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In a fully digital economy, will you need the same things as you do today?

Posted By Administration, Monday, May 6, 2019

Paul Tero a member of our Emerging Fellows program thinks that in a fully digital economy we won’t be needing the same things as today, but we will be needing the same types of things. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

We produce goods and services and we trade in those goods and services because we either want them or need them. There is a market for them. But in the decades ahead, in a market of bits rather than of atoms, will we still be using the same things we do today? From a final consumer perspective, will the digital economy of the future be unrecognizable compared to today's economy?

 

Consider the retail sector. Where it’s all about the creation and trade in products for the home, for our relaxation, for our sustenance. Or the business sector, where that same dynamic of creation and exchange can be used to drive innovation, to improve operational efficiency, or to maintain a market profile. Or even the public and the not-for-profit sectors, where those same market mechanics apply. That is, in order to provide services, products are purchased. And where nascent product creators are supported.

 

Reflect too on the structure of this global production and trade system. At over $80trillion dollars, the global economy is broadly comprised of agriculture (primary activity) at 3%, industry (secondary) at 30%, and services (tertiary) at 60%. An important factor in all of this are the sources of government taxation. A third of government revenue is from income, profits and capital gains and a third from taxes on goods and services.

 

Assuming ceteris paribus, in the coming decades you and I will still have need for shelter, for food, for companionship and relaxation. The same argument can be made for business, for government and the third sector comparing the needs of today and tomorrow. Of note, however, is the form through which the need is satisfied. We no longer desire, for example, to take our family in a horse drawn buggy on a holiday to the sea-side, or to join with family and others to around a wireless set listening to the latest play. Nor do businesses require a typing pool for the efficient production of company memos and customer missives.

 

Nowadays digital channels of communication are usurping long establishing temporal forms of connections. Nowadays, micro-targeting of marketing messages is more effective at driving trade in goods and services than legacy mass media. Nowadays, there is a greater level of involvement and transparency with those that are served by the public and third sectors compared to times past.

 

And tomorrow? Through a utopian lens we could see life being further enhanced by digital technology. It could be argued that just like today, where a life stage for an adolescent is marked by receiving a smartphone, that same transition for a teenager in 2050 could be celebrated by receiving their own life-enriching wearable AI tech. A world, for this teenager, where the uncanny valley is no longer a limitation in media and entertainment channels. A world, as teenagers look at the career paths of their parents, that is dominated by the output of firms that have put a high priority on employees with first rate people skills and thinking skills.

 

Likewise, through a dystopian lens, life for that teenager in 2050 could be one that is further controlled by digital technology. AI implants mark the adolescent life transition. Options for entertainment and other daily choices are slanted toward optimal social outcomes. Beckoning career paths are with firms that are aligned with forms of surveillance capitalism.

 

The threads that are common to both scenarios are the changes in social structure and the innate desire to make things easier for ourselves. Over time our social institutions change and the people to which we ascribe status. It could be argued that in recent history major sport clubs and/or political parties have supplanted religious groups as our common social institutions. It could be that the realm of the AI and quantum computing scientist and engineer becomes the new sanctum. A new standard of social acceptance that leads to the erasure of the barrier to all forms personalised AI tech.

 

Regarding the desire for making things easier, the so-called “efficient transaction hypothesis”, witness the smartphone. We embraced it because it made complex or time-consuming tasks (personal transactions) more efficient. It made communication easier, information gathering easier and entertaining easier. A significant factor of human nature that will drive the future acceptance of technologies that we perceive today as pervasive and distasteful.

 

In a fully digital economy we won’t be needing the same things as today, but we will be needing the same types of things. The world of atoms meets our needs today; the world of bits will meet our needs tomorrow.

 

© Paul Tero 2019

Tags:  digital economy  economics  service 

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Can Disembodiment Fuel Equality?

