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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

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

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 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

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 internet search engines, block spam e-mails, suggest

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 before, when for the technology sector as a whole it

The world is going to university But is it worth it?

The world is going to university But is it worth it?

“AFTER God had carried us safe to New England, and we had builded our houses, provided necessaries for our livelihood, reared convenient places for God’s worship and settled Civil Government, one of the next things we longed for and looked for was to advance learning and perpetuate it to posterity.” So ran the first university fundraising brochure, sent from Harvard College to England in 1643 to drum up cash. America’s early and lasting enthusiasm for higher education has given it the biggest and best-funded system in the world. Hardly surprising, then, that other countries are emulating its model as they send ever more of their school-leavers to get a university education. But, as our special report argues, just as America’s system is spreading, there are growing concerns about whether it is really worth the vast sums spent on it.

University enrolment is growing faster even than demand for that ultimate consumer good, the car The Economist

The modern research university, a marriage of the Oxbridge college and the German research institute, was invented in America, and has become the gold standard for the world. Mass higher education started in America in the 19th century, spread to Europe and East Asia in the 20th and is now happening pretty much everywhere except sub-Saharan Africa. The global tertiary-enrolment ratio—the share of the student-age population at university—went up from 14% to 32% in the two decades to 2012; in that time, the number of countries with a ratio of more than half rose from five to 54. University enrolment is growing faster even than demand for that ultimate consumer good, the car. The hunger for degrees is understandable: these days they are a requirement for a decent job and an entry ticket to the middle class.

There are, broadly, two ways of satisfying this huge demand. One is the continental European approach of state funding and provision, in which most institutions have equal resources and status. The second is the more market-based American model, of mixed private-public funding and provision, with

"OECD countries spend 1.6% of GDP on higher education, compared with 1.3% in 2000"

brilliant, well-funded institutions at the top and

If the American model continues to spread, that

poorer ones at the bottom.

share will rise further. America spends 2.7% of its GDP

The world is moving in the American direction. More

on higher education.

universities in more countries are charging students

If America were getting its money’s worth from higher

tuition fees. And as politicians realise that the

education, that would be fine. On the research side, it

“knowledge economy” requires top-flight research,

probably is. In 2014, 19 of the 20 universities in the

public resources are being focused on a few privileged

world that produced the most highly cited research

institutions and the competition to create world-class

papers were American. But on the educational side,

universities is intensifying.

the picture is less clear. American graduates score

In some ways, that is excellent. The best universities are responsible for many of the discoveries that have made the world a safer, richer and more interesting place. But costs are rising. OECD countries spend 1.6% of GDP on higher education, compared with 1.3% in 2000.

poorly in international numeracy and literacy rankings, and are slipping. In a recent study of academic achievement, 45% of American students made no gains in their first two years of university. Meanwhile, tuition fees have nearly doubled, in real terms, in 20 years. Student debt, at nearly $1.2 trillion, has surpassed credit-card debt and car loans.

None of this means that going to university is a bad

money, why might that be? The main reason is that

investment for a student. A bachelor’s degree in

the market for higher education, like that for health

America still yields, on average, a 15% return. But it

care, does not work well. The government rewards

is less clear whether the growing investment in

universities for research, so that is what professors

tertiary education makes sense for society as a whole.

concentrate on. Students are looking for a degree

If graduates earn more than non-graduates because

from an institution that will impress employers;

their studies have made them more productive, then

employers are interested primarily in the selectivity

university education will boost economic growth and

of the institution a candidate has attended. Since the

society should want more of it. Yet poor student

value of a degree from a selective institution depends

scores suggest otherwise. So, too, does the testimony

on its scarcity, good universities have little incentive

of employers. A recent study of recruitment by

to produce more graduates. And, in the absence of a

professional-services firms found that they took

clear measure of educational output, price becomes a

graduates from the most prestigious universities not

proxy for quality. By charging more, good universities

because of what the candidates might have learned

gain both revenue and prestige.

but because of those institutions’ tough selection procedures. In short, students could be paying vast sums merely to go through a very elaborate sorting mechanism.

