Artificial intelligence - The Economist · PDF fileThe return of the machinery question After...
Transcript of Artificial intelligence - The Economist · PDF fileThe return of the machinery question After...
Artificial intelligenceAnything you can do, AI can do better.So how will it change the workplace?
Artificial intelligenceAnything you can do, AI can do better. So how will itchange the workplace?
The return of themachinery question
After many false starts, artificialintelligence has taken off. Will it causemass unemployment or even destroymankind? History can provide somehelpful 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 machineryquestion is back with avengeance, 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
University, published in 2013, found that 47% of jobs
in America were at high risk of being “substituted by
computer capital” soon. More recently Bank of
America Merrill Lynch predicted that by 2025 the
“annual creative disruption impact” from AI could
amount to $14 trillion-33 trillion, including a $9
trillion reduction in employment costs thanks to AI-
enabled automation of knowledge work; cost
reductions of $8 trillion in manufacturing and health
care; and $2 trillion in efficiency gains from the
deployment of self-driving cars and drones. The
McKinsey Global Institute, a think-tank, says AI is
contributing to a transformation of society
“happening ten times faster and at 300 times the
scale, or roughly 3,000 times the impact” of the
Industrial Revolution.
Mr Musk warns that "with artificialintelligence, we're summoning thedevil"
The Economist
Just as people did two centuries ago, many fear that
machines will make millions of workers redundant,
causing inequality and unrest. Martin Ford, the
author of two bestselling books on the dangers of
automation, worries that middle-class jobs will
vanish, economic mobility will cease and a wealthy
plutocracy could “shut itself away in gated
communities or in elite cities, perhaps guarded by
autonomous military robots and drones”. Others fear
that AI poses an existential threat to humanity,
because superintelligent computers might not share
mankind’s goals and could turn on their creators.
Such concerns have been expressed, among others, by
Stephen Hawking, a physicist, and more surprisingly
by Elon Musk, a billionaire technology entrepreneur
who founded SpaceX, a rocket company, and Tesla, a
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
Caligula,” he says.
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.
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
e-mail replies, translate web pages, recognise voice
commands, detect credit-card fraud and steer self-
driving cars. “This is a big deal,” says Jen-Hsun
Huang, chief executive of NVIDIA, a firm whose chips
power many AI systems. “Instead of people writing
software, we have data writing software.”
In 2015 a record $8.5 billion wasspent on AI companies, nearly fourtimes as much as in 2010
The Economist
Where some see danger, others see opportunity.
Investors are piling into the field. Technology giants
are buying AI startups and competing to attract the
best researchers from academia. In 2015 a record $8.5
billion was spent on AI companies, nearly four times
as much as in 2010, according to Quid, a data-
analysis 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
declined by 3%, says Nathan Benaich of Playfair
Capital, a fund that has 25% of its portfolio invested
in AI. “It’s the Uber for X” has given way to “It’s X
plus AI” as the default business model for startups.
Google, Facebook, IBM, Amazon and Microsoft are
trying to establish ecosystems around AI services
provided in the cloud. “This technology will be
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
in equal measure, and raises a lot of questions. Yet it
is worth remembering that many of those questions
have been asked, and answered, before.
The world is going touniversityBut is it worth it?
The world is going touniversity
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 growingfaster even than demand for thatultimate 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
brilliant, well-funded institutions at the top and
poorer ones at the bottom.
The world is moving in the American direction. More
universities in more countries are charging students
tuition fees. And as politicians realise that the
“knowledge economy” requires top-flight research,
public resources are being focused on a few privileged
institutions and the competition to create world-class
universities is intensifying.
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.
"OECD countries spend 1.6%of GDP on higher education,compared with 1.3% in2000"
If the American model continues to spread, that
share will rise further. America spends 2.7% of its GDP
on higher education.
If America were getting its money’s worth from higher
education, that would be fine. On the research side, it
probably is. In 2014, 19 of the 20 universities in the
world that produced the most highly cited research
papers were American. But on the educational side,
the picture is less clear. American graduates score
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
investment for a student. A bachelor’s degree in
America still yields, on average, a 15% return. But it
is less clear whether the growing investment in
tertiary education makes sense for society as a whole.
