for the future.
2016 has taught us to expect the unexpected. It has also left many people longing for a more rational public debate, based more on fact and less on rhetoric. Adding to this global conversation should always start with examining the data and looking critically at what history and global comparisons tell us. Context is everything - and because the world moves so quickly now - it can be easy to lose sight of this bigger picture.
The status quoModern global, multilateral trade liberalization can be dated back to 1947 when the United States and 22 other nations signed the General Agreement on Tariffs and Trade (GATT). This trade treaty, as a complement to the 1944 Bretton Woods financial system agreement, would go on to establish the post war order and promote international prosperity, peace and security. In the ensuing years, real global exports of goods and services increased by a factor of 24, almost triple the pace of real world output growth, from 1960-2013 (White House, 2015).
Waves of industrial revolutionsAlmost always, economic and social developments implement irreversible structural adjustments to the world. Here are the most prominent ones that come to mind.
In the wake of the Third Industrial Revolution, the US manufacturing industry provides an illuminating case study of the changes unleashed. The US civilian labor force grew from 62 million workers in 1950 to 160 million in 2015 (FRB, 2016). But while manufacturing accounted for over 30% of the jobs in the 1950’s, today it accounts for less than 10% (Lee & Mather, 2008). During this same period, the UK witnessed a similar decline in manufacturing (Sentence, 2015). Is this due to globalization?
While it is a fact that that manufacturing jobs were off-shored, there are other influences at play. Despite offshoring, US manufacturing output continued to climb until around 2000, and has remained relatively steady since, in spite of the two most recent financial downturns of 2001 and 2008.
The Center for Economic Policy and Research highlights that “it is wrong to blame trade for the majority of [these job] losses” (Dobbs, Mischke & Roxburgh, 2012). Rather, productivity growth and the shift to services are the main contributors. The Heritage Foundation states: “Contrary to popular belief, these jobs have not moved overseas. They have been automated” (Sherk, n.d.).
In fact since 2010, nearly one million factory positions have been created and/or returned onshore in the US, with wages increasing some 10% (Rothfeder, 2010). The graphs below (Sherk, n.d.) suggest two key points:
The investments in technology also coincide with changes in the educational profile of the US manufacturing workforce. As depicted below (Sherk, n.d.), lower educated workers have fared much worse suggesting that as the demands in manufacturing have become more sophisticated, the accompanying workforce needs to be more sophisticated, too. It’s no surprise then that the only people who have experienced a rise in manufacturing jobs in nearly the last 25 years are those who hold university degrees.
So to an extent, as the US economy has become more advanced, it has shifted away from a manufacturing base and less educated workforce to a service base and university educated workforce.
The question to ask is: who has benefited from the expansion of global trade and GDP growth?
Who benefits?The US paints a stark picture of inequality. The share of national income going to the richest one percent of Americans has doubled since 1980, from 10% to 20%. The share going to the top 0.01% - some 16,000 families with an average annual income of $24m - has quadrupled, from just over 1% to almost 5% (The Economist, 2012). When accounting for taxes and transfers, the US has the second-highest level of income inequality, after Chile, among 31 OECD countries (Desilver, 2014). Wealth inequality is even greater and presents quite a shocking picture: a fifth of US families earn 59.1% of all income and the richest twenty per cent hold 88.9% of all wealth.
Widening income gaps have also been gaining traction, though to lesser degree, across other economies including Britain, Canada and India. More broadly over the last 30 years, income inequality has risen in about three quarters of all OECD countries. Significant socio-economic differences remain between the US and other countries.
Here are some examples:
What’s next? The examples above demonstrate that societies make choices about how they distribute wealth. Blaming globalization for inequality is not only inaccurate, it also avoids responsibility for a prevailing culture that encourages the centralization of wealth. Yes, global trade has contributed to offshoring to meet evolving demands in manufacturing – but the real problem is that in many countries the resulting wealth has not been distributed to benefit larger society. Mark Carney, the Governor of the Bank of England, said as much in a recent speech: “Among economists, a belief in free trade is totemic. But, while trade makes countries better off, it does not raise all boats… the benefits from trade are unequally spread across individuals and time.”
