May 27, 2018

Axios Future

By Bryan Walsh
Bryan Walsh

Welcome back to Future. Thanks for subscribing. Consider inviting your friends and colleagues to sign up.

Last Thursday and Friday, the Dallas Fed held a terrifically interesting conference on the massive, long-term disruption flowing from the technological revolution. I packed as much of the best stuff as I could in today's newsletter.

I'd love to hear your ideas of what we ought to cover, are getting wrong, or anything else you care to share. Just hit reply to this email or shoot me a message at steve@axios.com. Let's start with ...

1 big thing: The trouble with startups

Illustration: Rebecca Zisser/Axios

For decades, U.S. tech startups have been the beating heart of Silicon Valley. But almost unnoticed by economists, they are now in the same funk dogging some other sectors of the American economy.

Quick take: American startups are in a 13-year slump, their numbers shrunken from their heyday and, with a few conspicuous exceptions, their inventions not the financial world-killers of prior kin, according to new research.

Why it matters: In the booming 1980s and 1990s, much of U.S. job and productivity growth was the handiwork of a few young startups and their hit innovations. But the decline, which began in 2005, has stripped the economy of one of its most vibrant engines of wage and productivity growth, says John Haltiwanger, an economist at the University of Maryland.

  • As you see in the chart below, the decline began long before the financial crash — in fact, halted there — and entrepreneurs have barely picked up the pace since then despite the economic recovery.
Expand chart
Data: Census Bureau; Chart: Chris Canipe/Axios

The background: For years, economists have been trying to figure out why productivity growth in major western economies has been flat despite soaring corporate profit, low joblessness and low inflation. Among the reasons they have come up with:

  • We've created all the big inventions: The University of Chicago's Robert Gordon says in his seminal 2016 book, The Rise and Fall of American Growth, that we have already produced the most consequential inventions like electricity and internal combustion. Anything else isn't going to have the same punch.
  • We're in a transition period: Economists from MIT and the University of Chicago cite a lag between the launch of a new technology, such as artificial intelligence, and its visibility in productivity numbers. We are in that period now, they say (see next post).

Haltiwanger dismisses neither of those reasons, but tells Axios that the loss of the propulsion of startups is a primary reason for the current malaise. He speculates that Big Tech companies may be buying up a lot of them before they make their big splash, thus smothering their potential.

Read the whole post.

2. The boom is on its way

Illustration: Rebecca Zisser/Axios

A group of economists say they have an answer to why, besides a spurt during the dotcom boom, productivity growth has been under half the historical trend since 1970.

Quick take: As discussed briefly above, Chad Syverson, an economics professor at U Chicago, said technological history has been one of lag-times between the launch of new technologies and their visibility in productivity numbers. In work he did with MIT's Erik Brynjolfsson and Daniel Rock, Syverson said advances in artificial intelligence in particular simply have not worked their way through the economy and into complementary products.

He cited analogies:

  • At least half of U.S. factories remained unelectrified until 1919, three decades after the invention of the first functional AC motor.
  • It wasn’t until the 1980s, more than 25 years after the invention of the integrated circuit, that computers had penetrated U.S. businesses.
  • It took two decades for e-commerce to reach 10% penetration of retail.

Syverson and his co-authors call this "diffusion" — when a big invention like electricity and internal combustion comes into its own and spawns hundreds or thousands of devices that themselves are also huge but could not otherwise exist.

  • AI will soon diffuse, they say, and produce a second wave of productivity from computerization.

Read the whole post.

3. A worse bloodbath

Around the world, an Apple store is a sign of retail health. Here, in Palo Alto, CA. Photo: Photo: Smith Collection/Gado/Getty Images

The death of the U.S. retail mall will be worse than forecast — with just a quarter of the current 1,200 or so surviving, says former J.C. Penney CEO Mike Ullman.

Quick take: Until now, most experts have said that a quarter of the malls will close. But, speaking on a panel, Ullman reversed the numbers, estimating that only about 300 malls will make it. The rest will close over the next five years, becoming victims of decades-long changes in consumer taste, including the recent impact of Amazonization.