If graduates earn more than non-graduates because
their studies have made them more productive, then
university education will boost economic growth and
society should want more of it. Yet poor student
scores suggest otherwise. So, too, does the testimony
of employers. A recent study of recruitment by
professional-services firms found that they took
graduates from the most prestigious universities not
because of what the candidates might have learned
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
money, why might that be? The main reason is that
the market for higher education, like that for health
care, does not work well. The government rewards
universities for research, so that is what professors
concentrate on. Students are looking for a degree
from an institution that will impress employers;
employers are interested primarily in the selectivity
of the institution a candidate has attended. Since the
value of a degree from a selective institution depends
on its scarcity, good universities have little incentive
to produce more graduates. And, in the absence of a
clear measure of educational output, price becomes a
proxy for quality. By charging more, good universities
gain both revenue and prestige.
What’s it worth?
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
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-year-
olds. 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
they have taught their students to think critically.
Some governments and institutionsare trying to shed light oneducational outcomes
The Economist
Some governments and institutions are trying to shed
light on educational outcomes. A few American state-
university 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
funding and participation from them, the effort will
remain grounded.
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 careerpaths. Read how
Banks? No, thanks!
Graduates are turning away fromtraditional banking roles, towardsstartups, tech giants and consultancies
“AN INVESTMENT banker was a breed apart, a member
of a master race of dealmakers. He possessed vast,
almost unimaginable talent and ambition.” So wrote
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 BusinessSchool's MBA graduates got a job infinancial 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
recruiting the brightest undergraduates, in the belief
that it is more productive—and better value—to
develop cohorts of junior analysts in-house, rather
than those with fixed ideas honed on expensive MBA
programmes.
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
within a few years. Investment banks expect long-
term loyalty, notes an MBA who did a spell in
banking, whereas students see them as “a stepping
stone into private equity or a hedge fund”.
"Almost 30% of students atthe elite business schoolsnow typically find work atconsulting firms"
This is one reason why there has been a revival in
business-school graduates’ interest in working as
consultants. Almost 30% of students at the elite
business schools now typically find work at
consulting firms. In 2007, 23% of London Business
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.
This should not be surprising. Before investment
banks were in vogue, consulting seemed the natural
home for business-school students’ talents. The
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 elitebusiness schools now typically findwork 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 high-
powered 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,
compared with $100,000 for Chicagoans signing up
with an investment bank—only makes the choice
easier.
Not just in it for the money
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
likely to have accumulated huge debts. Harvard
reckons its MBA can cost $250,000 for two years’
board and study, and that is before forgone salary is
taken into account.
Another big beneficiary of MBAs’ loss of interest in
banking is the technology industry. Of the top eight
recruiters at INSEAD, a business school with
campuses in France and Singapore, half now fall into
this category: Amazon, Microsoft, Samsung and
Google. (The other half were consultants.) The
proportion of Chicago MBAs landing jobs at
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.
Tech firms and consultants both appeal to the
growing number of students who want to gain the
right experience to start their own business. A survey
by the Graduate Management Admission Council, an
association of business schools, found that although
only 4% of MBAs have entrepreneurial experience
when they enter their course, 26% say they want to
start companies after they graduate.
Competition for the best students is also coming from
the non-bank financial-services sector, notably hedge
funds and private-equity (PE) firms. Five years ago it
was rare for such places to recruit MBAs straight from
campuses. Instead they would often poach talent
from the banks. But now several big schools,
including Harvard and Wharton, are building formal
recruiting ties with such firms.
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
graduate of Kellogg School of Management, for
example, says PE appealed to him and his peers over
banking because the firms are smaller and the work
more entrepreneurial and hands-on.
If self-fulfillment is indeed the priority for millennial
MBAs, then banks need to do some serious
rebranding. “I have never heard anything about the
corporate culture of investment banks that sounds
like it’s an environment I’d like to work in,” says a
business-school graduate who chose consulting.
