Artificial intelligence Anything you can do, AI can do better. So how will it change the workplace?

Artificial intelligence Anything you can do, AI can do better. So how will it change the workplace?

The return of the machinery question After many false starts, artificial intelligence has taken off. Will it cause mass unemployment or even destroy mankind? History can provide some helpful clues, says Tom Standage

THERE IS SOMETHING familiar about fears that new machines will take everyone’s jobs, benefiting only a select few and upending society. Such concerns sparked furious arguments two centuries ago as industrialisation took hold in Britain. People at the time did not talk of an “industrial revolution” but of the “machinery question”. First posed by the economist David Ricardo in 1821, it concerned the “influence of machinery on the interests of the different classes of society”, and in particular the “opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests”.

"Today the machinery question is back with a vengeance, in a new guise" Thomas Carlyle, writing in 1839, railed against the “demon of mechanism” whose disruptive power was guilty of “oversetting whole multitudes of workmen”.

Today the machinery question is back with a vengeance, in a new guise. Technologists, economists and philosophers are now debating the implications of artificial intelligence (AI), a fast-moving

technology that enables machines to perform tasks that could previously be done only by humans. Its impact could be profound. It threatens workers whose jobs had seemed impossible to automate, from radiologists to legal clerks. A widely cited study by Carl Benedikt Frey and Michael Osborne of Oxford

Mr Musk warns that "with artificial intelligence, we're summoning the devil" The Economist

maker of electric cars. Echoing Carlyle, Mr Musk warns that “with artificial intelligence, we’re summoning the demon.” His Tesla cars use the latest AI technology to drive themselves, but Mr Musk frets about a future AI overlord becoming too powerful for humans to control. “It’s fine if you’ve got Marcus

University, published in 2013, found that 47% of jobs

Aurelius as the emperor, but not so good if you have

in America were at high risk of being “substituted by

Caligula,” he says.

computer capital” soon. More recently Bank of

Just as people did two centuries ago, many fear that

America Merrill Lynch predicted that by 2025 the

machines will make millions of workers redundant,

“annual creative disruption impact” from AI could

causing inequality and unrest. Martin Ford, the

amount to $14 trillion-33 trillion, including a $9

author of two bestselling books on the dangers of

trillion reduction in employment costs thanks to AI-

automation, worries that middle-class jobs will

enabled automation of knowledge work; cost

vanish, economic mobility will cease and a wealthy

reductions of $8 trillion in manufacturing and health

plutocracy could “shut itself away in gated

care; and $2 trillion in efficiency gains from the

communities or in elite cities, perhaps guarded by

deployment of self-driving cars and drones. The

autonomous military robots and drones”. Others fear

McKinsey Global Institute, a think-tank, says AI is

that AI poses an existential threat to humanity,

contributing to a transformation of society

because superintelligent computers might not share

“happening ten times faster and at 300 times the

mankind’s goals and could turn on their creators.

scale, or roughly 3,000 times the impact” of the

Such concerns have been expressed, among others, by

Industrial Revolution.

Stephen Hawking, a physicist, and more surprisingly by Elon Musk, a billionaire technology entrepreneur who founded SpaceX, a rocket company, and Tesla, a

It’s all Go Such concerns have been prompted by astonishing recent progress in AI, a field long notorious for its failure to deliver on its promises. “In the past couple of years it’s just completely exploded,” says Demis Hassabis, the boss and co-founder of DeepMind, an AI startup bought by Google in 2014 for $400m. Earlier this year his firm’s AlphaGo system defeated Lee Sedol, one of the world’s best players of Go, a board game so complex that computers had not been expected to master it for another decade at least. “I was a sceptic for a long time, but the progress now is real. The results are real. It works,” says Marc

Andreessen of Andreessen Horowitz, a Silicon Valley

internet search engines, block spam e-mails, suggest

before, when for the technology sector as a whole it

venture-capital firm.

e-mail replies, translate web pages, recognise voice

declined by 3%, says Nathan Benaich of Playfair

commands, detect credit-card fraud and steer self-

Capital, a fund that has 25% of its portfolio invested

driving cars. “This is a big deal,” says Jen-Hsun

in AI. “It’s the Uber for X” has given way to “It’s X

Huang, chief executive of NVIDIA, a firm whose chips

plus AI” as the default business model for startups.

power many AI systems. “Instead of people writing

Google, Facebook, IBM, Amazon and Microsoft are

software, we have data writing software.”

trying to establish ecosystems around AI services provided in the cloud. “This technology will be

In 2015 a record $8.5 billion was spent on AI companies, nearly four times as much as in 2010 The Economist

applied in pretty much every industry out there that has any kind of data—anything from genes to images to language,” says Richard Socher, founder of MetaMind, an AI startup recently acquired by Salesforce, a cloud-computing giant. “AI will be everywhere.” What will that mean? AI excites fear and enthusiasm

Where some see danger, others see opportunity.

in equal measure, and raises a lot of questions. Yet it

Investors are piling into the field. Technology giants

is worth remembering that many of those questions

are buying AI startups and competing to attract the

have been asked, and answered, before.

best researchers from academia. In 2015 a record $8.5 In particular, an AI technique called “deep learning”, which allows systems to learn and improve by crunching lots of examples rather than being explicitly programmed, is already being used to power

billion was spent on AI companies, nearly four times as much as in 2010, according to Quid, a dataanalysis company. The number of investment rounds in AI companies in 2015 was 16% up on the year

Find out more about AI and the Future of Work. Join The Economist's Deputy Editor for Facebook Live Q&A on Tuesday September 13th, at 4pm London time

Robots v humans Will your career be vulnerable to automation?