The background: Rockport is the latest U.S. retail chain to file for bankruptcy, on top of 11 others this year, and Sears is closing another 40 stores, Business Insider reports. That is leaving gaping holes in malls.

How and why the survivors will make it: Ullman said malls must have adequate cash or access to financing to make the transition to a new style of retail, in addition to a location catering to the top income quartile.

  • A mark of mall survival is the presence of an Apple or Tesla store. If a mall can attract one or both of those, it suggests it is viable, Ullman said.
4. A receding tide

Call center workers are targeted for automation. Here, in Lakewood, CO. Photo: Michael Reaves/Denver Post/Getty Images

Few Americans have enjoyed steadily rising pay after inflation over the last couple of decades, a shift from prior years when the working and middle classes enjoyed broad-based wage gains as the economy expanded.

Why it matters: Now, executives of big U.S. companies suggest that the days of most people getting a pay raise are over, and that they also plan to reduce their work forces further.

Quick take: This was rare, candid and bracing talk from executives atop corporate America. The message is that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit; to cash in, workers will need to shift to higher-skilled jobs that command more income.

Troy Taylor, CEO of the Coke franchise for Florida, said he is currently adding employees with the idea of later reducing the staff over time "as we invest in automation." Those being hired: technically-skilled people. "It's highly technical just being a driver," he said.

  • The moderator asked the panel whether there would be broad-based wage gains again. "It's just not going to happen," Taylor said. The gains would go mostly to technically-skilled employees, he said. As for a general raise? "Absolutely not in my business," he said.
  • John Stephens, chief financial officer at AT&T, said 20% of the company's employees are call-center workers. He said he doesn't need that many. In addition, he said, "I don't need that many guys to install coaxial cables."

Because of the changes coming, AT&T is pushing employees to take nano-degree programs to prepare them for other jobs — either at AT&T or elsewhere.

5. Worthy of your time

Illustration: Sarah Grillo/Axios

Banks are cut out of China's shopping juggernaut (Jennifer Surane and Christopher Cannon — Bloomberg) [h/t Azeem Azhar]

Getting into position for 6G (Michael Koziol — IEEE Spectrum) [h/t Rahim Hirji]

The new era in data privacy (Sara Fischer and Kim Hart — Axios)

Trump proposes axing Foreign Entrepreneur Rule (Stef Kight — Axios)

China has been beating the West at infrastructure for two decades (Bushra Bataineh, Michael Bennon, and Francis Fukuyama — Foreign Affairs)

Liberal arts versus practical skills (Frank Bruni — NYT)

6. 1 peacemaking thing: An AI social umpire

Photo: William Lovelace/Daily Express/Hulton Archive/Getty Images

Among efforts to make social media a more congenial place, researchers at Cornell are working on artificial intelligence that detects nasty online conversations when they are only starting to take that turn.

What's going on: Most studies of online conversation look for phrases such as, "What the hell is wrong with you.” But, by then, it's too late. In their new paper, Justine Zhang, Jonathan Chang and Cristian Danescu-Niculescu-Mizil say they aim to ferret out anti-social clues "when the conversation is still salvageable."

How they did it: The Cornell team studied some 1,200 conversations on Wikipedia Talk pages, reports MIT Tech Review, in a collaboration with researchers from Jigsaw and Wikimedia.

Among their findings:

  • Cues of civil conversations include greetings and gratitude as well as opinions that are hedged.
  • Conversations going bad feature sentences starting with the word "you," which signals potential trouble.

That won't surprise many of us: The researchers found that humans are still better at this than AI — a control group of humans detected a bad conversation in advance 72% of the time, compared with 61.6% for the AI.

  • Yet if all humans were terrific at heading off online battles, we would not be in some of the mess we currently confront. In other words, early detection would be a good thing.

One bit of good news: In some of the conversations their AI had flagged, the humans eventually self-corrected.

  • The paper concludes, "Interactions which initially seem prone to attacks can nonetheless maintain civility, by way of level-headed interlocutors, as well as explicit acts of reparation."
Bryan Walsh