Posted By Administration, Friday, May 3, 2019

Charlotte Aguilar-Millan examines the effect of disembodiment on equality in her fifth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

The gig economy is often hailed as the future of work. It offers more flexibility than standard roles to both employee and employer. It offers greater independence. It offers more variety in roles. Yet with all these benefits, the workforce is experiencing inequality within corporations that is increasing exponentially. Over the past decade in the UK, corporations have seen CEOs’ earnings in the FTSE 100 increase four times as much as national average earnings. It is much higher in other countries including the US. It is little wonder that employees are seeking to take more ownership through contracting or temporary work. Employees do not want to represent corporations that demonstrate eye watering CEO pay and lavish corporate greed. Examples of this were seen during 2018. This includes Credit Suisse’s CEO who received a 30% pay rise whilst the share price fell by 38%.

 

Progress, however, has been made in legislation for greater transparency. From January 2019 within the UK, legislation now requires disclosure of the CEO to employee pay ratio for all companies employing over 250 staff. The inequality within one’s own company can now be brought to light. This will enable easy comparison of companies to measure inequality.

 

Such transparency has already caused staff to act. The CEO of the Financial Times, John Ridding, received a 25% pay increase in 2017 to £2.5m annual salary. Staff within the Financial times, were made aware of this and a revolt took place which saw his salary reduced to less than £1.2m in 2018. Progress in transparency reporting has enabled both consumers and employees to demonstrate their discontent with excessive boardroom pay.

 

This does not solve inequality in companies with no employees. Examples of this include UberEats and Deliveroo who will not fall under this legislation. They have few staff as they resource through contractors rather than staff. For globalised companies whose staff are often located separately from the client, such as Upwork or Gigster, there are no reporting requirements on transparency. Gig work provides no safety nets that accompany being an employee. This includes medical insurance, parental leave or pensions. Legislation has not placed a responsibility on companies to provide these benefits. Unions have developed to protect the gig worker. In February 2019 the union GMB agreed a deal with Hermes, a delivery company, to give enhanced rights to gig workers.            

 

There are other industries from which inspiration can be sought. Acting, historically, has been an industry with many employees on short term contracts. To future proof their careers, the Screen Actors Guild Benefit Fund allows actors to pay into a progressive form of union. This provides a safety net for insurance and healthcare by gig workers earning credits each time they work that are used to contribute towards healthcare and retirement funds. However, organising a global contractor workforce who are located globally is difficult without the contracting party’s support. The gig economy represents a work force who have different expectations in working conditions.

 

It is up to legislators to protect the disembodied workforce. Disembodiment can fuel equality if the appropriate support is in place. Disembodiment gives the worker control over how they work in a way that employment cannot offer. Legislation is being considered to ensure the advantages of disembodiment are equally shared. As detailed in the Taylor Review of working practices, disembodiment benefits need to be two ways. Therefore, two-way flexibility should be in place. This could take the form of holiday pay, healthcare fees, and retirement funding. In this way disembodiment could fuel equality.

 

© Charlotte Aguilar-Millan 2019

Tags:  disembodiment  economics  rights 

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How much of our stuff is Stuff?

Posted By Administration, Tuesday, April 23, 2019

Tim Morgan publishes his fourth blog post in our Emerging Fellows program. He assumes that the digital ecosystems are leading us towards a new form of autonomous capital. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Virtualizing the real world through abstractions is as old as humanity.  Stories helped humanity thrive for tens of thousands of years by virtualizing knowledge about the world in a way that could easily be shared and remembered. The Sumerians of ancient Mesopotamia created the oldest known writing, Cuneiform, over five thousand years ago. Scribes recorded everything from astronomical calculations, to sales transactions, to battles, to ownership records, and lineages. They recorded significant stories such as The Epic of Gilgamesh and the great flood story Atrahasis. Over a thousand years later King Hammurabi of Babylon wrote one of the earliest and most complete code of laws. Much later Gutenberg created the printing press, which ultimately broke the elite stranglehold on writing and literacy. This in turn lead centuries later to the Enlightenment and the modern era.