Added to this, MBAs also seem to have discovered a
sense of moral purpose. At London Business School
the fastest-growing student society is something
called the “Net Impact” club, says Lara Berkowitz, a
senior career adviser at the school. This means
thinking about how to build careers that have a
positive impact on the world around them, such as
running ethical-investment funds or corporate-social-
responsibility 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
come and work at Goldman Sachs, because you can
make a difference in the world,” trills its recruitment
video. A few banks are trying to change their culture,
taking a tougher line on sexual harassment of female
staff and advocating a healthier work-life balance,
perhaps even allowing the odd work-free Saturday.
For the business schools’ brightest and best, though,
all this may not be enough.
Where would you rather work?
Banking and finance sector
Tech industry
Elsewhere
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Workers on tapFind out why the rise of the on-demand economy posesdifficult questions for workers, companies and politicians
Workers on tap
The on-demand economy is small, butgrowing
IN THE early 20th century Henry Ford combined
moving assembly lines with mass labour to make
building cars much cheaper and quicker—thus
turning the automobile from a rich man’s toy into
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 issmall, 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
growing number of agencies are delivering freelances
of all sorts, such as Freelancer.com and Elance-oDesk,
which links up 9.3m workers for hire with 3.7m
companies.
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.
The on-demand economy allowssociety to tap into its under-usedresources
The Economist
But two powerful forces are speeding this up and
pushing it into ever more parts of the economy. The
first is technology. Cheap computing power means a
lone thespian with an Apple Mac can create videos
that rival those of Hollywood studios. Complex tasks,
such as programming a computer or writing a legal
brief, can now be divided into their component
parts—and subcontracted to specialists around the
world. The on-demand economy allows society to tap
into its under-used resources: thus Uber gets people
to rent their own cars, and InnoCentive lets them rent
their spare brain capacity.
The other great force is changing social habits. Karl
Marx said that the world would be divided into people
who owned the means of production—the idle
rich—and people who worked for them. In fact it is
increasingly being divided between people who have
money but no time and people who have time but no
money. The on-demand economy provides a way for
these two groups to trade with each other.
This will push service companies to follow
manufacturers and focus on their core competencies.
The “transaction cost” of using an outsider to fix
something (as opposed to keeping that function
within your company) is falling. Rather than
controlling fixed resources, on-demand companies
are middle-men, arranging connections and
overseeing quality. They don’t employ full-time
lawyers and accountants with guaranteed pay and
benefits. Uber drivers get paid only when they work
and are responsible for their own pensions and health
care. Risks borne by companies are being pushed back
on to individuals—and that has consequences for
everybody.
Obamacare and Brand You
The on-demand economy is already provoking
political debate, with Uber at the centre of much of
it. Many cities, states and countries have banned the
ride-sharing company on safety or regulatory
grounds. Taxi drivers have staged protests against it.
Uber drivers have gone on strike, demanding better
benefits. Techno-optimists dismiss all this as
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
cars would otherwise be parked in the garage.
The truth is more nuanced. Consumers are clear
winners; so are Western workers who value flexibility
over security, such as women who want to combine
work with child-rearing. Taxpayers stand to gain if
on-demand labour is used to improve efficiency in the
provision of public services. But workers who value
security over flexibility, including a lot of middle-
aged lawyers, doctors and taxi drivers, feel justifiably
threatened. And the on-demand economy certainly
produces unfairnesses: taxpayers will also end up
supporting many contract workers who have never
built up pensions.
"Governments that outlawon-demand firms are simplyhandicapping the rest oftheir economies"
This sense of nuance should inform policymaking.
Governments that outlaw on-demand firms are simply
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
such a world—and keep those skills up to date.
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
brands. In a more fluid world, everybody will need to
learn how to manage You Inc.