If America’s universities are indeed poor value for

What’s it worth?

they have taught their students to think critically.

remain grounded.

More information would make the higher-education market work better. Common tests, which students would sit alongside their final exams, could provide a comparable measure of universities’ educational performance. Students would have a better idea of what was taught well where, and employers of how much job candidates had learned. Resources would

Some governments and institutions are trying to shed light on educational outcomes The Economist

flow towards universities that were providing value for money and away from those that were not. Institutions would have an incentive to improve teaching and use technology to cut costs. Online courses, which have so far failed to realise their promise of revolutionising higher education, would begin to make a bigger impact. The government would have a better idea of whether society should be investing more or less in higher education. Sceptics argue that university education is too complex to be measured in this way. Certainly, testing 22-year-olds is harder than testing 12-yearolds. Yet many disciplines contain a core of material that all graduates in that subject should know. More generally, universities should be able to show that

funding and participation from them, the effort will

Some governments and institutions are trying to shed light on educational outcomes. A few American stateuniversity systems already administer a common test to graduates. Testing is spreading in Latin America. Most important, the OECD, whose PISA assessments of secondary education gave governments a jolt, is also having a go. It wants to test subject-knowledge and reasoning ability, starting with economics and engineering, and marking institutions as well as countries. Asian governments are keen, partly because they believe that a measure of the quality of their universities will help them in the market for international students; rich countries, which have more to lose and less to gain, are not. Without

Governments need to get behind these efforts. America’s market-based system of well-funded, highly differentiated universities can be of huge benefit to society if students learn the right stuff. If not, a great deal of money will be wasted.

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%

The trend is the same at other elite business schools. In 2007, 46% of London Business School’s MBA graduates got a job in financial services; in 2013 just 28% did, with investment banking taking a lower share even of that diminished figure. At the University of Chicago’s Booth School of

Business, the percentage of students going for jobs in investment banking has fallen from 30% in 2007 to 16% this year. Since the crisis, investment banks have culled the recruitment schemes through which they once hired swathes of associates straight from business schools. Instead, they rely more on

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

recruiting the brightest undergraduates, in the belief

This is one reason why there has been a revival in

that it is more productive—and better value—to

business-school graduates’ interest in working as

develop cohorts of junior analysts in-house, rather

consultants. Almost 30% of students at the elite

than those with fixed ideas honed on expensive MBA

business schools now typically find work at

programmes.

consulting firms. In 2007, 23% of London Business

It is not just that the supply of investment-banking jobs has diminished; so has MBAs’ enthusiasm for them. Once, they wanted nothing more than to climb a bank’s greasy pole, with the vast riches this promised. But regulation has stunted bankers’ bonuses and, perhaps as important, MBAs increasingly seek the flexibility to switch careers

School’s MBAs joined such organisations, last year 29% did. At Chicago the number has risen from 24% to 31% over the same period. Indeed four big consultants—McKinsey, Bain, the Boston Consulting Group and A.T. Kearney—accounted for 19% of the 472 students hired from Chicago’s MBA programme last year.

within a few years. Investment banks expect long-

This should not be surprising. Before investment

term loyalty, notes an MBA who did a spell in

banks were in vogue, consulting seemed the natural

banking, whereas students see them as “a stepping

home for business-school students’ talents. The

stone into private equity or a hedge fund”.

general-management focus of most MBA programmes, and their use of the case-study method, make them

ideally suited to the job. An old consulting joke tells of the newly minted MBA sitting at his desk, demanding: “Bring in the first case!”

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

Whereas banks expect MBAs still to be with them in five years, consulting firms ask recruits: “Whom do you see hiring you in five years?” Encouraging them to think about life beyond the firm has several benefits, consultants believe. It attracts the strongest candidates and it gives the firms a highpowered network of alumni who may become future clients. For MBAs, the exposure to different industries and the access to senior managers that a consulting job brings are a perfect base from which to launch a new career, says Julie Morton of Chicago Booth. That base salaries for those going into consulting are among

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

likely to have accumulated huge debts. Harvard

only 4% of MBAs have entrepreneurial experience

compared with $100,000 for Chicagoans signing up

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

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

with an investment bank—only makes the choice

board and study, and that is before forgone salary is

start companies after they graduate.

easier.

taken into account.