 

Humans have virtualized experience by encoding it wherever they could via every means available, from pre-history to modern day. We have now expanded that virtualization via digital information technologies. We encode and store vast quantities of information, moving it around the world at will. Users upload over 300 hours of video a minute to YouTube, and individuals watch over 5 billion videos on their website every day. That is just one example. Development of information technologies is being driven by a very old human need to record.

 

What is new with digital technologies is execution. Ancient stories recounted person to person empowered action via hard won storified knowledge. Writing allowed civilization to further develop via persistent storage of accumulated knowledge. Printing allowed us to grow more complex societies by capturing more knowledge and widely distribute it. At each step, virtualization allowed us to manipulate the world in more complex ways. Our ancestors were living information processors. They transformed virtualized knowledge in the form of stories, writing, and print into actions.

 

Use and control of property has always had a virtualized information component. What is unique about digital technologies and automation is that humans are no longer the sole processors of information for creating value. We learned a clever new trick: how to encode our decision-making capabilities into our machines. We have created a new level of abstraction, one where not only information is virtualized via encoding, but the process of use itself is virtualized in the form of applications and networks. Digital automation is a form of virtualized human judgement.

 

This is increasingly tipping the balance between the value of things and the value of the knowledge about things. Farming was the foundation stone of early capitalism and government. It relied on human judgement, and human muscle. Today it is a technologically intensive enterprise. Modern farms heavily rely on GPS-guided autonomous robots, which still happen to be called tractors. Experienced farm-hands once drove the tractors. Now the tractors are the farm-hands.

 

Even purely virtual economies have arisen with the rise of digital information technology. The online battle game Fortnite made a profit of over $2.4 billion dollars in 2018 purely off the sale of virtual goods like character “skins” and clothes. Other games like World of Warcraft have thriving black-market economies composed of gold-farmers who sell in-game currency for real currency.

 

Virtualized knowledge and judgement are increasingly becoming the key source of new value across all economic sectors. This is creating an unprecedented situation. The physical value of capital is being superseded by its informational value. We are beginning to mimic how nature creates abundance via biological ecosystems. We are creating new interactive digital ecosystems of virtualized information and decision-making entities which are connected to real things. As they become more autonomous agents, more of our digital infrastructure will shift to become a digital ecosystem.

 

Capitalism and markets are facing a new era, one they created but not one they expected. It will be dominated by the ecosystem-like complexity of increasingly autonomous information entities blurring the lines between real and virtual goods. We are instilling a technological version of our anima into what was once passive capital. Ultimately, we may be evolving a new form of autonomous capital. The question remains, will markets co-evolve with it or will they transform into something else?

 

© Tim Morgan 2019

Tags:  capital  digitization  economics 

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In a fully digital economy will the dollar still be king?

Posted By Administration, Thursday, April 4, 2019

Paul Tero a member of our Emerging Fellows inspects the supremacy of dollar in digital economy in this blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

We trade in what we value. Whether it be a young child trading a small coin for a sweet at a corner store, the consistent portion of a wage over many years in exchange for a house, or the complexity of financial transactions to fund a manufacturers expansion. If we value something we will participate in a fair exchange with the seller.

 

We are all aware of the barter economy, of an era long past, where that form of trade was the primary mechanism to establish fair exchange between parties. Over the course of time it was hard currency that first supplanted this ancient mechanism, then promissory notes, until now where digital representations of cash are the means through which value is exchanged fairly.

 

Also today, it is a sovereign currency, the Dollar (or Euro, Renminbi or Yen) if you will, that is king. It is this fiat currency, this legal tender of value backed by an issuing government that is implicitly trusted so that we can fairly exchange value. Whether it’s that young child at the corner shop, or the insurance company guaranteeing the importation of that machinery, we all implicitly trust that issuing authority.

