Global mid­dle class is in fine fet­tle, but in the West it faces ex­tinc­tion

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

‘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

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