Not just in it for the money

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.

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 breadheads, in a survey by The Economist for our 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 school, far behind factors such as “to open new career opportunities” (58%) or “personal development” (15%). 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 student from a top ten school in The Economist’s ranking will still earn an average basic salary of $118,000 immediately after graduation. Nonetheless, it is somewhat surprising given that they are also

technology firms has risen from 6% to 12% since 2007. At Stanford, in the heart of Silicon Valley, it is close to a third. “Many students want to be part of an entrepreneurial environment and make an impact, to feel they are building and shaping something,” says Ms Morton.

Competition for the best students is also coming from

They are helped by the fact that many students have already had some finance experience before enrolling: 17% of Harvard’s latest MBA class came from a PE or venture-capital firm. Students from other backgrounds are also attracted by the dynamic atmosphere these outfits offer. Michel, a recent

Tech firms and consultants both appeal to the

graduate of Kellogg School of Management, for

growing number of students who want to gain the

example, says PE appealed to him and his peers over

right experience to start their own business. A survey

banking because the firms are smaller and the work

by the Graduate Management Admission Council, an

more entrepreneurial and hands-on.

association of business schools, found that although

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

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Workers on tap Find out why the rise of the on-demand economy poses difficult questions for workers, companies and politicians

Workers on tap

IN THE early 20th century Henry Ford combined

growing number of agencies are delivering freelances

moving assembly lines with mass labour to make

of all sorts, such as Freelancer.com and Elance-oDesk,

The on-demand economy is small, but growing

building cars much cheaper and quicker—thus

which links up 9.3m workers for hire with 3.7m

turning the automobile from a rich man’s toy into

companies.

transport for the masses. Today a growing group of entrepreneurs is striving to do the same to services, bringing together computer power with freelance workers to supply luxuries that were once reserved for the wealthy. Uber provides chauffeurs. Handy supplies cleaners. SpoonRocket delivers restaurant meals to your door. Instacart keeps your fridge stocked. In San Francisco a young computer programmer can already live like a princess.

"The on-demand economy is small, but growing quickly" Yet this on-demand economy goes much wider than the occasional luxury. Click on Medicast’s app, and a doctor will be knocking on your door within two hours. Want a lawyer or a consultant? Axiom will supply the former, Eden McCallum the latter. Other companies offer prizes to freelances to solve R&D problems or to come up with advertising ideas. And a

The on-demand economy is small, but it is growing quickly. Uber, founded in San Francisco in 2009, now operates in 53 countries, had sales exceeding $1 billion in 2014 and a valuation of $40 billion. Like the moving assembly line, the idea of connecting people with freelances to solve their problems sounds simple. But, like mass production, it has profound implications for everything from the organisation of work to the nature of the social contract in a capitalist society.

Baby, you can drive my car—and stock my fridge Some of the forces behind the on-demand economy have been around for decades. Ever since the 1970s the economy that Henry Ford helped create, with big firms and big trade unions, has withered. Manufacturing jobs have been automated out of existence or outsourced abroad, while big companies have abandoned lifetime employment. Some 53m

American workers already work as freelances.

who owned the means of production—the idle

political debate, with Uber at the centre of much of

rich—and people who worked for them. In fact it is

it. Many cities, states and countries have banned the

The on-demand economy allows society to tap into its under-used resources

increasingly being divided between people who have

ride-sharing company on safety or regulatory

money but no time and people who have time but no

grounds. Taxi drivers have staged protests against it.

money. The on-demand economy provides a way for

Uber drivers have gone on strike, demanding better

these two groups to trade with each other.

benefits. Techno-optimists dismiss all this as

The Economist

This will push service companies to follow manufacturers and focus on their core competencies. The “transaction cost” of using an outsider to fix

teething trouble: the on-demand economy gives consumers greater choice, they argue, while letting people work whenever they want. Society gains because idle resources are put to use. Most of Uber’s