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The Economist
Still a must-haveMBAs remain surprisingly popular, despite the headwinds
Still a must have
It's no stranger to criticism, but the MBAis still hugely popular
THE master of business administration (MBA) is no
stranger to damning criticism. In the 1950s an
influential report commissioned by the Ford
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 businesswere awarded in America in 2012,making it easily the most populardiscipline among post-graduatestudents
The Economist
Yet the MBA remains hugely popular. Nobody knows
exactly how many people study for the degree
globally, but 192,000 masters degrees in business
were awarded in America in 2012, making it easily the
most popular discipline among post-graduate
students. Worldwide 688,000 people sat the GMAT,
the de facto entrance exam for MBA programmes, in
2014—although this is down considerably from 2008,
when 745,000 took the test.
Do you think MBAs are still avaluable degree to have?
Yes, there will always be demand for MBA
graduates
No, the MBA has failed to move with the times
The reason for this drop is partly cyclical: people tend
to apply to business schools during downturns in an
attempt to shelter themselves from the economic
storm. But the MBA faces many longer-term problems.
The most pressing is tighter visa requirements in
parts of the rich world. It may seem obvious that
countries would wish to attract and retain the
brightest young minds. But to the despair of
business-school deans, both America and
Britain—the two most popular destinations for
foreign students—now place tougher restrictions on
foreign students who want to stay and work in the
country after they finish studying.
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
possibility to extend to six years. But the demand for
these visas by far exceeds supply. America caps the
number of H-1Bs at a total of 85,000 (the first 20,000
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
visa expires if they want to stay in the country.
Such restrictions are a particular problem for MBA
programmes because many students choose a
business school based on where they want to work
after they graduate. Predictably, countries with a
more welcoming attitude, such as Canada, are seeing
applications from abroad rise. In contrast, the
proportion of applicants interested in American
schools fell from 83% in 2007 to 73% in 2015,
according to GMAC, a business-school body.
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
graduates. “If [American firms] can’t import the
talent, they will export the jobs,” says Matt
Slaughter, the dean of the Dartmouth College’s Tuck
School of Business. “Unlike lawyers or doctors, the
MBA qualification is transferable across borders.”
"Western business schoolsare losing ground to thosebased in emergingeconomies"
Such concerns highlight the fact that MBA graduates
are still in demand among employers. At schools
included in The Economist’s latest ranking of full-
time MBA programmes, 89% of students found a job
within three months of graduating. Their median
basic salary is close to $100,000, an increase of 88%
compared with their pre-study salaries. But some
things have changed: banks, for instance, have
become much less keen on MBAs since the financial
crisis (perhaps because business-school alumni were
often singled out as the culprits).
Western business schools are also losing ground to
those based in emerging economies. The share of
students who send their GMAT scores to an Asian and
Australasian business school—a good proxy for
applications—has nearly doubled to 8.1% since 2007.
Eight-and-a-half Asian business schools now make it
into our ranking of full-time programmes (INSEAD has
campuses in France and Singapore). These numbers
are small, but they are likely to rise. China, in
particular, plans to improve its business schools to
meet demand for local managers.
"China, in particular, plans toimprove its business schoolsto meet demand for localmanagers"
Established schools are also disrupting themselves.
Over the past five years the number of master-in-
management (MiM) degrees, which unlike MBA
programmes admit students straight from university
without prior work experience, has shot up. In
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.
Not all business schools are affected in the same way.
Students will always, it seems, want an MBA from
Harvard, Chicago or London Business School. It is
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 MBAprogramme can attract, few schoolswill consider dropping theprogramme 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 uphillAre millennials being given enough of a chance to reachtheir full potential?
Generation uphill
Millennials are the brainiest, best-educated generation ever. Yet theirelders often stop them from reachingtheir full potential, argues Robert Guest
SHEN XIANG LIVES in a shipping crate on a
construction site in Shanghai which he shares with at
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 beable to buy a flat in Shanghai..."It'sunfair," he says
The Economist
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
parents worked there. Instead he had to make do with
a worse one back in his village
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,
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
common: they grew up in the age of smartphones and
in the shadow of a global financial disaster. They fret
that it is hard to get a good education, a steady job, a
home and—eventually—a mate with whom to start a
family.
There are 1.8 billion young people inthe world, roughly a quarter of thepopulation
The Economist
Companies are obsessed with understanding how
“millennials” think, the better to recruit them or sell
them stuff. Consultants churn out endless reports
explaining that they like to share, require constant
praise and so forth. Pundits fret that millennials in
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.