Machine earning

BILL BURR, an American entertainer, was dismayed

Jobs in poor countries may be especially vulnerable to automation

thought I was a comedian; evidently I also work in a

when he first came across an automated checkout. “I grocery store,” he complained. “I can’t believe I forgot my apron.” Those whose jobs are at risk of being displaced by machines are no less grumpy. A

As many as 85% of jobs may be threatened by automation in Ethiopia The Economist

study published in 2013 by Carl Benedikt Frey and Michael Osborne of Oxford University stoked anxieties when it found that 47% of jobs in America were

Yet America is the high ground when it comes to

vulnerable to automation. Machines are mastering

automation, according to a new report* from the

ever more intricate tasks, such as translating texts or

same pair along with other authors. The proportion of

diagnosing illnesses. Robots are also becoming

threatened jobs is much greater in poorer countries:

capable of manual labour that hitherto could be

69% in India, 77% in China and as high as 85% in

carried out only by dexterous humans.

Ethiopia. There are two reasons. First, jobs in such places are generally less skilled. Second, there is less capital tied up in old ways of doing things. Driverless taxis might take off more quickly in a new city in China, for instance, than in an old one in Europe. Attracting investment in labour-intensive manufacturing has been a route to riches for many developing countries, including China. But having a surplus of cheap labour is becoming less of a lure to manufacturers. An investment in industrial robots can

be repaid in less than two years. This is a particular

The cheapness of labour in relation to capital affects

worry for the poor and underemployed in Africa and

the rate of automation. Passing laws that make it less

India, where industrialisation has stalled at low levels

costly to hire and fire workers is likely to slow its

of income—a phenomenon dubbed “premature

advance. Scale also matters: farms in many poor

deindustrialisation” by Dani Rodrik of Harvard

countries are often too small to benefit from

University.

machines that have been around for decades.

"Rich countries have more of the sorts of jobs that are harder for machines to replicate" Rich countries have more of the sorts of jobs that are harder for machines to replicate—those that require original ideas (creating advertising), or complex social interactions (arguing a case in court), or a blend of analysis and dexterity (open-heart surgery). But poorer countries are not powerless. Just because a job is deemed at risk from automation, it does not necessarily mean it will be replaced soon, notes Mr Frey.

Consumer preferences are a third barrier. Mr Burr is hardly alone in hating automated checkouts, which explains why 3m cashiers are still employed in America.

Cars of the future How are you going to get to your future workplace?

Cars of the future

Cars of the future

How are you going to get to your future workplace?

only challenging taxi drivers around the world, they

Ride-hailing apps such as Uber, Ola and Lyft are not are also disrupting the car industry as a whole as people prefer to hail a ride than buy their own set of wheels

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The truly personal computer Why the smartphone is the defining technology of the age

The truly personal computer Why the smartphone is the defining technology of the age

THE Ood are an odd bunch. Among the more enigmatic of the aliens regularly encountered in “Doctor Who”, a television series about a traveller in time and space, they are mostly silent—though sometimes given to song—and disconcertingly squidlike. What is more, evolution has equipped them with two brains—one in their heads, the other carried around in their hand.

There are 2 billion people around the world using smartphones The Economist

Put an Ood onto public transport anywhere in the

There are 2 billion people around the world using

developed world, though, and—tentacles apart—he

smartphones that have an internet connection and a

would barely raise a questioning eyebrow. The other

touchscreen or something similar as an interface. By

passengers would be too busy paying attention to the

the end of the decade that number looks set to

parts of their brain that they now carry in their hands

double to just over 4 billion, according to Benedict

to notice anything particularly odd about an alien

Evans of Andreessen Horowitz, a venture-capital firm.

doing something very similar.

Already hugely attractive—an estimated 500m will be sold in China this year—smartphones are getting

both more useful at the top end and much cheaper at

Let it ring a little longer

B to finding a date to watching over a child to

the bottom. The most popular brand in India,

By 2020, something like 80% of adults will own a

checking the thermostat it is adding all sorts of

Micromax, sells basic models for under $40. Once phones are established in a market the expectation that everyone will have one—what Rich Ling of the Nanyang Technological University in Singapore calls the “mobile logic”—forces them even into initially reluctant hands, making them end up ubiquitous. The success is not a story of phones alone. From 2009 to 2013 the mobile industry invested $1.8 trillion on improving its infrastructure around the world,

smartphone connected to this remarkable global resource. If they are anything like today’s Europeans and Americans, who are leading in these matters, they will use them for about two hours a day; if they are like today’s European and American teenagers they will use them more than that. The idea that the natural place to find a computer is on a desk—let alone, before that, in a basement—will be long forgotten.

according to the Boston Consulting Group. Download speeds have increased by a factor of 12,000 and data rates have dropped to a few cents per megabyte (see chart 2). Along with Wi-Fi in homes and offices this has made it feasible to add to the phones’ own computing power that of data-centres far away.

convenience. Beyond convenience, though, a computer that is always with you removes many previous constraints on what can be done when and where, and undermines old certainties about what was what and who was who. Distinctions that were previously clear—the differences between a product and a service, between a car owner and a taxi driver, between a city square and a political movement—blur into each other. The world is becoming more fluid. These changes and the tools driving them have

By 2020, something like 80% of adults will own a smartphone

refocused the computer industry. Thanks mostly to

The Economist

other company in the world and just had the most

Amazon Web Services, the world’s biggest provider of

the iPhone, Apple—not so long ago a maker of niche desktops and laptops—is now worth more than any profitable quarter in history. Mr Evans reckons that its revenues are now greater than those of the whole

such cloud computing, says it is now adding as much

Like the book, the clock and the internal combustion

personal computer (PC) business. Xiaomi, a fast-

server capacity every day as its e-commerce parent

engine before it, the smartphone is changing the way

growing Chinese maker of smartphones, has become

required to run its entire global infrastructure ten

people relate to each other and the world around

the world’s most valuable startup (see article). The

years ago.

them. By making the online world more relevant, and

smartphone has become information technology’s key

more applicable, to every task from getting from A to

product. It generates the most profits; it attracts the

answers questions in any circumstance a user might

Please check the number

most capital and the brightest brains.

find himself.