We are on the verge of witnessing far greater changes in the domestic labor market than global trade has ever unleashed. Technology will impact not just manufacturing but the service sector which represents nearly 80% of major economies like the US and UK. It is likely to have a wide-scale impact on a near majority of people in advanced economies as many jobs become automated, including those in highly-skilled labor.
Responsive and responsible – how? As the consequences of globalization and new technologies become clearer, people are looking for a different kind of leadership from business and governments. We need leadership that is “responsive and responsible” as suggested by the World Economic Forum’s 2017 agenda. But we need to work out what this actually means.
I believe that we need to start by recognizing inequality not as an inevitable result of globalization but as an outcome of the lack of balanced distribution of the benefits. Some societies have chosen to share their wealth and prioritize the collective well-being of their citizens over individual gain. This is based on the concept that placing value on greater equality ensures higher levels of social cohesion and a functioning society. They have also realized that broadening the base of wealth in a society leads to better economic outcomes in the longer term.
It’s instructive in this context to look at Germany and some of the Nordic countries. Here governments, businesses, unions and citizens have already initiated a public discourse and are exploring strategies to address many of the changes that are underway. They are focused on debating a new social compact and new policies on retraining and education, technology access, housing, health care and other social welfare systems. Importantly, they are discussing how to protect the individual by separating the concepts of labor and income, for example via potential Universal Basic Income (UBI) schemes.
We are at a critical point where we face significant transformative changes to our economies, social fabric and wider societies – much of which has yet to be imagined. Governments, business and citizens need to be prepared for this period. That means, at the very minimum, having the right balance of information, transparency, education, skills and safety nets to navigate this new environment.
To be responsive and responsible in this time requires us to lead with a sense of urgency and to actively shape a world that is likely to present new threats but also many new opportunities.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
I was recently asked about my predictions for the coming year. Here is one: 2017 is likely to be the year in which virtual health finally crosses the tipping point and achieves scale.
In my role, I am engaged with many disruptive industry trends across all sectors. One area where I have seen consistent advances has been the emergence of smart health technology. Health care has long been ripe for disruption and with consumers now using technology to meet many of their needs, we are well on the road to Health 2.0. The question is what will it take to get to real scale in the multi-trillion dollar global health industry?
Very soon the vision of virtual health will seem like it was always inevitable. Instead of being passive recipients of care, patients will become empowered consumers, with greater access to information and control over their decisions. Instead of being delivered only in hospitals and clinics, health care will become available wherever patients happen to be. In mature economies systems will need to contain costs as health care spending continues to rise. In emerging markets, where access remains an issue, mobile service delivery such as SMS campaigns and data collection will become more prevalent and is already taking off, for example across countries in Africa. No matter where, wide scale adoption of virtual health will enable approaches that are dramatically more cost-effective and efficient both for the consumer and provider.
The difference between virtual health and its model components is that virtual health represents a consolidated, integrated model of health service delivery. Its components include: online bookings and diagnostics; virtual patient communities; remote health service delivery (e.g. telehealth, monitoring, diagnostic results, robotics); machine-based diagnostics; electronic medication management; and readily available online information including personal health records, health provider information like reviews and ratings, and health product information like authoritative reviews of health apps.
Virtual health providers integrate many or all these functions into a coherent, patient-centric health service delivery model. The opportunities presented by virtual health have already seen a variety of new players enter health service delivery markets, including telecommunication and tech firms. And with an additional 2.6 billion smartphone devices set to enter the global market by 2020, demand for mobile health technologies is primed for take-off.
Are consumers ready and what is the growth potential?
Already, according to a 2015 survey, 62% of American consumers believe that a live mobile video consultation with a physician would more likely yield an accurate diagnosis than a phone, email or even an in-person visit. In a separate 2015 survey, 70% of Australian adults would use mobile technology to not only communicate with their doctor but also to order prescription drugs.
In spite of this demand, adoption of mobile health has remained elusive. But we are now at a turning point.
Revenue for video consultations, for example, is projected to rise from less than $100 million in 2013 to $13.7 billion by 2018 – with most revenues coming from health insurers as virtual consultations replace face-to-face visits. Over this same period, the number of US households using virtual health is forecast to rise from less than one million to 22 million.
