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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
Tech industry Elsewhere See results
Adapt or die From music to cars, major industries are being disrupted by digital innovation. Watch how
The music industry and the digital revolution
The Disrupters
From music and cars to hospitality—major industries are being disrupted by the latest wave of digital innovation
Tech companies such as Kobalt provide an alternative route for musicians to find
The music industry has come a long way since Radiohead allowed fans to pay what they wanted for an album. But there is still plenty of digital disruption going on. fans and manage their money—without having to rely on a record deal.
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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Bionic bodies
Ground breaking technology is changing the industry of bionic limbs. Watch how in Future Works, from Economist Films
Technology is disrupting industries, and changing people's lives
Bionics, the enhancement of the human body using cutting edge technology...merging man and machine The Economist
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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