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Parsing Populism and Its Impact at Davos

Feature Article | January 16, 2017 by Paul Taylor

The World Economic Forum in Davos takes place this week against the backdrop of the populist rhetoric, protectionist sentiment, and concern about immigration evident in the UK Brexit vote and U.S. general election.

Although the response to this wave of populism is not officially on the Davos agenda, the topic is likely to dominate conversations among the political, academic, and corporate leaders attending the annual WEF event, which has itself become a posterchild for globalization, digitization, and free trade.

Underpinning this surge in populism are the real or perceived concerns of those who feel left behind by the next wave of automation, digital transformation, and the fourth industrial revolution.

Many lack the skills to prosper in the new, more fluid, and less certain jobs market, and they are concerned that a combination of offshoring and immigration will threaten their livelihoods and limit the opportunities for their children.

They have lost trust in the establishment and are voting for change.

“There are a lot of people that feel left behind by the digital economy, and they are speaking out,” said Bill McDermott, CEO of SAP SE, in a recent interview with Handelsblatt, the German business newspaper. “Governments can no longer ignore them. That’s the largest takeaway from the U.S. election.”

President-elect Trump skillfully exploited these concerns in his upset win, running on a protectionist, anti-establishment platform that if enacted, could upend long established geo-political norms. Predictably his statements on issues like trade, immigration, and foreign policy — particularly on relationships with China and Russia (even before the latest hacking claims) — have raised severe concerns among governments worldwide. And for good reason.

The unexpected ballot box outcomes coupled with the continued wave of terrorist attacks in Europe and the U.S. and the relatively lackluster economic growth after the 2008 recession, have shaken the confidence of the political, economic, and corporate establishment around the world, emboldened populist parties in Europe and elsewhere, and raised concerns among both economists and sociologists.

These concerns are particularly acute in France, the Netherlands, and Germany, all of which have important elections this year. But they were also evident during the Presidential elections in Austria and vote on reforms in Italy.

“Right now, we are seeing a shift — not only in the United States, but around the world,” says McDermott. “People are looking for strong leadership, and they are looking for change.”

Like others, McDermott notes that although President-elect Trump has come across as a populist, the office may help moderate his views. “I have a feeling President Trump will be very different from Trump the candidate,” he said in the Handlesblatt interview.

Nevertheless, the rise in populist sentiment raises important questions for multinational companies that are, de-facto, part of the establishment. This is especially true of technology companies and their customers that directly benefited from globalization and digitization.

Often, these companies are also strong supporters of diversity and inclusion. Diversity and inclusion are seen by many as important drivers of growth, but could come under attack in more restrictive political environment. That would be counterproductive for many reasons, not least because a McKinsey report suggests $12 trillion could be added to global GDP if women receive equal pay.

Even more fundamentally, political and business leaders need to consider how to facilitate the transition to modern digital economies without alienating a large chunk of the workforce.

A recent study by Oxford University suggested that 47 percent of jobs in the U.S. may be threatened by 2030. In particular, there is a declining demand for medium-skilled labor, physically demanding activities will be reduced, and some, like truck-driving and packing, could disappear altogether.

Manufacturing jobs in particular exert a powerful grip on politicians and policymakers in the developed world. This is because manufacturing used to provide dependable, good paying jobs for people, particularly men, with relatively modest skills.

However, as companies have moved routine work to lower-cost overseas markets, there has been a steady decline in the number of manufacturing jobs in the West. The UN Industrial Development Organization (UNIDO) reckons that, in 1991, 234 million people in developing countries worked in manufacturing. By 2014 the number was 304 million — and there were just 63 million manufacturing jobs in the developed world. But the sixth of the workers in the rich world added two-thirds of the final value.

Official figures probably overstate the decline in manufacturing (partly because some factory jobs have been turned into services) but it seems unlikely that many, if any, of the manufacturing jobs that have moved offshore will return, or that the process of digitization and automation that have replaced other manufacturing jobs, will slow.

Indeed, new techniques like artificial intelligence and machine learning are likely to mean that the next raft of jobs replaced in the developed by machines are white, rather than blue, collar jobs. Even so, most economists and business leaders believe there will still be enough jobs that people can do better than machines.

There are no quick and easy answers to the political, economic and social challenges we face today. “Clearly we are going to need new forms of training and education, and companies can play an important role in that process,” said McDermott. But big challenges also represent big opportunities.

As leaders in the global economy, companies, in partnership with government leaders, academic institutions, and citizens themselves, now need to be part of solution. We need to listen to people’s concerns and meet the challenge with empathy and real solutions.

For example, the SAP University Alliances program involves partnering with 3,100 universities in 106 countries. Through the program, SAP is bringing software into classrooms for 2 million students annually, and creating bridges between industry leaders and 8,000 professors.

Similarly, over 750 young people have “graduated” from the SAP Academy. Young people work alongside SAP executives developing sales skills and design thinking principles for nine or 12 months At the end of the program, 90% of participants are offered jobs split roughly 50:50 between men and women.

Education and retraining could be one of the keys to minimizing the risk of social disruption. As an Economist article earlier this month noted: “When education fails to keep pace with technology, the result is inequality. Without the skills to stay useful as innovations arrive, workers suffer—and if enough of them fall behind, society starts to fall apart.

“That fundamental insight seized reformers in the Industrial Revolution, heralding state-funded universal schooling. Later, automation in factories and offices called forth a surge in college graduates. The combination of education and innovation, spread over decades, led to a remarkable flowering of prosperity.

“Today robotics and artificial intelligence call for another education revolution. This time, however, working lives are so lengthy and so fast-changing that simply cramming more schooling in at the start is not enough. People must also be able to acquire new skills throughout their careers.”

Current employees need help to maintain existing skills or gain new ones while those whose jobs whose jobs are threatened need retraining to ensure they are not left behind. Unfortunately, however, on-the-job training is shrinking. In America and Britain, it has fallen by roughly half in the past two decades.

One possible solution to this dilemma is to harness new forms of education and training, including massive open online courses (MOOCs) like SAP’s cloud-based and free openSAP platform. Last year there were more than 1.6 million course signups, and 450,000 registered users for openSAP and the completion rate was 25-30 percent (compared to the usual four to seven percent.)

Of course, online learning requires some IT literacy, and yet one in four adults in the OECD has no or limited experience of computers underscoring once again the importance of STEM education and of partnerships between public and private sectors to improve children’s basic skills.

But time is running out. Like the stopper on a pressure cooker, elections in a democracy provide a safety mechanism for grievances, real or perceived. While it might be easier to brush aside or ignore the warning signals, the world’s political, economic and corporate leaders gathered in Davos, do so at their peril.

Top image via Shutterstock

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