Connecting the dots
Health care’s reinvention is being driven by two main factors: digital disruption and economic sustainability. In 2017 we will see greater alignment between these supply and demand drivers.
On the supply side – there have been advances in biomedical and health informatics technologies and standards, supported by public investment in health information infrastructure in most major markets. Health apps are expected to expand further into mainstream consumer markets, and reduction in regulatory and health financing barriers to entry has commenced. For example, a range of health insurers in the USA are now including virtual care in their reimbursement models.
On the demand side – demographic shifts and current spending levels are simply unsustainable. Consumers are seeking more productive delivery models in response to an estimated global health workforce shortage of 7.2 million workers. This shortage is contributing to the wide-scale increase of health care expenditures amid growing demand. By 2030 advanced economies face daunting projections with costs expected to approach: 25% of GDP in the USA, 17.5-18% in Germany and France; and 13.5% in the UK. Estimates demonstrate how virtual health will reduce these costs:
Virtual health is one such trend in an industry that needs to change. The greatest barriers to the scaling of new health service delivery models have been health financing systems and professional attitudes. Both are now shifting as a result of financial and consumer pressures. Newcomers are already entering the market and hence virtual health will be ready to scale from 2017.
This article is part of the LinkedIn Top Voices list, a collection of the must-read writers of the year. Check out more #BigIdeas2017 here.
Once you’re a successful disruptor, how do you grow without losing the innovative spirit that got you here? This was an underlying theme of “The Art of Innovation” panel I had the pleasure of moderating at the 2016 US Strategic Growth Forum™, the US’s most prestigious gathering of high-growth, market-leading companies.
It was great to be part of a panel comprised exclusively of successful women CEOs to talk innovation and building businesses – and not just about gender. Two of the panelists are alums of the EY Entrepreneurial Winning Women program, which helps women entrepreneurs scale their companies and makes panels like this one much less rare.
As we spoke about their innovative business models – all four panelists run companies that are disruptors in their industries – we explored the question on many people’s minds: how do you disrupt your industry, stay focused on growth and continue to innovate? In short – once you’ve achieved initial success, what’s next?
Sell to grow
Panelist Jaime Kern Lima of IT Cosmetics has answered this question through a transaction. She recently sold her fast-growing cosmetics company to industry giant L’Oreal. Jaime remains CEO, and with the power of L’Oreal’s global infrastructure behind her, she can now enter new markets and anticipates explosive growth in the years to come. It’s a great example of how corporate venture capital and alliances with major players can give disruptive companies a boost to scale, while helping more traditional companies pivot into new markets and innovate through osmosis.
Find the jobs to be done
But what of growth that comes through new products and services? Outdoing yourself isn’t easy. A second effort that doesn’t live up to the promise of the first creation isn’t exclusive to musicians and novelists. How do disruptive companies keep out-innovating the competition once they’ve had their first successes?
The “Jobs to be done” theory has helped panelist Amy Chang of Accompany stay focused on what her customers want. It describes how customers “hire” products to solve a problem – that is, to do a job. Using this framework to analyze customer and market data, companies can continually develop products that are tailored to what consumers already want to do.
Don’t fake it
Panelist Clara Shih of Hearsay cautioned that in search of growth, it can be tempting to chase the latest fad masquerading as real consumer change, but that’s a mistake. Consumers are smart and can smell insincerity. Don’t try to fake authenticity; instead, make business decisions and product changes in line with your brand, your story, and the “why” of buying your product.
Kara Goldin of Hint Water put it perfectly: “The best entrepreneurs didn’t have the perfect product when they launched, but were willing to watch and listen and change.” By shifting her focus from competing for grocery store shelf space to ecommerce, Goldin has put this into practice, and ecommerce now accounts for 40% of Hint’s business. In the process, the company has gained invaluable customer data for future use.
It’s abundantly clear that innovation is not just inevitable; rather, the opportunities it creates are accelerating. As a result of ubiquitous technology, entrepreneurs can create new businesses or become disruptive forces much faster. But even disruptors can be disrupted. Within this charged environment, finding ways to scale while staying innovative is not simple, but as I saw firsthand at the Forum, it is possible for the ingenious entrepreneur. And these four women are leading the way!
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