A New Digitization Productivity Boom on the Horizon that May Impact Wealth and Work

Think Tank Scholars at McKinsey Global Institute believe that we may soon experience a boom in worker productivity and increased advanced digitization that will transform society. Their hypothesis is that as the labor market becomes tighter companies will be forced to adapt new technologies that will improve labor productivity and innovation. It is believed that a productivity boom will improve overall output of the country and its subsequent wealth (McKinsey & Company, 2018). You can Read the Research Here

They argue that there has been limited labor productivity growth since the 1960s. There was a brief productivity growth boom between 2000 and 2004 and it was followed by productivity slowdowns. Their argument is that another productivity boom is likely in the near future based on technological advancements.

Digitization will transform many companies because the tight labor market will force them to invest in digitization that is hitting the market. The end result is a boost in productivity that could impact the labor market as we know it. The needed skills and infrastructure may not be available.

Self-driving cars, greater connectivity, kiosks, and mobile technology are just some of the new technologies that have not yet made their way into full integration. They will likely do so within the next 10 years thereby revolutionizing the economy. Capital investments and experimentation are also likely to rise during this period.

There will be a evolution and revolution to an advanced economy paradigm where companies invest heavily in digitization that improve productivity in order to not be restricted by a tight labor market. This will displace workers without high demand skills and education. It is possible there will be more wealth but that wealth will be concentrated again in fewer hands contributing to income disparity. The positive side is that new innovation leads to greater corporate profits and also results in improved investment and job growth.

While the authors content this is from the labor market there is also the need of corporations in the U.S. to compete. The technology is available and becoming more practical as time continues. There will be a point where it will make business sense to implement it.

The change to digitization will put new stresses on our current infrastructure that was designed more for the movement of large industrial products from the Industrial Age. Now the infrastructure will need to be improved to include data high way, small production, as well as the ability to move people and large production outputs into the international market. Preparing for these changes allows the U.S. to move into a new level of output potential that can supersede other nations development capacity as well as improve on general productivity and price.

McKinsey & Company. (February, 2018). Solving the Productivity Model. Retrieved https://www.mckinsey.com/global-themes/meeting-societys-expectations/solving-the-productivity-puzzle

Enhancing American Manufacturing Through New Measures of Supply Chain Development

The Supply Chain Economy determines the extent companies can feasibly create new products that lead to greater innovation and output. This source of innovation is often ignored in traditional innovation measurements that are based on patent filings. According to a paper in a working paper by Mercedes Delgado and Karen G. Mills from MIT and the Harvard School of Business by changing the framework that focuses on the suppliers of goods and services that support business and government we can realize new levels of innovation by providing access to labor, buyers and capital (Mills & Delgado, 2018).

Re-categorizing the economy to supply chain from business-to-consumers a different picture of innovation emerges. Supply chain industries are unique form of development that results in economic competitiveness and high paying job growth in a sector that employees 37% of the labor market (Delgado & Mills, 2016).

Why might this be important? Government numbers are often outdated and overlook important sources of new development. When thinking of economic clusters, the supply chain becomes an essential part of how these industries share services and resources. Categorizing them appropriately leads to new ways of seeing and enhancing real value that turns into economic growth.

Appropriately measuring the supply chain leads to policy improvements that includes giving them greater access to labor, buyers and capital:

-Labor: Supply chain traded services earn more income and rely more heavily on STEM knowledge than business-to-consumer traded services. As companies work together they lead to greater development of a stronger talent pool.

-Access to Buyers: Clustering businesses together creates strong buyer-supplier networks that can lead to mutual development. Creating collaboration between industries, government and supportive institutions (i.e. higher education) can transform into regional development.

-Access to Capital: Ensuring that companies have access to financial capital to reduce shocks and speed up development can lead to growth. The same methodology may be applied to other forms of capital needed by other industries within the cluster.

The authors indicated that partnerships with government, business, and other stakeholders leads to greater innovation, growth, and higher paying jobs. The changing of the metrics opens up a new paradigm to see the benefits of developing the supply chain network for advance manufacturing and growth. Continuous adjustment and development creates a more competitive environment where cutting edge products and services penetrate global markets.

What the authors did not specifically state is that by creating a more competitive environment that improves the innovative capacity of many businesses, it will make a difference in profit margins and manufacturing capacity within the U.S. While low-cost labor input countries are limited on technology, the U.S. may be able to draw back manufacturing with better manufacturing environment that makes new manufacturing industries profitable again. Such viewpoints should be part of the government tools to regenerate a leading production economy.

Delgado, M. & Mills, K. (2018). The Supply Chain Economy: A New Framework for Understanding Innovation and Services. Harvard Business School. Retrieved http://www.hbs.edu/faculty/Publication%20Files/18-071_b7268529-3131-4053-9e4c-5b06c3e86e81.pdf

Delgado, M. & Mills, K. (2016). A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Performance. Harvard Business School. http://www.hbs.edu/faculty/Publication%20Files/Paper_SupplyChain_MD_KM_05-23-2016_ac3f26a0-6022-4bf0-a719-39a6b4b4450e.pdf

Why We Should be Concerned When Russia Gets Involved in Our Elections?