 

We pay, and governments collect, taxes based on that trust. Businesses leverage the inherent strengths of the banking system to invest in growth, based on that trust. Governments trust other governments based on that trust.

 

But in a fully digital economy, what entity will be the foundation of that trust? The case could be made that a single global currency could become king. Where, over the coming decades, a currency founded on blockchain principles could supplant the many sovereign currencies in existence today. The case could also be made for a return to the barter system. Where, again over the coming decades, the nascent peer-to-peer sharing economy becomes the most trusted mechanism for the fair exchange of value.

 

Given the possibility that either of these two paths could be realised, it may well be a fool’s errand to just assume that the future of financial transactions is just a more efficient version of what we experience today. Where this more efficient version still relies upon the sovereign entities of trust. And where these entities of trust are the anchor for computerised exchanges of value. Just as it occurs today at the retail level, at the commercial and at the government level.

 

Consider two scenarios. First, what if the world moves to a type of universal basic income or universal basic services model? Where the accumulation of wealth is a foreign concept to most and bartering is de rigueur. Secondly, what if the digital economy transforms into the intelligence economy? Where real value is no longer held in varying compositions of bits, but in prized abstractions of knowledge stored in quantum computing machines. In either of these two scenarios, what would be sensible: to have a single global currency, a ubiquitous barter system, or just more efficient version of the current way we conduct financial transactions?

 

Finally, if we accept that human nature will fundamentally remain unaltered in the coming decades, we can appreciate the logic in the following propositions. We can accept that in a fully digitised economy there will continue to be shining examples of our “better angels” and likewise examples of those with more sinister intent. We can also accept that, because of our human nature, we will still form systems of governance and administrative oversight. We will still need the ability to enforce exclusion upon those who are a danger to society. We will still participate in fair exchanges of value. For people will still be people. At our core we’ll be motivated by the desire to either work toward goals, to work with people, or to work to accumulate power.

 

Given all this, and as we look far over the time horizon, will the dollar still be king in a fully digital economy? More than likely, the literal dollar won’t be king but the metaphorical dollar will be. Even though human nature is not likely to change, the mechanism for the fair exchange will continue to change. For each of us will continue to have something of value that is worthy of trading.

 

© Paul Tero 2019

Tags:  dollar  economics  value 

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What is Missed by a Focus on Profit?

Posted By Administration, Tuesday, April 2, 2019

Charlotte Aguilar-Millan shares her concern about the mere focus on profit in her fourth blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

For a company to grow, profit is required. This has been the age old mantra that those in the world of business have restated again and again. Why, when we look at fast growing companies, do they make limited profits? Deliveroo, a food delivery service, whose revenue increased by 116% in 2017, saw profits grow only by 1.5% during the same period. This is as a result of reinvestment into their technology apps. It is also an indication of the changing landscape. For companies to deliver long term shareholder value, profits are not the key driver. Instead, profits act as a by-product from placing value on other areas.

 

Too often companies focused on profit look to scaling efficiency and reducing costs, resulting in missed opportunities. Amazon is a prime example of a company which reinvested into its services including delivery and inventory availability. This has enabled fast growth and expansion into new markets. It has also added an edge to the market. Companies focussing on profits cannot compete with this edge. 

 

Globalisation has enabled more end user awareness of the behaviour of a profit focused company. Poor treatment of staff stops a brand from being able to convey aspirational attributes. Potential employees are able to research these workplace habits and have become aware of the working environment of a profit focussed entity. This has made potential employees wary of those companies tarnished with a profit only focus.

 

There are longer term impacts on society where companies solely focus on profits. When cost reduction is a main factor, the contribution to the remedy of global issues is weak. Measures to help reduce climate change and poverty from seeking the lowest cost are often retrospective. Often this action is as a result of external pressures only. Take corporate social responsibility (CSR) as an example. This is a tool now used by companies to demonstrate they are ethically aware. However, companies persevere with using suppliers who do not pay a living wage. They offset this in retrospect by allowing employees to take a volunteering day or sponsored run. Rather than take responsibility for the repercussions of their cost saving exercises, companies introduce CSR policies and assume that this is sufficient. It is the individual who has to pay the price for a company focussed on profits. Whether it’s by accepting higher prices or lower quality. Whether it’s by downsizing with fewer staff but the same workload. Or even whether it’s accepting climate change as a consequence of the profit focus.