But two powerful forces are speeding this up and

something (as opposed to keeping that function

pushing it into ever more parts of the economy. The

within your company) is falling. Rather than

first is technology. Cheap computing power means a

controlling fixed resources, on-demand companies

The truth is more nuanced. Consumers are clear

lone thespian with an Apple Mac can create videos

are middle-men, arranging connections and

winners; so are Western workers who value flexibility

that rival those of Hollywood studios. Complex tasks,

overseeing quality. They don’t employ full-time

over security, such as women who want to combine

such as programming a computer or writing a legal

lawyers and accountants with guaranteed pay and

work with child-rearing. Taxpayers stand to gain if

brief, can now be divided into their component

benefits. Uber drivers get paid only when they work

on-demand labour is used to improve efficiency in the

parts—and subcontracted to specialists around the

and are responsible for their own pensions and health

provision of public services. But workers who value

world. The on-demand economy allows society to tap

care. Risks borne by companies are being pushed back

security over flexibility, including a lot of middle-

into its under-used resources: thus Uber gets people

on to individuals—and that has consequences for

aged lawyers, doctors and taxi drivers, feel justifiably

to rent their own cars, and InnoCentive lets them rent

everybody.

threatened. And the on-demand economy certainly

their spare brain capacity. The other great force is changing social habits. Karl Marx said that the world would be divided into people

Obamacare and Brand You The on-demand economy is already provoking

cars would otherwise be parked in the garage.

produces unfairnesses: taxpayers will also end up supporting many contract workers who have never built up pensions.

"Governments that outlaw on-demand firms are simply handicapping the rest of their economies"

such a world—and keep those skills up to date.

This sense of nuance should inform policymaking.

brands. In a more fluid world, everybody will need to

Governments that outlaw on-demand firms are simply

learn how to manage You Inc.

handicapping the rest of their economies. But that does not mean they should sit on their hands. The ways governments measure employment and wages will have to change. Many European tax systems treat freelances as second-class citizens, while American states have different rules for “contract workers” that could be tidied up. Too much of the welfare state is delivered through employers, especially pensions and health care: both should be tied to the individual and made portable, one area where Obamacare was a big step forward. But even if governments adjust their policies to a more individualistic age, the on-demand economy clearly imposes more risk on individuals. People will have to master multiple skills if they are to survive in

Professional sorts in big service firms will have to take more responsibility for educating themselves. People will also have to learn how to sell themselves, through personal networking and social media or, if they are really ambitious, turning themselves into

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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

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

exactly how many people study for the degree

The most pressing is tighter visa requirements in

globally, but 192,000 masters degrees in business

parts of the rich world. It may seem obvious that

were awarded in America in 2012, making it easily the

countries would wish to attract and retain the

most popular discipline among post-graduate

brightest young minds. But to the despair of

students. Worldwide 688,000 people sat the GMAT,

business-school deans, both America and

the de facto entrance exam for MBA programmes, in

Britain—the two most popular destinations for

2014—although this is down considerably from 2008,

foreign students—now place tougher restrictions on

when 745,000 took the test.

foreign students who want to stay and work in the country after they finish studying.

Do you think MBAs are still a valuable degree to have?

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

Yes, there will always be demand for MBA

possibility to extend to six years. But the demand for

graduates

these visas by far exceeds supply. America caps the number of H-1Bs at a total of 85,000 (the first 20,000

No, the MBA has failed to move with the times

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

The reason for this drop is partly cyclical: people tend

visa expires if they want to stay in the country.

to apply to business schools during downturns in an

Such restrictions are a particular problem for MBA

attempt to shelter themselves from the economic

programmes because many students choose a

"China, in particular, plans to improve its business schools to meet demand for local managers"

business school based on where they want to work

Such concerns highlight the fact that MBA graduates

after they graduate. Predictably, countries with a

are still in demand among employers. At schools

more welcoming attitude, such as Canada, are seeing

included in The Economist’s latest ranking of full-

applications from abroad rise. In contrast, the

time MBA programmes, 89% of students found a job

proportion of applicants interested in American

within three months of graduating. Their median

schools fell from 83% in 2007 to 73% in 2015,

basic salary is close to $100,000, an increase of 88%

according to GMAC, a business-school body.