How concern should we be that Russia tried to influence the elections? The news today states that 13 Russian nationals were indicted because worked through Russia’s Internet Research Agency with a $1.2 million monthly budget to influence an American presidential election. With Cold War games Russia engages in modern spy and manipulation techniques that seek the placement of politicians that are favorable to their national aspirations.

The extent of this influence isn't yet known but it is doubtful that it completely tipped the scales in favor of one candidate over another. However, the actual engagement in such activities raises a bigger concern over the sovereignty of our election process. 

The election process is based on our belief that our votes count and that count determines a winner. If the American people do not have complete trust in the system the fault lines over other issues related to race relations, income disparity, political parties, and socio-economic issues become magnified. 

Shockingly, there didn't seem to be a concern by the Russians that such behavior would have a consequence. This would indicate that their national aspirations to rebuild their empire is stronger than their need to be cautious in these situations. 

The way to act and react to these situations will become increasingly covert. American intelligence may seek to create their own branded chaos in Russia and the Russians in kind will respond in a Cold War tit for tat that becomes disruptive in a age where almost any computer can be hacked by the right people. 

While we find this problem through deep probes into the election process there may be a much wider problem with Senators, Congressman, and even key local officials that have an influence on trade and commerce. It would not be expected that such time and resources would be expended to uncover other issues unless the 13 indicted Russian nationals indicate other campaigns. So while the total impact of this specific situation may be limited it is the potential risk to other elections and the integrity of the process that takes a bite (or better byte) out of the American dream. 

Is Rising Inflation and Interest Rates be of Concern?

Is an increase in interest and inflation a sign of concern? The U.S. economy experienced a 1.9 percent in interest rates that relates to an increase of 2.1 percent in consumer prices.  GDP growth is expected to be somewhere around 2.5%. Economists and people are concerned that it could be early signs of stagnation if the amount of purchases decline. Is there a right answer here?

Consumer Price Index tells us how much prices are rising and what consumers are paying. Increased prices mean that we pay more.

Interest rates indicate the cost of borrowing money and impacts loans and purchased throughout the economy.

GDP is a measure of total output of the economy.

The three numbers are related. Consumers are going to find products a little more expensive, loans more difficult to pay back, and we will experience mild economic growth which can impact jobs. In essence, we are all going to get a little less purchasing power from our paychecks this year.

Is this an issue of concern?

That depends on what is going to happen over the next quarter. These numbers don't really say anything other than the economy is picking up speed and may be getting just a little hot. There are bound to be fluctuations between interest, prices, and growth.

Generally, as consumer purchases decline the market moves back into balance and prices changes slow and the economy comes back into equilibrium. When this doesn't happen it could mean that we are exporting more, importing less, or have completely changed our buying habits. I could also mean that we cannot afford the products at the higher prices and people will prefer to keep their money in the bank to receive the higher interest rate.

The biggest concern is if these things become long term and inflation rises quickly faster than paychecks and puts a dampening on consumption and overall GDP growth. If people have less purchasing power they will buy less. Rising interest rates means companies can't borrow as much but may experience some outside investment. It may also mean we don't export as much as we did before; at least in the short run.

Tariffs Good or Bad Idea?

Much has been discussed in the news concerning tariffs in the U.S. and the desire to implement new tariffs on aluminum and steel to balance the trade deficit. While these ideas can be beneficial under certain circumstances they may not have beneficial long-term effects unless a few adjustments and changes to the policy make it plausible to implement. One of the biggest concerns is whether or not such policies will help or hinder the American economy.

Building it Here

Tariffs can sometimes encourage foreign companies to circumvent the new costs by setting up operations here and hire employees. The problem is that there must be an easy method for foreign entities to invest and set up operations for this to be a successful strategy. China has been using this approach successfully for some time and end up adding to their own knowledge base.

Higher Supply Costs and Prices

It is important to remember that a change in the price of commodities works it way through the economic system and eventually raises costs for everyone. To avoid this, or at least limit it to a short period of time, domestic companies need to quickly reach capacity at the prices needed to effectively compete domestically and internationally.

Help or Hurt Domestic Companies

While it can help domestic by protecting them from cheaper imports it can also damage them if they don't capitalize on this opportunity to become competitive quickly. Large protected industries often fall competitively behind other industries. Once the tariffs are eventually lifted they collapse leaving the sector even weaker than what it was before.

Fair Trade Culture & Retaliation

The U.S has been an open economy for decades and has promoted these policies from other nations. Reversing this could cause problems with our trading partners who may feel that they are unfairly disadvantaged. Tariffs will need to be restricted to those countries that abuse the Free Trade Policies inadvertently creating new military and economic partnerships that may or may not be advantageous to U.S. interests.

When it Works

Small tariffs that target products from the most abusive countries can be helpful in fighting dumping policies. Countries that abuse Fair Trade don't have as much regulation, lower manufacturing costs, and don't care as much about the environment as the U.S.. Inherently, they have advantages that we don't have but they are also not as technologically savvy or stable as the U.S.. Tariffs must be followed by a plan for significant investment and development to maximize benefits. There should be enough protection to let budding industries grow, become profitable, and create economies of scale. Once they are in a position to compete, the tariffs should be reduced. No one can tell you there is not significant risks to trade, retaliation, consumers and economic retractions. Tariffs can be a helpful strategy for a limited time as long as the geo-political and economic problems of the day don't create unexpected difficulties.