 

Shareholders have a responsibility to make the directors of a profit focused company accountable. They have the opportunity at least annually to demonstrate an activist investor approach. Activist investors can use their equity stake in a company to put pressure on its management. Companies have historically taken no action where no pressure or incentive is given.

 

The end user can also demonstrate more self-awareness of the products and services they are consuming. We have seen the growth of ethically sourced products, such as Lush and The Body Shop. This is starting to develop within other industries. The size of ethical funds is at the highest level it has ever been before, peaking at roughly £4bn in May 2018 on the London Stock Exchange.

 

The choice lies with consumers. Consumers can use their purchasing power for positive change. Activist shareholders can place pressure on companies in the future to enable the change they want to see. This could change the approach of companies to effective climate change mitigation, reducing unequal director to employee pay ratios and increasing staff welfare. In the future, companies may have to pay more attention to those issues which are missed by a focus purely upon profit.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  company  economics  profit 

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Is the ownership of capital changing?

Posted By Administration, Tuesday, March 26, 2019

Tim Morgan publishes his third blog post in our Emerging Fellows program by asking about the ownership of capital. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

If you can’t open it, you don’t own it. That is the unofficial motto of the world-wide Maker Movement, which emerged along with the early development of the World Wide Web. It celebrates the fusion of art, technology, and do-it-yourself inventiveness. It inherited much of its emphasis on openness from the earlier Free and Open Source software (FOSS) movements.

 

FOSS formed in response to proprietary software which could not be changed by anyone but the copyright owners. FOSS advocates professed that collaboration via sharing source code was the best way to develop software. Makers embraced FOSS sharing sensibilities in no small part because automation was key to many of their projects. It was easier to bootstrap a new creation by copying and modifying existing code or hardware.

 

This free-as-in-speech information sharing ethos shaped the way the early Internet developed. Shared code forms the foundation of many commercial operating systems. Android alone powers over 2.7 billion smartphones and devices worldwide. The Internet and Web as we know them would not have expanded as quickly without shared-source software. This desire to share information is a design consequence of digital networks. Information can be copied with perfect fidelity as many times as desired. Perfectly copying information from computer to computer is fundamental to the design of the Internet. If the medium is the message, then the message of the Internet is to Share.

 

The drive to share is fundamental to human nature. Digital technologies unexpectedly created a new type of social structure that champions sharing - an Abundant Information Commons. Value is added by modifying for your needs; be it code, a design, a formula, or a written work. Those changes are then released back into the commons for anyone to use and improve.

 

Digital technologies are not completely free from restraints though. Individual possessiveness is in human nature too. Information may want to be free, but markets do not. Algorithms and hardware can put controls on data. Laws can penalize unauthorized use. The old ownership modes still exist, but now they are in tension with a network that wants to copy information. After several decades, we have reached an uneasy balance between owned information capital and shared information commons. Wikipedia did not replace Encyclopedia Britannica, but it did force it to adapt.

 

This balance is still shifting though. The more digital technology is embedded into everything, the more networks find new connections into physical, legal, and market domains. Cracks in the foundational layers supporting ownership are being slowly forced open by the roots and tendrils of ever-expanding networks. What was once purely physical is being bonded with the virtual.

 

Nothing owned is safe from this increasing integration with the digital realm. Networks want capital to be data-like and are actively working to make that happen by embedding code and connections in every owned thing.

 

The traditional capital triad of Ownership, Control, and Use is thus giving way to the networkable capital triad of Copying, Modification, and Sharing. The dynamic of how the virtual and real will fuse together will determine how future value is created.