The most famous app-based company, Uber, is valued

Apple’s App Store and Google Play, the equivalent for

As well as letting people do ever more on their

the Android operating system—which runs on 82% of

phones, apps let them do ever more things off their

the world’s smartphones, as opposed to Apple’s

phones, too. If something can be connected to the

15%—now offer users more than 3m apps. Apple

internet—be it a door or a fridge or a thermostat—it

alone sold apps worth more than $14 billion in 2014.

can be accessed by an app. The phone is thus central

Phones which start off identical—much more so, say,

to the success of the “internet of things”. Wearable

than cars—can thus be customised to meet an almost

technology products—fitness trackers, smart

infinite range of needs and enthusiasms. Cry

watches, clip-on cameras and the like—will mostly

Translator purports to interpret your baby’s mood;

work through the wearer’s phone in a similar way. In

RunPee tells you when best to take a toilet break in

part this is because giving wearables short-range

any film (and fills you in on what you missed).

wireless links to a phone, rather than their own

The fact that they can see and hear, that they know where they are and how fast they are being moved and can sense or infer all sorts of other goings-on increases the advantages that smartphones enjoy over boxes which sit on desks. When’s the next bus; what’s that not-quite-recognised tune; how much would that conveniently bar-coded product cost somewhere else; is that really horse on the menu: the combination of local data and cloud computing

connection to the internet, means that they can be built with smaller batteries and simpler circuits. In part it is because the phone is already a great way of reading, caching and acting on all sorts of data. The phone can be turned into a remote control for almost anything; you can even add a dog-whistle app to send commands to your pet.

at $41 billion because of the success it has had in turning the smartphone into a remote control for taxis. The smartphone gives the company’s two categories of user—drivers and passengers—the control that they need. And it gives the company’s algorithms the data they need, from car positions to customer feedback. Similar service providers are using smartphones to rejigger local logistics. Over the years many firms have tried to turn the delivery of groceries and other goods into a big business. The latest generation is much more likely to succeed thanks to the smartphones of freelance personal shoppers ready to jump into action should something need to be picked up. Instacart, one of the biggest such services, has contracts with more than 4,000 of them in 15 American cities. It has grown from $1m in revenues in 2012 to $100m last year. Such business models are not without critics; the way that “PlattformKapitalismus” integrates people’s lives and livelihoods ever more thoroughly into a network of

market transactions is an increasing concern on the

with apps on a phone, rather than with a browser on a

websites have had their day and are now planning to

European left.

PC, they experience it differently. The internet looks a

distribute their wares only directly.

lot less like a set of connected pages, and that makes a business that depends on helping people find the page they want—and seeing ads in the process—look less compelling. Smartphone users mostly buy things through apps, not through searches or ads.

The new businesses that smartphones and apps allow are not merely extending the internet; they are also reshaping it in a way that some of its current denizens may find hard to live with. One reason Google got itself into the smartphone world with the acquisition and development of Android was to adapt its business to a world of smartphones dominated by another company. When people access the internet

Other disruptions are more personal. As Eric Topol argues in his recent book “The Patient Will See You Now” the relationship between a doctor and a patient is another of the things that becomes more fluid in the age of the phone. Smartphones with the right

If moving to phoneworld has been a challenge for

sensors can collect medically relevant data, from body

companies born on the web—though Facebook offers

temperature to blood-glucose levels. They can send

an example of doing it successfully—it can be harder

pictures of lesions and even double as an otoscope

still for companies which had only just caught up

(for ear exams) and other sorts of medical instrument.

with the web in the first place. Media companies used

Dr Topol, a cardiologist and the director of the

to rely on their users going to their websites (though

Scripps Translational Science Institute, predicts this

getting them to pay to do so has always been tricky).

will give rise to “smart patients” who can talk to the

But people are now finding stuff they want to read or

doctor on a more equal footing.

watch through Facebook, Twitter and, increasingly, messaging services. Snapchat, hugely popular among teenagers because it allows them to send pictures that fade away after a few seconds, recently introduced a service called “Discover”. It offers articles and videos from CNN, National Geographic and others, which disappear after 24 hours. Some publications have already concluded that

Less professional intimacies are also changing. The very local, fluid and action-oriented social networking made possible by apps like Tinder and Grindr is shaking up dating. On Tinder users upload a photo and a short profile and then get shown the pictures of other users nearby. If they like what they see, they swipe a picture to the right—and if not, to

the left. If two users both swipe to the right, they can

A strange sensation

lives come with timelines, it is a common experience

start chatting on Tinder’s messaging service and take

Protecting users may not always be as easy as

to find out what they said first only after you know

it from there. The not-yet-three-year-old service is used by more than 30m people a day, who make about 1 billion swipes, leading to 13m matches. Social behaviour and etiquette have adapted to new technology in the past; they will do so again. At the unconscious level of habit smartphones are already oddly integrated into people’s lives. Particular spatial cues—getting into a lift or onto a train, for example—can reliably trigger a check of the screen. A similar effect in toilets is said to be the reason Samsung started making more models waterproof.

protecting their phones. Physiotherapists warn of “text neck”; unlike the Ood, humans evolved to keep all their brains balanced on top of their spines, and constantly hunching forward leads to stress and strain. Some psychologists warn of the danger of slipping past habit to addiction. They are warning not just of gambling apps, but of the more general way in which checking a phone, like gambling, is a search for an elusive reward in which every disappointment reinforces the desire to try again. David Greenfield, a psychologist and founder of the Centre for Internet and Technology Addiction, calls them “the world’s smallest slot machines”. Teenagers, whose time on phones dwarfs that of their elders (see chart 4), are developing a social life in which face-to-face and digital forms of contact are used interchangeably and often simultaneously. Manuel Castells of the University of Southern California talks of their phone-based lives playing out in a “timeless time” in which activities and exchanges happen in parallel or even backwards (when people’s

what they said next). That fluidity fits with other notions of the effects that the smartphone’s truly personal computing could have. Mechanical clocks allowed the days of the industrial revolution to be regularised in new ways; cars changed the landscape and extended the geography of people’s lives; the printed book made human knowledge more accessible, more easily built on and more thoroughly examinable, fixing it in bindings onto shelves. In its present, admittedly early, days the phone seems to permit earlier regimentation to relax. It encourages renting over buying, trying out over tying yourself down, coordinating things on the fly rather than in advance. Recent political protests have taken advantage of the new fluidity. Smartphones have not caused uprisings or revolutions, but they have affected their dynamics: mobilising has become much cheaper, centralised organisation less necessary. During recent protests in Ferguson, a suburb of St Louis, Missouri, and Hong

Kong, messaging apps were used to co-ordinate

the vast amounts of data phones can provide could

Phone-based social media, messaging services and

activities on the ground in real-time.

underpin a new, predictive “social physics”. This new

other apps already make people’s lives more public.

science might be capable of modelling, and thus

Hacks into the cloud have been exposing parts of

helping to alleviate, many of the world’s problems,

people’s phone-based lives they would rather have

from epidemics to violence (and, indeed, epidemics

kept private. Democracies may be able to find

of violence).

acceptable solutions to some of the problems posed.