compared with their pre-study salaries. But some

Established schools are also disrupting themselves.

things have changed: banks, for instance, have

Over the past five years the number of master-in-

become much less keen on MBAs since the financial

management (MiM) degrees, which unlike MBA

crisis (perhaps because business-school alumni were

programmes admit students straight from university

often singled out as the culprits).

without prior work experience, has shot up. In

Canada and other countries do not just covet foreigners deciding whether to apply to American schools. The Canadian government has hired giant billboards in Silicon Valley reading “H-1B Problems? Pivot to Canada” to attract disgruntled foreign

Western business schools are also losing ground to

graduates. “If [American firms] can’t import the

those based in emerging economies. The share of

talent, they will export the jobs,” says Matt

students who send their GMAT scores to an Asian and

Slaughter, the dean of the Dartmouth College’s Tuck

Australasian business school—a good proxy for

School of Business. “Unlike lawyers or doctors, the

applications—has nearly doubled to 8.1% since 2007.

MBA qualification is transferable across borders.”

Eight-and-a-half Asian business schools now make it

"Western business schools are losing ground to those based in emerging economies"

into our ranking of full-time programmes (INSEAD has

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.

campuses in France and Singapore). These numbers

Not all business schools are affected in the same way.

are small, but they are likely to rise. China, in

Students will always, it seems, want an MBA from

particular, plans to improve its business schools to

Harvard, Chicago or London Business School. It is

meet demand for local managers.

those with lesser reputations that face the toughest times. More than two-thirds of full-time programmes

costing under $40,000 a year reported either flat or 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 by its MBA. As Stephen Hodges, the president of Hult International Business School, puts it: “Is a business school really a business school if it doesn’t offer an

MBA?”

Generation uphill Are millennials being given enough of a chance to reach their full potential?

Generation uphill

SHEN XIANG LIVES in a shipping crate on a

parents worked there. Instead he had to make do with

construction site in Shanghai which he shares with at

a worse one back in his village

Millennials are the brainiest, besteducated generation ever. Yet their elders often stop them from reaching their full potential, argues Robert Guest

least seven other young workers. He sleeps in a bunk and uses a bucket to wash in. “It’s uncomfortable,” he says. Still, he pays no rent and the walk to work is only a few paces. Mr Shen, who was born in 1989, hails from a village of “mountains, rivers and trees”. He is a migrant worker and the son of two migrants, so he has always been a second-class citizen in his own country.

Mr Shen doubts that he will ever be able to buy a flat in Shanghai..."It's unfair," he says The Economist

Now he paints hotels. The pay is good—300 yuan ($47) for an 11-hour day—and jobs are more plentiful in Shanghai than back in the countryside. His ambition is “to get married as fast as I can”. But he cannot afford to. There are more young men than young women in China because so many girl babies were aborted in previous decades. So the women today can afford to be picky. Mr Shen had a girlfriend once, but her family demanded that he buy her a house. “I didn’t have enough money, so we broke up,” he recalls. Mr Shen doubts that he will ever be able to buy a flat in Shanghai. In any case, without the right hukou his children would not get subsidised education or health care there. “It’s unfair,” he says. There are 1.8 billion young people in the world,

In China, many public services in cities are reserved for those with a hukou (residence permit). Despite recent reforms, it is still hard for a rural migrant to obtain a big-city hukou. Mr Shen was shut out of government schools in Shanghai even though his

roughly a quarter of the total population. (This report defines “young” as between about 15 and 30.) All generalisations about such a vast group should be taken with a bucket of salt. What is true of young Chinese may not apply to young Americans or