 

The future of ownership is that if you want to own capital, you will need to find a way to open at least part of it and share.

 

© Tim Morgan 2019

Tags:  capital  economics  ownership 

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Is liberty compatible with capitalism?

Posted By Administration, Friday, March 22, 2019

Ruth Lewis a member of our Emerging Fellows program examines the compatibility of liberty with capitalism in her third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

The current economic theory of the ‘free market economy’ and capitalism requires a world of scarce or finite resources, together with ‘infinite wants’ of the consumer, in order to work. Scarce resources drive consumer acquisition and increases the market value of the resources. This balances nicely with a key tenet of the liberal view: the freedom to acquire whatever you want, even (or especially) at the expense of others.

 

The free market economy with unconstrained and unrestricted growth at all cost is now impinging on the freedoms and livelihoods of others. This effect occurs within the market supply chains who manufacture and supply goods, services and natural resources. It occurs with those who do not have the means to afford current market value. This causes even greater scarcity in key earthly resources such as food, water, mineral deposits and energy. It also has a clear link to climate change.

 

We have the strange paradox of capitalist freedom of acquisition that leads to the undermining of liberty and human rights of others. This has been the pattern as long as the market economy has operated throughout history. Whilst the individual is encouraged to be competitive and individualistic, from a spiritual point of view consumerism proves to be an empty vessel that contains no nourishment. Capitalism promotes ‘happiness’ through acquisition of money and goods over community and individual spiritual prosperity and growth. It undermines the public ‘good’.

 

What other models can we consider going into the future that can promote liberty and freedom? It is interesting to explore some models that reverse the paradigms that we live within today and speculate on futures driven under different mental models for both liberty and economic good.

 

One model that we see today is the governance-driven capitalism model, where societal benefit is promoted alongside profit. This can be seen for example in the ‘B-CORP’ model, where capitalist endeavours can be nurtured spiritually by knowledge that they are promoting good in the world, or at least not causing harm.

 

Others observe that the future will evolve into a post-scarcity economy, where resources are abundant through greater utility and efficiency of innovation, and digitisation will provide both basic and greater needs of the world’s population. This is predicated upon greater information about the world we live in. However, when the commodity underpinning the economy is data or information, where will ownership lie?

 

Another model suggested is that of ‘Commoning’, where ownership and control of resources is participatory. Resources are protected from sale in the market and belong indefinitely to the community that created them or nurtured them - in the same way that a river might be maintained by communities along its banks, instead of being consumed or sold by a third party to outside interests. In such a model, data would be owned and consumed by those that generate it.

 

In all of these models, how will the desire of the individual to acquire at the expense of the community be balanced with the community good? One presumes in the manner that this has always been resolved, through some form of political governance, either provided internally by the community, or presided over by a benevolent external body. Benevolent governance seeks to balance the needs and wants of a community against the resources generated or available. It seeks to regulate the internal and external stakeholders’ interests against moral or ethical dilemmas.

 

Accountable benevolence, ethics, morality and human rights must be clearly defined in accordance to a normalised common good. This clarifies what the community finds tolerable for the welfare, safety, security and health of the community members. The result is the antithesis of capitalism, to which liberty is incompatible.

 

© Ruth Lewis 2019

Tags:  capitalism  economics  liberty 

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Is capitalism a danger to itself?

Posted By Administration, Tuesday, March 19, 2019

Felistus Mbole a member of our Emerging Fellows program warns about the survival of capitalism in her third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Many believe that global inequality has been growing for decades. A month ago, the world’s elites - who comprise global political, business, advocacy, and activism leaders - gathered in Davos for the annual World Economic Forum.  Inequality was a key topic in their discussions. It seems the issue is finally getting their attention. Is capitalism becoming a danger to itself?