A fixed sense of place has still mattered a lot to these movements—witness Kiev’s Maidan, Cairo’s Tahrir Square, New York’s Zuccotti Park, Hong Kong’s Civic Square. Protest-movement metonymy of this sort reflects the way that physical space is becoming “a function of the virtual world”, in the words of Thomas Sevcik of Arthesia, which provides advice to city governments. The refiguring of public spaces as political platforms reflects the way that the purpose of physical places, be they roads or rooms or buildings, now depends less on where they are and what they were designed for, and more on what is being done with the screens that they contain or that people have brought into them. Such changes will prove fascinating to social scientists, for some of whom the smartphone has become both telescope and microscope, allowing them to see social phenomena both more precisely and on a grander scale than ever before. Optimists, such as Alex Pentland of MIT’s Media Lab, argue that

Wild time has just begun

Mr Pentland calls for a “new deal on data”, which would include giving individuals clear rights on their

For pessimists, however, smartphones are miniature

personal data and allow them to better control how

versions of the “telescreens” in George Orwell’s

the information is used. In “The Black Box Society”

“1984”, omnipresent tools which allow the thought

Frank Pasquale of the University of Maryland argues

police to identify enemies of the state. The security

for more transparency in the use of data both by

services in democracies have shown a keen interest in

governments and companies—and limits on the uses

the ability to get into as many smartphones as

to which they are put.

possible (see article). Those in autocracies are doubtless doing the same. Around the world people are rushing to buy machines through which they can be monitored at previously impossible levels of intimacy—monitored by the state, by companies entrusted with their data, by hackers who steal their information, and by peers who just see what has been posted.

There are technical fixes to some problems. California now insists that smartphones have “kill switches” that allow their owners to lock their devices from afar if they get stolen, thus reducing their value to thieves and protecting the data they could be used to access. The latest versions of both Apple’s iOS and Google’s Android automatically encrypt user data on smartphones in such a way that only the user can decrypt them.

"People will live in perpetual contact both with each other and with the computational power of the cloud"

people needing jobs to people wanting them and

The Ood, it is worth remembering, did not just have

people with goods to sell to people who want to buy.

two brains, one in the head and one in the

They do it impersonally, with celebrity selfies sent to

hand—they had a third, planetary brain,

huge numbers of followers, and they do it intimately,

telepathically shared by all. It may yet be to such a

with near-constant conversation within families and

world that, with phones in hand, pocket and purse,

lifelong links to friends you might otherwise have

humanity makes its way.

Perhaps the most fundamental question about the

lost. They may do it in a way that lets people exclude

fluid world of the smartphone is whether its currents

voices that challenge them; they may do it in ways

will, in general, bring people together or move them

that are unutterably banal. They may do it differently

apart. The Ood-ignoring, text-neck-risking screen-

according to age and gender—some research

focused commuters on trains and buses seem even

suggests that, at least in some cultures, women use

more isolated from each other than they used to be.

phones to enrich and strengthen existing social

In 2013 security footage on a San Francisco Muni

bonds by sharing photos and the like, while men use

train showed a number of passengers failing to notice

them to create new, weaker bonds based on shared

a man playing with a pistol until he shot someone.

interest. But they do it nonetheless.

The title and tagline of a book by Sherry Turkle of MIT seem to sum up something real: “Alone Together—Why We Expect More From Technology and Less From Each Other”.

The new computing’s tendency to the fluid will, in all likelihood, mean that the current form of the phone will not last forever. The truly personal computing phones make possible, though—the sort which

Then again, the devices really do bring people closer

adapts you to your surroundings and vice

together. They do it casually, by ensuring that there

versa—seems sure to persist. People will live in

is always someone to play a game with, or indeed

perpetual contact both with each other and with the

hook up with. They do it commercially, matching

computational power of the cloud.

Banks? No, thanks! Today's graduates are forging completely new career paths. Read how

Banks? No, thanks!

“AN INVESTMENT banker was a breed apart, a member

Graduates are turning away from traditional banking roles, towards startups, tech giants and consultancies

almost unimaginable talent and ambition.” So wrote

of a master race of dealmakers. He possessed vast, Michael Lewis in his 1989 book, “Liar’s Poker”. Mr Lewis charted the ascent into investment banking of the most talented graduates in the 1980s, a situation that still held true as the financial crisis struck in 2007. Then, 44% of Harvard’s MBAs landed a job in finance; 12% became investment bankers. Yet in the class of 2013 only 27% chose finance and a meagre 5% became members of Mr Lewis’s master race.

"In 2007, 46% of London Business School's MBA graduates got a job in financial services; in 2013 just 28% At the University of Chicago’s Booth School of The trend is the same at other elite business schools.

Business, the percentage of students going for jobs in

In 2007, 46% of London Business School’s MBA

investment banking has fallen from 30% in 2007 to

graduates got a job in financial services; in 2013 just

16% this year. Since the crisis, investment banks

28% did, with investment banking taking a lower

have culled the recruitment schemes through which

share even of that diminished figure.

they once hired swathes of associates straight from business schools. Instead, they rely more on

recruiting the brightest undergraduates, in the belief

29% did. At Chicago the number has risen from 24%

you see hiring you in five years?” Encouraging them

that it is more productive—and better value—to

to 31% over the same period. Indeed four big

to think about life beyond the firm has several

develop cohorts of junior analysts in-house, rather

consultants—McKinsey, Bain, the Boston Consulting

benefits, consultants believe. It attracts the

than those with fixed ideas honed on expensive MBA

Group and A.T. Kearney—accounted for 19% of the

strongest candidates and it gives the firms a high-

programmes.