Burundians. But the young do have some things in

This report takes a global view, since 85% of young

Yet much of their talent is being squandered. In most

common: they grew up in the age of smartphones and

people live in developing countries, and focuses on

regions they are at least twice as likely as their elders

in the shadow of a global financial disaster. They fret

practical matters, such as education and jobs. And it

to be unemployed. Over 25% of youngsters in middle-

that it is hard to get a good education, a steady job, a

will argue that the young are an oppressed minority,

income nations and 15% in rich ones are NEETs: not

home and—eventually—a mate with whom to start a

held back by their elders. They are unlike other

in education, employment or training. The job market

family.

oppressed minorities, of course. Their “oppressors” do

they are entering is more competitive than ever, and

not set out to harm them. On the contrary, they often

in many countries the rules are rigged to favour those

There are 1.8 billion young people in the world, roughly a quarter of the population

love and nurture them. Many would gladly swap

who already have a job.

The Economist

places with them, too.

Education has become so expensive that many

In some respects the young have never had it so

students rack up heavy debts. Housing has grown

good. They are richer and likely to live longer than

costlier, too, especially in the globally connected

any previous generation. On their smartphones they

megacities where the best jobs are. Young people

can find all the information in the world. If they are

yearn to move to such cities: beside higher pay, they

female or gay, in most countries they enjoy freedoms

offer excitement and a wide selection of other young

Companies are obsessed with understanding how

that their predecessors could barely have imagined.

people to date or marry. Yet constraints on the supply

“millennials” think, the better to recruit them or sell

They are also brainier than any previous generation.

of housing make that hard.

them stuff. Consultants churn out endless reports

Average scores on intelligence tests have been rising

explaining that they like to share, require constant

for decades in many countries, thanks to better

praise and so forth. Pundits fret that millennials in

nutrition and mass education.

rich countries never seem to grow out of adolescence, with their constant posting of selfies on social media and their desire for “safe spaces” at university, shielded from discomforting ideas.

"Over 25% of youngsters in middle-income nations and 15% in rich ones are NEETs"

For both sexes the path to adulthood—from school to work, marriage and children—has become longer and more complicated. Mostly, this is a good thing. Many young people now study until their mid-20s and put off having children until their late 30s. They form families later partly because they want to and partly

because it is taking them longer to become

Politicians in democracies listen to the people who

established in their careers and feel financially

vote—which young people seldom do. Only 23% of

secure. Alas, despite improvements in fertility

Americans aged 18-34 cast a ballot in the 2014 mid-

treatment the biological clock has not been reset to

term elections, compared with 59% of the over-65s.

accommodate modern working lives.

In Britain’s 2015 general election only 43% of the

Throughout human history, the old have subsidised the young. In rich countries, however, that flow has recently started to reverse. Ronald Lee of the University of California, Berkeley, and Andrew Mason at the University of Hawaii measured how much people earn at different ages in 23 countries, and how much they consume. Within families, intergenerational transfers still flow almost entirely from older to younger. However, in rich countries public spending favours pensions and health care for

18-24s but 78% of the over-65s voted. In both countries the party favoured by older voters won a thumping victory. “My generation has a huge interest in political causes but a lack of faith in political parties,” says Aditi Shorewal, the editor of a student paper at King’s College, London. In autocracies the young are even more disillusioned. In one survey, only 10% of Chinese respondents thought that young people’s career prospects depended more on hard work or ability than on family connections.

the old over education for the young. Much of this is

All countries need to work harder to give the young a

paid for by borrowing, and the bill will one day land

fair shot. If they do not, a whole generation’s talents

on the young. In five of 23 countries in Messrs Lee

could be wasted. That would not only be immoral; it

and Mason’s sample (Germany, Austria, Japan,

would also be dangerous. Angry young people

Slovenia and Hungary), the net flow of resources

sometimes start revolutions, as the despots

(public plus private) is now heading from young to

overthrown in the Arab Spring can attest.

old, who tend to be richer. As societies age, many more will join them.

Do you think millennials the world over are being given a fair shot? No, the challenges stacked against millennials are far too great Yes, no previous generation has had it so good

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 and 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’.”

Thank you for reading

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