Davos: The rich are worried

“I can’t wait to see how the incoming administration deals with AI (artificial intelligence),” said U.S. Secretary of State John Kerry, in a less-than-gracious reference to the fact that the Trump team hasn’t got a 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 are in the Swiss alpine town of Davos for the annual World Economic Forum (WEF). They all know what he’s talking about.

This year’s Davos gathering is actually focused on the rise of populism and simple-minded attacks on globalization (Donald Trump, Brexit et al.). That’s only to be expected, since the world’s ultra-rich are potentially threatened by that sort of thing. 

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, globalization and the struggle to contain climate change that is being abandoned by the United States under Trump. 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 fuels the populist revolt . John Kerry did get into it. “Trade is not to blame for job losses,” he said. Automation is.

Quite a few American manufacturing jobs did go abroad in the early stages of globalization, in the 1980s and 1990s, but that’s old news. Eighty-five percent 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 Donald Trump is barking up the wrong tree, as are the other populists emerging all across Europe, and their emulators who are beginning to appear in the developing world. Why do they all persist in blaming free trade and globalization instead of automation?  Because you can’t do anything about automation.


If you are a politician, then it’s better to blame globalization 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. 

Whereas nobody will believe you if you say that automation is what is really changing the economy, and so you are going to stop the automation. Everybody knows that that doesn’t work. So the rich and the powerful are way out ahead of the pack in accepting that growing automation really is going to destroy large numbers of jobs.

A recent Citibank research note forecasts that automation will eliminate 57 percent of all existing jobs in the developed countries within the next 20 years. In China, 77 percent of manufacturing jobs are at risk over the same period. And the notion that the economy will create other, better jobs to replace them is just a comforting myth. Most of the new jobs that are being created are MacJobs.

If more than half the workforce ends up unemployed then their anger will be so great that it could sweep away the comfortable world of the ultra-rich. Which is why there are sessions at Davos this year considering radical ideas like a “Universal Basic Income.”

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