472 students hired from Chicago’s MBA programme

powered network of alumni who may become future

last year.

clients.

jobs has diminished; so has MBAs’ enthusiasm for

This should not be surprising. Before investment

For MBAs, the exposure to different industries and the

them. Once, they wanted nothing more than to climb

banks were in vogue, consulting seemed the natural

access to senior managers that a consulting job

a bank’s greasy pole, with the vast riches this

home for business-school students’ talents. The

brings are a perfect base from which to launch a new

promised. But regulation has stunted bankers’

general-management focus of most MBA programmes,

career, says Julie Morton of Chicago Booth. That base

bonuses and, perhaps as important, MBAs

and their use of the case-study method, make them

salaries for those going into consulting are among

increasingly seek the flexibility to switch careers

ideally suited to the job. An old consulting joke tells

the highest for any industry—a median of $135,000,

within a few years. Investment banks expect long-

of the newly minted MBA sitting at his desk,

compared with $100,000 for Chicagoans signing up

term loyalty, notes an MBA who did a spell in

demanding: “Bring in the first case!”

with an investment bank—only makes the choice

It is not just that the supply of investment-banking

banking, whereas students see them as “a stepping stone into private equity or a hedge fund”. This is one reason why there has been a revival in business-school graduates’ interest in working as consultants. Almost 30% of students at the elite

easier.

"Almost 30% of students at the elite business schools now typically find work at consulting firms."

School’s MBAs joined such organisations, last year

Even if investment banks were still able to offer the financial rewards they once could, students’ priorities seem to be changing. Contrary to MBAs’ reputation as

business schools now typically find work at consulting firms. In 2007, 23% of London Business

Not just in it for the money

breadheads, in a survey by The Economist for our Whereas banks expect MBAs still to be with them in five years, consulting firms ask recruits: “Whom do

latest full-time MBA ranking (see article), less than 5% said that higher pay was their most important

consideration when deciding to enroll at business

technology firms has risen from 6% to 12% since

They are helped by the fact that many students have

school, far behind factors such as “to open new career

2007. At Stanford, in the heart of Silicon Valley, it is

already had some finance experience before enrolling:

opportunities” (58%) or “personal development”

close to a third. “Many students want to be part of an

17% of Harvard’s latest MBA class came from a PE or

(15%).

entrepreneurial environment and make an impact, to

venture-capital firm. Students from other

feel they are building and shaping something,” says

backgrounds are also attracted by the dynamic

Ms Morton.

atmosphere these outfits offer. Michel, a recent

Sceptics might respond: they would say that, wouldn’t they? And MBAs’ ostensible disregard for the size of their pay packets must be put into context—a

Tech firms and consultants both appeal to the

student from a top ten school in The Economist’s

growing number of students who want to gain the

ranking will still earn an average basic salary of

right experience to start their own business. A survey

$118,000 immediately after graduation. Nonetheless,

by the Graduate Management Admission Council, an

it is somewhat surprising given that they are also

association of business schools, found that although

likely to have accumulated huge debts. Harvard

only 4% of MBAs have entrepreneurial experience

reckons its MBA can cost $250,000 for two years’

when they enter their course, 26% say they want to

board and study, and that is before forgone salary is

start companies after they graduate.

taken into account.

Competition for the best students is also coming from

Another big beneficiary of MBAs’ loss of interest in

the non-bank financial-services sector, notably hedge

banking is the technology industry. Of the top eight

funds and private-equity (PE) firms. Five years ago it

recruiters at INSEAD, a business school with

was rare for such places to recruit MBAs straight from

campuses in France and Singapore, half now fall into

campuses. Instead they would often poach talent

this category: Amazon, Microsoft, Samsung and

from the banks. But now several big schools,

Google. (The other half were consultants.) The

including Harvard and Wharton, are building formal

proportion of Chicago MBAs landing jobs at

recruiting ties with such firms.

graduate of Kellogg School of Management, for example, says PE appealed to him and his peers over banking because the firms are smaller and the work more entrepreneurial and hands-on.

called the “Net Impact” club, says Lara Berkowitz, a senior career adviser at the school. This means

Where would you rather work?

thinking about how to build careers that have a positive impact on the world around them, such as

Banking and finance sector

running ethical-investment funds or corporate-socialresponsibility programmes. Attacked on so many fronts, banks are trying to fight back. Some are running campaigns urging graduates not to believe media stories portraying them as greedy or evil. Others are trying to lure recruits by persuading them they will help make the world a better place. Goldman Sachs’s job portal advertises opportunities to work on community projects alongside positions for analysts: “That’s why you If self-fulfillment is indeed the priority for millennial

come and work at Goldman Sachs, because you can

MBAs, then banks need to do some serious

make a difference in the world,” trills its recruitment

rebranding. “I have never heard anything about the

video. A few banks are trying to change their culture,

corporate culture of investment banks that sounds

taking a tougher line on sexual harassment of female

like it’s an environment I’d like to work in,” says a

staff and advocating a healthier work-life balance,

business-school graduate who chose consulting.

perhaps even allowing the odd work-free Saturday.

Added to this, MBAs also seem to have discovered a

For the business schools’ brightest and best, though,

sense of moral purpose. At London Business School

all this may not be enough.

the fastest-growing student society is something

Tech industry Elsewhere See results

Still a must-have MBAs remain surprisingly popular, despite the headwinds

Still a must have

THE master of business administration (MBA) is no

It's no stranger to criticism, but the MBA is still hugely popular

influential report commissioned by the Ford

stranger to damning criticism. In the 1950s an Foundation lambasted the degree for being weak and irrelevant. In the 1980s Business Week reported that firms were bemoaning “the inability of newly minted MBAs to communicate, their overreliance on mathematical techniques of management and [their] expectations of becoming chairman in four weeks”. In the 2000s observers noticed that firms involved in corporate disasters, such as Enron and Lehman Brothers, tended to be run by alumni from prestigious business schools.