 

Inequality is likely to continue to grow into the foreseeable future based on the present trajectory. The growing inequality could lead to the classing of society into a small wealthy elite and the rest of the people. This could pose a danger to capitalism if markets are perceived as benefitting the owners of capital at the expense of workers and the consumers of the goods and services they provide.

 

For long, most people believed in the Washington Consensus that the market economy was the best way to deliver long-term prosperity. According to the consensus, wealth would somehow trickle down to the rest of society through employment and other forms of economic engagements with markets. This has not happened. Globally, people are less optimistic about the future than they were at the turn of this century. They are discontented about stagnating standards of living as the wealthy around them attain increasing levels of affluence.   

 

In wealthier economies, globalisation is becoming a chief agenda item for western populists. The opponents of globalisation dislike it for its power to potentially destabilise their status and sense of community economically and socially.  Economically, it is perceived to cause economic losses through the loss of jobs and the imports of goods and services from other economies. Globalisation was effectively slowed down between the two world wars. This is unlikely to happen in future given the advancement in technology. Rather than fight globalisation, business owners and global leaders should ensure that it works for everyone.  

 

Given prevailing rapid globalisation, it not surprising that there is a growing wave of populism especially in parts of America and Europe. Populists purport to speak for the average people - whom they position as different from those in authority - and as disadvantaged. They present themselves as having a solution to the problem and advocate for a change in the status quo.  Populism is disruptive to society and to capitalism in particular.

 

This state of affairs is not sustainable. If the wealthy are seen as the elite within society who are driving a political agenda which is divergent from the will of the people, this can lead to populism. As inequality increases, the proportion of those feeling left behind is likely to increase. This could endanger capitalism. Rather than being a zero-sum game where the wealthy are perceived to take it all, capitalism could be made a win-win game for everybody. How could capitalism be transformed into a responsible system that benefits society as a whole?

 

© Felistus Mbole 2019

Tags:  capitalism  economics  politics 

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Will Nationalism Reverse Global Finance?

Posted By Administration, Tuesday, March 12, 2019

Alex Floate, a member of our Emerging Fellows program studies the impact of nationalism on global finance in his third blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

The recent rise of populist movements in the West have rekindled a brand of nationalism that has created an ‘us’ versus ‘them’ mentality. Nationalism in this case goes beyond simple pride in country but develops into advocacy of one’s own nation above others and sees cross-border relations as a zero-sum game of win or lose. It also tends to be anti-immigrant, isolationist and even bigoted in nature and sees global trade and exchange as detrimental to the nation. Brexit and tariffs by the U.S. get the most press, but the rise of nationalist movements and autocrats is also affecting Turkey, Hungary, Poland, Italy, India, Israel, China, Russia and others. Europe’s financial institutions are especially at risk as nationalism threatens the continuance of the union and currency, but so are all standing financial relationships and markets.

 

This new nationalism will undoubtedly continue to reverse cooperative gains made so far and endanger financial institutions, both public and private, to efficiently and cost effectively provide services and capital across borders. The institutions of all nations may be threatened, but the severest consequences may be felt in developing nations as the West sees engagement with these countries as higher risk for less return. Engaging with them may also trigger some of the more racial elements of nationalists, as most famously represented by the American president’s reference to them as “shithole countries”.

 

Nationalism also endangers the internal finance of their own countries as vested interests capture government and enact laws that benefit domestic banks and entities over foreign competitors. Restrictions on the access of foreign based institutions to sell, buy, invest or lend will create multiple problems. Higher prices for goods and credit will be born primarily by the consumers of the economy. The inability to obtain investment capital or divest businesses will ripple through the entrepreneurial community and could lead to decreased business valuations. The largest corporate interests will not only survive but thrive in this environment as large banks become larger, and small competitors in all arenas are driven out.

