Global middle class is in fine fettle, but in the West it faces extinction
‘Capitalism has succeeded in reducing inequality between nations, but is alienating its core support base in the West’
We are at a global tipping point, according to new research by the American think tank Brookings, with more than half the world’s population now officially “middle class”. The problem with such claims is always one of definition. What does it mean to be middle class, or indeed working class?
Let us take the Brookings definition at face value; being middle class means “having some discretionary income that can be used to buy consumer durables like motorcycles, refrigerators, or washing machines. The middle classes can afford to go to movies or indulge in other forms of entertainment. They may take vacations. And they are reasonably confident they and their family can weather an economic shock – like illness or a spell of unemployment – without falling into extreme poverty”.
Assuming Brookings is correct in its data, this is obviously great news. Global capitalism has worked as it should in lifting great swathes of the world’s population out of poverty.
But where have these gains arisen? As you might expect, it is substantially in the main centres of population, China, India and, to a lesser extent, Latin America. It is not such good news, however, if already a member of the existing, Western middle class, as neatly illustrated by Branko Milanovic’s “elephant graph”.
This shows growth in real incomes globally according to income distribution over a 20-year period of hyper-globalisation from the fall of the Berlin Wall to the collapse of Lehman Brothers. Those in the bottom half of the income distribution, and those at the very top, are shown to have done exceptionally well out of a fast globalising economy, but those who started relatively well off – the Western middle class – have seen their real incomes badly depressed, squeezed between a rising Asia and a globetrotting international elite. Trump, Brexit, populism – all apparently explained in one simple image.
The problem with this chart, as has been repeatedly pointed out, is that it assumes a static world in which everyone remains stuck in the same income bracket. This is rarely the case; people tend to move up the income ladder over a working lifetime.
None the less, it remains undeniably the case that the developing world has done well from globalisation, but beyond the plutocrats and the highly skilled, the West not so well.
Capitalism has succeeded in homogenising prosperity, and in reducing inequality between nations. But at the same time it is alienating its core, Western, lower middle class support base. It could scarcely find itself in a more perilous position, apparently unable to satisfy its greatest creation – Western democracy.
Artificial intelligence hoopla
Artificial intelligence, blah, fourth industrial revolution, blah, march of the smart machines, blah, technological unemployment, blah, big data, big brother, blah, blah, blah, yawn. I have been as guilty as the next man in hyping the AI revolution, but as a business phenomenon the whole thing now shows every sign of getting seriously out of hand, such that we may be witnessing a replay of the boom and bust of the dotcom bubble.
Woe betide the company that fails to flaunt its AI ambitions, however delusional and ill-defined they might be; “Where is your AI strategy?” investors and analysts will angrily demand. Even the most common or garden of business models must pay lip service. Any CEO who ignores it will be punished accordingly. The management consultants are having a field day with this newly found brand of snake oil.
Worn proudly on its sleeve is IBM’S high-maintenance “Watson Group”. What does it do, you ask? AI, comes the reply. But to what purpose? Answer comes there none.
Are we not getting carried away with ourselves? One man who thinks we are is Zia Chishti; as the founder of a leading AI company, Afiniti, you would not expect him to take such a view, all the more so as he hopes to float on the stock market at some stage over the next year, presumably on the kind of mega valuation that growth companies of this sort have come to command.
His point is a simple one – that actually AI is not what people generally think it is. According to Chishti, we do not stand on the verge of some kind of “singularity”, where technology enters a compounding phase of self-improvement that comes to challenge human purpose itself. That point is still a long way off, and possibly unobtainable in any foreseeable future.
The reality of today’s AI revolution is much more mundane. As it stands, AI is merely about collecting, analysing and applying data. A combination of hyper connectivity and supercomputing means that this can now be done in unprecedented bulk and at lightning speed. In itself, this is no small breakthrough, but it is not technological consciousness or anything close.
Admittedly, some of it is remarkably clever; Afiniti uses data analytics to more appropriately match the customer with call centre operative. The effect is both measurable and startling, helping significantly to reduce rates of churn at big service providers such as Vodafone, and increase customer acquisition. But it is hardly transformational. The same can be said about the great bulk of AI; it can help increase efficiency and potentially revenue acquisition, but it is not Ex Machina.
Corporations and investors are far from alone in falling for the hype. Countries too have grown starry eyed about the possibilities. Technological advance once only added to the costs of healthcare, Britain’s new Health Secretary, Matt Hancock, points out. Now it has the potential greatly to reduce its costs, and could therefore even prove the NHS’S salvation. Believe it when you see it.
But the worst hyperbole of the lot comes from the land of constantly inflating bubbles – China. World leadership in AI is one of China’s stated industrial goals. Given its lack of scruples when it comes to big data, privacy and surveillance, you never know, it might get there.
But for now it must content itself with world leadership in AI hokum. According to recent research from Tsinghua University, two thirds of global AI investment now takes place in China, which also leads the US and Japan in the number of AI patents, research papers and citations.
Ah, citations. This is an old trick in academia, where a multiplier effect is achieved by repeatedly citing the citation, not difficult in a country of more than a billion souls. As for record levels of investment, much of it will be purely speculative, and we know where that ends – in tulip mania.
Good things will no doubt come from AI, but there are going to be big losses along the way.
Global capitalism has led to populations in developing cities such as Shanghai becoming more affluent