192,000 masters degrees in business were awarded in America in 2012, making it easily the most popular discipline among post-graduate students The Economist

Yet the MBA remains hugely popular. Nobody knows

The reason for this drop is partly cyclical: people tend

exactly how many people study for the degree

to apply to business schools during downturns in an

globally, but 192,000 masters degrees in business

attempt to shelter themselves from the economic

were awarded in America in 2012, making it easily the

storm. But the MBA faces many longer-term problems.

most popular discipline among post-graduate

The most pressing is tighter visa requirements in

students. Worldwide 688,000 people sat the GMAT,

parts of the rich world. It may seem obvious that

the de facto entrance exam for MBA programmes, in

countries would wish to attract and retain the

2014—although this is down considerably from 2008,

brightest young minds. But to the despair of

when 745,000 took the test.

business-school deans, both America and Britain—the two most popular destinations for

Do you think MBAs are still a valuable degree to have? Yes, there will always be demand for MBA graduates

foreign students—now place tougher restrictions on foreign students who want to stay and work in the country after they finish studying. In America foreign MBA graduates must find a firm to sponsor them for an H-1B visa, which entitles them to work for up to three years in the country, with the

No, the MBA has failed to move with the times

possibility to extend to six years. But the demand for these visas by far exceeds supply. America caps the number of H-1Bs at a total of 85,000 (the first 20,000

See results

applications are reserved for students of a master’s degree). These are snapped up within days. In Britain graduates must find work even before their student visa expires if they want to stay in the country.

Such restrictions are a particular problem for MBA programmes because many students choose a business school based on where they want to work after they graduate. Predictably, countries with a more welcoming attitude, such as Canada, are seeing applications from abroad rise. In contrast, the proportion of applicants interested in American schools fell from 83% in 2007 to 73% in 2015, according to GMAC, a business-school body.

based in emerging economies" Such concerns highlight the fact that MBA graduates are still in demand among employers. At schools included in The Economist’s latest ranking of fulltime MBA programmes, 89% of students found a job within three months of graduating. Their median basic salary is close to $100,000, an increase of 88%

Canada and other countries do not just covet

compared with their pre-study salaries. But some

foreigners deciding whether to apply to American

things have changed: banks, for instance, have

schools. The Canadian government has hired giant

become much less keen on MBAs since the financial

billboards in Silicon Valley reading “H-1B Problems?

crisis (perhaps because business-school alumni were

Pivot to Canada” to attract disgruntled foreign

often singled out as the culprits).

graduates. “If [American firms] can’t import the talent, they will export the jobs,” says Matt Slaughter, the dean of the Dartmouth College’s Tuck School of Business. “Unlike lawyers or doctors, the MBA qualification is transferable across borders.”

"Western business schools are losing ground to those

Western business schools are also losing ground to those based in emerging economies. The share of students who send their GMAT scores to an Asian and Australasian business school—a good proxy for applications—has nearly doubled to 8.1% since 2007. Eight-and-a-half Asian business schools now make it into our ranking of full-time programmes (INSEAD has campuses in France and Singapore). These numbers are small, but they are likely to rise. China, in

particular, plans to improve its business schools to meet demand for local managers.

"China, in particular, plans to improve its business schools to meet demand for local managers" Established schools are also disrupting themselves. Over the past five years the number of master-inmanagement (MiM) degrees, which unlike MBA programmes admit students straight from university without prior work experience, has shot up. In America even schools such as Michigan, Duke and Notre Dame are embracing what was once considered a strictly European qualification. Despite covering much of the same ground as an MBA, MiM programmes also tend to be much cheaper. Every student who graduates from them is likely to be one fewer lucrative MBA candidate in the future. Not all business schools are affected in the same way. Students will always, it seems, want an MBA from

Harvard, Chicago or London Business School. It is

by its MBA. As Stephen Hodges, the president of Hult

those with lesser reputations that face the toughest

International Business School, puts it: “Is a business

times. More than two-thirds of full-time programmes

school really a business school if it doesn’t offer an

costing under $40,000 a year reported either flat or

MBA?”

declining application numbers in 2015, according to GMAC. In contrast, most of those charging more than $40,000 said that their applicant pool had grown.

No matter how few people an MBA programme can attract, few schools will consider dropping the programme altogether The Economist

That suggests an oversupply of MBA programmes. Those taking an economics class in one of them might reasonably expect a shakeout. Alas, in the world of business schools such laws do not seem to apply. No matter how few people an MBA programme can attract, few schools will countenance dropping the programme altogether: a business school is defined

The walled world of work Why unemployment among millennials is a massive waste of resources

Millennials and work

CRISTINA FONSECA CAUGHT pneumonia a week before

She sounds very much like several other young

her final exams. “I thought I would die,” she recalls.

entrepreneurs your correspondent met while

Why youth unemployment is a massive waste of resources

When she recovered, she reassessed her priorities. As

researching this report, such as a Russian who set up

a star computer scientist, she had lots of job offers,

a virtual talent agency for models (castweek.ru); an

but she turned them all down. “I realised that I didn’t

Asian-American electric cellist who teaches people

want to spend my life doing anything that was not

how to make new sounds using a laptop

really worthwhile.”

(danaleong.com); and a Nigerian starting a new

She decided to start her own business. After a year of false starts she co-founded a company called

publishing house for African romantic novelists (ankarapress.com).

Talkdesk, which helps other firms set up call centres.

Elite youth today are multilingual, global-minded and

By using its software, clients can have one up and

digitally native; few can remember life before the

running in five minutes, she claims.

internet or imagine how anyone coped without it. The

"Elite youth today are multilingual, global-minded and digitally native" Ms Fonseca’s success helps explain why some people are optimistic about the millennial generation in the workplace. At 28, she is providing a completely new service in support of another service that did not exist until quite recently. She lives in Portugal but does business all over the globe.

best-known of them changed the world before they turned 30, including Facebook’s Mark Zuckerberg, Google’s Sergey Brin and Larry Page, and Instagram’s Kevin Systrom. The global economy works well for such people. Digital startups require far less capital than, say, building a factory, and a brilliant piece of software can be distributed to millions at minimal cost. So today’s whippersnappers of great wealth have made their money much faster than the Rockefellers and Carnegies of old.