 

However, these actions may sow the seeds of their own destruction. Control of the monetary system enables the nation to temper the expansion and contractions of the economy and in some cases prop up the ruling party. Just as the threat of nationalism may eventually destroy the Euro, the rise of alternative currencies and methods of value creation will spawn alternative finance networks that can also destroy the nation’s currency. A future scenario imagines these alternatives as creating systems that hasten national currencies to lose relevance and fracturing financial systems. If nationalist financial systems continue to be implemented, it will hasten that scenario as apolitical financial entities seek solutions to circumvent national politics.

 

Advances in global financial systems are in danger from a continued growth of nationalism. However, it will also affect global cooperation on shared problems such as climate change, nuclear proliferation and refugee crises, as well as endangering existing global political and economic relationships. An even more fragmented system global financial system will make meeting these challenges even more difficult. Just as the battle of communism versus capitalism defined the late 20th Century, globalism versus nationalism may define the 21st Century.  The question becomes will governments lead that battle, or just follow the money?

 

 

© E Alex Floate 2019

Tags:  economics  finance  nationalism 

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Has Finance Driven Digitisation?

Posted By Administration, Friday, March 8, 2019

Charlotte Aguilar-Millan reflects her thoughts about the impact of finance on digitisation in her third blog post for our Emerging Fellows program. The views expressed are those of the author and not necessarily those of the APF or its other members.

Innovation within the finance industry has seen unprecedented development. Not only in the accessibility of data but also how households access and manage their finances. Attributes such as easy access, speed of logging in and flexibility of data are now at the core of our expectations. Finance companies have stored a mass of data on their users to enable this. But how much data are consumers unwittingly gifting to finance within this digitised world?

 

Digitisation within everyday life is significantly affected by the finance industry. Through innovation in software capabilities, we are now able to access our finances through one simple easy portal within various forms of media. The future of digitisation within finance is reliant upon further integration of the customer’s experience. With the EU’s 2007 Payments Services Directive 2, it is now legislated that banks allow customers to share their financial data if requested. This has been adopted through digitisation. Banking apps now embrace a new feature where all bank accounts with various providers can be shown within a single app.

 

Banks are in the strongest position to develop digitisation. For years they have collected and processed personal data with customer’s transactions. With social media supplying instant feedback from customers on new digital products - through the use of tweets or Facebook commenting - banks are able tailor and adapt to customers wishes. Banks are able to analyse the data they have available and partner with companies to create an experience evolved from traditional banking. Today, most bank cards offer cashback opportunities on purchases at retailers which are tailored to customer’s previous bank usage. This not only provides a customer the financial incentive to use their banking facilities but also induces loyalty to a specific bank. 

 

Banks have been at the forefront of digitisation with developments in online platforms. However, this has also resulted in banks being at increased risk for lost confidence where the technology fails. Data migration between platforms saw TSB customers in May 2018 unable to access their accounts or make payments for weeks on end in what was due to be a weekend migration of 5.2 million of its customers between technology platforms. The effects of this error was a compensation bill of £116m and savings balances of customers falling by roughly £1bn as a result of 26,000 customers switching to an alternative bank.

 

This cautionary tale of reliance on data must be heeded by consumers. Whilst the TSB migration was the most publicised, banks such as RBS, NatWest and Barclays also saw glitches in customer’s usage of their online accounts in 2018. All of which has regulatory impacts on the safety of customer’s money. Finance must now take more ethical responsibility above and beyond the regulatory requirements. Customer security must not be breached in the name of innovation. Where the integration of technology and finance meet, so must accountability and security meet.

 

Finance initially lead digitisation through established banks enhancing their services with digital products. However, this has now transformed into digitisation leading finance. Fintech companies are being set up which supersede previously dominant finance providers. Companies such as Monzo, Tandem and Loot are fully digitised current account providers and adaptations such as ApplePay or Samsung Pay are making tangible finance providers redundant. The future could be that digitisation will drive finance, and that future banks are, actually, technology companies. Households now need to adapt to personal security resilience in order to protect their future finances.

 

 

© Charlotte Aguilar-Millan 2019

Tags:  Digitisation  Economics  Finance 

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