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Impact Investing

IPE special report May 2018

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Joseph Mariathasan: Coping with innovation in China and the US

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At the beginning of this month, the southern Chinese city of Guangzhou hosted the 2017 Fortune Global Forum with an illustrious set of attendees, including CEOs of many of the world’s leading corporations.

Alibaba Group chairman Jack Ma, Apple chief executive Tim Cook, and Tencent chairman Pony Ma were among the business leaders there, in addition to politicians such as Canadian prime minister Justin Trudeau and former US treasury secretary Henry Paulson.

China’s vice premier Wang Yang opened the conference with a keynote speech, saying globalisation was the precondition of shaping a new pattern of world economy. He didn’t have to say it, but everyone is well aware that China is rapidly taking over the mantle of leading the world’s efforts towards globalisation, with the US stepping away with Trump’s America First policy.

As part of the fringe events associated with the Forum, I took part in a discussion for Chinese TV on China’s role in innovation and its impact both within China and across the globe.

Two key economic trends are combined in China: the rise of emerging markets and the rise of automation and technology in its broadest sense. This includes the internet, artificial intelligence, and robotics, which are proving to be transformational across the globe. Yet alongside the undoubtedly rapid progress being made in China and its enthusiasm for such developments there is a less attractive impact on the developed markets of Europe and North America.

Both trends have been driving forces in the hollowing-out of the middle classes in the developed world. Manufacturing jobs have migrated to cheaper and rapidly growing emerging markets, while many of the upper tier service jobs – whether in law, accountancy and possibly even medicine – are being increasingly automated or accessed via the internet.

Corporations focussed purely on maximising shareholder value at the expense of all other issues have led to the capitalist system being under siege in developed markets at the same time as it has led to the transformation of China and other emerging markets.

Sustainability is a concept that is becoming increasingly talked about as an essential component of economic activity. The “dark side” of capitalism is that the activities of many corporations are also a major source of societal, environmental and economic problems in both developed and developing markets.

The discussions around the Fortune Global Forum are interesting not only in the subjects being discussed themselves, but in the underlying assumptions behind the discussions.

Many of them implicitly or explicitly addressed this dark side.

Issues such as global warming, pollution and the impact of innovation are subjects that corporations need to take on board as they develop their businesses. A focus on maximising shareholder value in the short term is not enough, particularly if it entails a focus on short term profits at the expense of long term societal benefits.

China itself has become a leader in the green revolution with an emphasis on reducing carbon dioxide emissions, developing alternative energy sources such as solar power, and reducing fossil fuel dependence in transportation through the development of electric cars. China is also becoming a leader in artificial intelligence, which ties in well with the rapid progress being made in autonomous driving.

The critical issue for both governments and corporations in the developed nations of Europe and the US is how can they maintain social stability in the face of structural shifts in the global economy that they have little or no control over. Globalisation may be beneficial for the world as a whole, and even for developed countries as a whole, but the benefits within developed countries are very unevenly spread.

Diverging futures

Some 400 years ago, living standards in China were higher than they were in Europe. Within the next generation, the same may hold true again. Coping with that shift in global dynamics is not something that any populist political leader can hope to do through hoodwinking voters that they are able to return their countries to some idyllic vision of the past.

China has many problems, but for most of its population, the future looks brighter than the past. The same cannot be said for the US.

“Make America Great Again” has been the siren song for the Pied Pipers of American isolationism to lead the masses of the dispossessed to vote for measures that are not in their long-term interests although they do benefit the 0.1% of the population that are paymasters to politicians.

Meanwhile, the seismic changes that really matter – coping with innovation, new technology and the levelling out of global inequalities at the expense of widening domestic inequalities in developed markets – still lie unaddressed. That is a very worrying state of affairs for the bottom 90% of the US population that it seems now own the same amount of wealth as the top 0.1%.  

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