Youth unemployment in France is 25% and has been scandalously high for three decades

firm could keep her on indefinitely without incurring

France is not alone in having such problems. In the

heavy ancillary costs. She refused.

euro area, Greece, Spain and Italy all have rules that

Insiders v outsiders

coddle insiders and discourage outsiders. Their youth unemployment rates are, respectively, 48%, 48% and

Youth unemployment in France (using the ILO

40%. Developing countries, too, often have rigid

definition of youth as 15-24-year-olds) is 25% and

labour markets. Brazilian employees typically cost

has been scandalously high for three decades.

their employers their salary all over again in legally

Occasionally the government tinkers with labour

mandated benefits and taxes. South Africa mixes

But the world of work has been less kind to other

rules, but voters have little appetite for serious

European-style labour protections with extreme racial

young folk. Florence Moreau, a young architect in

reform. Ms Moreau rejects the idea that insiders enjoy

preferences. Firms must favour black job applicants

Paris, had the double misfortune to leave university

too many legal protections, and that this is why

even if they are unqualified, so long as they have the

in 2009, when the world economy was on its knees;

outsiders find it so hard to break in. She blames

“capacity to acquire, within a reasonable time, the

and to be French. “I really need a full-time,

exploitative employers, and doubts that any

ability to do the job”. Some 16% of young Brazilians

permanent job,” she says. Under France’s 3,800-page

government, left or right, will fix the problem.

and a stunning 63% of young South Africans are

The Economist

labour code, workers on permanent contracts receive generous benefits and are extremely hard to get rid of. So French firms have all but stopped hiring permanent staff: four-fifths of new employees are on short-term contracts. Ms Moreau has had eight jobs, none lasting for longer than 16 months. With a small child at home, she has to keep looking for the next one. “It’s tiring,” she sighs. One employer suggested that she should become an “entrepreneur”, doing the same job as before but as a contractor, so that the

Rigid labour rules are tougher on young workers than older ones. People without much experience find it harder to demonstrate that they are worth employing. And when companies know they cannot easily get rid of duds, they become reluctant to hire anyone at all. This is especially true when the economy is not growing fast and they have to bear the huge fixed cost of all the older permanent employees they took on in easier times.

unemployed. Globally, average youth unemployment is 13% compared with the adult rate of 4.5%. Young people are also more likely than older ones to be in temporary, ill-paid or insecure jobs.

fiscally ruinous. If the young cannot get a foot on the career ladder, it is hard to see how in time they will be able to support the swelling number of pensioners. Fourth, joblessness can become self-perpetuating. The longer people are out of work, the more their skills and their self-confidence atrophy, the less appealing they look to potential employers and the more likely they are to give up and subsist on the dole. This “scarring” effect is worse if you are jobless when young, perhaps because that is when work habits become ingrained. Thomas Mroz of the University of North Carolina, Chapel Hill, and Tim Savage of Welch Consulting found that someone who is jobless for a mere six months at the age of 22 will earn 8% less at 23 than he otherwise would have done. Paul Gregg and Emma Tominey of the University of Bristol found that men who were jobless in their youth earn Joblessness matters for several reasons. First, it is miserable for those concerned. Second, it is a waste of human potential. Time spent e-mailing CVs or lying dejected on the sofa is time not spent fixing boilers, laying cables or building a business. Third, it is

13–21% less at age 42. And David Bell of the University of Stirling and David Blanchflower of Dartmouth College found that people who were unemployed in their early 20s are less happy than expected even at the age of 50.

Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist The Economist

“The first ten years are essential. They shape careers in the long term,” says Stefano Scarpetta of the OECD, a think-tank for mostly rich countries. This is when people develop the soft skills that they do not pick up at school, such as conscientiousness, punctuality and teamwork. Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist, estimates the World Bank. Some 90% of new jobs are created by the private sector. The best thing for job creation is economic growth, so policies that promote growth are particularly good for the young. Removing

regulatory barriers can also boost job creation. Mr

wage, passing the cost on to others. America’s

Young sub-Saharan Africans show the greatest

Scarpetta applauds recent attempts in Spain, Italy

Democratic Party is pushing to double the federal

enthusiasm for starting their own business: 52% say

and Portugal to make labour rules a bit more flexible,

minimum wage, to $15 an hour—a certain job-killer.

they would like to, compared with only 19% in rich

but argues that such laws should generally be much

Western countries. This is partly because many have

simpler. For example, it would be better to scrap the

Putting the tyke into tycoon

stark distinction between temporary and permanent

Making it easier for young people to start their own

poor countries, and in the absence of a welfare state

contracts and have only one basic type of contract in

business is essential, too. They may be full of energy

few people can afford to do nothing.

which benefits and job security accumulate gradually.

and open to new ideas, but the firms they create are

Denmark shows how a labour market can be flexible

typically less successful than those launched by older

and still give workers a sense of security. Under its

entrepreneurs. The young find it harder to raise

“flexicurity” system companies can hire and fire

capital because they generally have a weaker credit

easily. Unemployed workers are supported by the

history and less collateral. They usually also know less

state, which helps them with retraining and finding

about the industry they are seeking to enter and have

new jobs.

fewer contacts than their older peers. A survey by the

Trade unions often favour a minimum wage. This can help those who already have jobs, but if it is set too high it can crowd out those with the fewest skills and the least experience, who tend to be young. It makes more sense to subsidise wages through a negative income tax, thus swelling take-home pay for the lowliest workers without making them more expensive for the employer. But this costs taxpayers money, so many governments prefer to raise the legal minimum

Global Entrepreneurship Monitor found that businesses run by entrepreneurs over the age of 35 were 1.7 times as likely to have survived for more than 42 months as those run by 25-34-year-olds.

"As economies grow more sophisticated, demand for cognitive skills will keep rising"

little choice. There are fewer good jobs available in

Bamaiyi Guche, a Nigerian 17-year-old, is a typical example of a poor-country entrepreneur. He goes to school from 8 to 12 every morning, then spends the afternoon in the blazing sun selling small water sachets to other poor people without running water in their homes. He makes $1 a day, half of which goes on his school fees. He wants to be a doctor one day. Some youngsters from well-off families forge careers as “social entrepreneurs”, seeking new ways to do good. Keren Wong, for example, recognises that she was “born into privilege”. (Her parents were prosperous enough to support her at Cornell University.) A Chinese-American, she now runs a nonprofit called BEAM which connects teachers in rural

Chinese schools so they can swap ideas for teaching more effectively. Alas, there is a huge mismatch everywhere between the skills that many young people can offer and the ones that employers need. Ms Fonseca says she cannot find the right talent for Talkdesk. “I need very good engineers, very good designers and people who speak very good English. But there aren’t enough of them,” she says. As economies grow more sophisticated, demand for cognitive skills will keep rising. The world’s schools are not even close to meeting it.

Tempted by temping? Temping is growing. The quality of jobs it provides isn't

How the 2% lives

AT THE BMW factory in Spartanburg, South Carolina,

Temping is on the increase, affecting temps and staff workers alike

line with the regularity of a German express train.

brand new sport-utility vehicles roll off the assembly Work rotas at the vast facility, alas, are not always so reliable. Between 2007 and 2009, amid the turmoil of the financial crisis and ensuing recession, BMW hired, then laid off and then re-hired some 700 temporary workers through a firm called Management, Analysis

Since the American economic recovery began in 2009, temporary employment has been responsible for nearly one in ten new jobs The Economist

and Utilisation (MAU). Josef Kerscher, the luxury carmaker’s American boss, likened the conditions that

Since the economic recovery began in 2009,

prompted the wild fluctuations in Spartanburg’s

temporary employment has been responsible for

temporary workforce to a “rollercoaster”. Such

nearly one in ten net new jobs.

volatility is not uncommon for America’s temps, however, whose numbers are growing even as their lot

But as temping has grown, the quality of the jobs it

in life diminishes.

provides has deteriorated. In the 1950s and 1960s

Demand for temps has never been higher. The

time on their hands—college students, school

industry now provides work for some 2.9m people,

teachers on holiday and middle-class housewives—to

over 2% of the total workforce. The American Staffing

earn a little extra cash. One early study found that

Association, an industry group, reckons that it

about half of female temps during the 1960s had

generated over $120 billion in revenue in 2015.

some college education, nearly twice the national

temping was seen as a way for educated people with

rate. The typists, stenographers and other clerical workers supplied by temping agencies earned wages only slightly below those of permanent workers.

Perhaps most important, temp agencies were not seen

age and education, Lawrence Katz, an economist at

as second-rate employers. “There is nothing

Harvard University, reckons temps face a 15%

demeaning about working for such an

earnings penalty. In 1970 8% of temporary workers

organisation,” Barron’swrote in 1962; “Many workers

lived below the poverty line; in 2014 it was 15%.

prefer to do so.”

Just 8% of temps have an advanced degree compared with 12% of permanent workers The Economist

Such conditions have stigmatised temporary employment—so much so that workers seek out temping jobs only as a last resort. In 2005, the last year temporary workers were thoroughly surveyed by the Census Bureau, eight in ten said they would prefer a permanent job. More than half said they were working as a temp not for the added “flexibility”, a claim frequently made by industry boosters, but because it was the only work they could find.

According to the Census Bureau, temps today are disproportionately young, single and black or Hispanic. More than half are men. If the temps of the 1960s were relatively educated, today’s are more likely than permanent workers to be high-school dropouts. Just 8% of them have an advanced degree compared with 12% of permanent workers. Perhaps unsurprisingly, given all that, temps earn 20-25% less than their permanent counterparts. Even after controlling for demographic characteristics such as

A survey by the Federal Reserve in 2013 found that a

The proliferation of ill-paid temp work affects

Alan Krueger of Princeton University found that

big share of temps consider themselves overqualified

temporary and permanent workers alike. Many of the

states with a higher share of temporary employment

for their jobs. Less than a third see their job as a

costs that employers of temps avoid, including

in the late 1980s experienced lower wage growth in

“stepping stone to a career”.

prevailing wages and health-care costs, are now

the 1990s. These results have held up: in states where

borne in part by taxpayers in the form of increased

less than 2% of the workforce was employed by

spending on Medicaid, food stamps and other welfare

temping firms in 2000, wages of permanent workers

schemes. More than 26% of temps participate in at

grew an average of 3% a year between 2000 and

least one of these social safety-net programmes,

2015; in states with a higher proportion of temp

compared with 14% of permanent workers.

workers, wages grew at an annual rate of 2.6%. Such

Although temps account for just 2% of America’s workforce, there is wide variation at the local level. In Queens County, New York (home to the borough of the same name), fewer than one in 200 workers is employed by temp agencies. In Greenville County, South Carolina, just a few miles from BMW’s factory, it

The growth of the temping industry affects labour

is nearly one in ten. Big, concentrated and enduring

markets in other ways. On the positive side, by

pockets of temporary workers suggest that temping

offering positions to workers who might otherwise be

agencies are being used not just to smooth out

unemployed, temping reduces the unemployment

fluctuations in demand, but also to lower labour

rate. Temps also insulate permanent employees from

costs.

downturns in the business cycle, thereby improving

"More than 26% of temps participate in social safetynet programmes, compared with 14% of permanent workers"

job stability. Yet according to a paper published in 2013 by David Pedulla of Stanford University, permanent employees who work alongside temps worry more about job security. They also take less pride in their firm and have worse relationships with managers and coworkers. A study published in 1999 by Mr Katz and

findings lend support to the view of David Autor of MIT that the use of temping agencies, while beneficial to individual workers and firms, “may exert a negative externality on the aggregate labour market—that is, it is a ‘public bad’.” Picture credits: Getty Images, Rex Features, Derek Bacon, Alamy, Jon Berkeley, The Economist, Reuters, Bloomberg

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