This report takes a global view, since 85% of young
people live in developing countries, and focuses on
practical matters, such as education and jobs. And it
will argue that the young are an oppressed minority,
held back by their elders. They are unlike other
oppressed minorities, of course. Their “oppressors” do
not set out to harm them. On the contrary, they often
love and nurture them. Many would gladly swap
places with them, too.
In some respects the young have never had it so
good. They are richer and likely to live longer than
any previous generation. On their smartphones they
can find all the information in the world. If they are
female or gay, in most countries they enjoy freedoms
that their predecessors could barely have imagined.
They are also brainier than any previous generation.
Average scores on intelligence tests have been rising
for decades in many countries, thanks to better
nutrition and mass education.
"Over 25% of youngsters inmiddle-income nations and15% in rich ones are NEETs"
Yet much of their talent is being squandered. In most
regions they are at least twice as likely as their elders
to be unemployed. Over 25% of youngsters in middle-
income nations and 15% in rich ones are NEETs: not
in education, employment or training. The job market
they are entering is more competitive than ever, and
in many countries the rules are rigged to favour those
who already have a job.
Education has become so expensive that many
students rack up heavy debts. Housing has grown
costlier, too, especially in the globally connected
megacities where the best jobs are. Young people
yearn to move to such cities: beside higher pay, they
offer excitement and a wide selection of other young
people to date or marry. Yet constraints on the supply
of housing make that hard.
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
established in their careers and feel financially
secure. Alas, despite improvements in fertility
treatment the biological clock has not been reset to
accommodate modern working lives.
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
the old over education for the young. Much of this is
paid for by borrowing, and the bill will one day land
on the young. In five of 23 countries in Messrs Lee
and Mason’s sample (Germany, Austria, Japan,
Slovenia and Hungary), the net flow of resources
(public plus private) is now heading from young to
old, who tend to be richer. As societies age, many
more will join them.
Politicians in democracies listen to the people who
vote—which young people seldom do. Only 23% of
Americans aged 18-34 cast a ballot in the 2014 mid-
term elections, compared with 59% of the over-65s.
In Britain’s 2015 general election only 43% of the
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.
All countries need to work harder to give the young a
fair shot. If they do not, a whole generation’s talents
could be wasted. That would not only be immoral; it
would also be dangerous. Angry young people
sometimes start revolutions, as the despots
overthrown in the Arab Spring can attest.
Do you think millennials the worldover 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
Temping is on the increase, affectingtemps and staff workers alike
AT THE BMW factory in Spartanburg, South Carolina,
brand new sport-utility vehicles roll off the assembly
line with the regularity of a German express train.
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
and Utilisation (MAU). Josef Kerscher, the luxury
carmaker’s American boss, likened the conditions that
prompted the wild fluctuations in Spartanburg’s
temporary workforce to a “rollercoaster”. Such
volatility is not uncommon for America’s temps,
however, whose numbers are growing even as their lot
in life diminishes.
Demand for temps has never been higher. The
industry now provides work for some 2.9m people,
over 2% of the total workforce. The American Staffing
Association, an industry group, reckons that it
generated over $120 billion in revenue in 2015.
Since the American economicrecovery began in 2009, temporaryemployment has been responsiblefor nearly one in ten new jobs
The Economist
Since the economic recovery began in 2009,
temporary employment has been responsible for
nearly one in ten net new jobs.
But as temping has grown, the quality of the jobs it
provides has deteriorated. In the 1950s and 1960s
temping was seen as a way for educated people with
time on their hands—college students, school
teachers on holiday and middle-class housewives—to
earn a little extra cash. One early study found that
about half of female temps during the 1960s had
some college education, nearly twice the national
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
as second-rate employers. “There is nothing
demeaning about working for such an
organisation,” Barron’swrote in 1962; “Many workers
prefer to do so.”
Just 8% of temps have andadvanced degree compared with12% of permanent workers
The Economist
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
age and education, Lawrence Katz, an economist at
Harvard University, reckons temps face a 15%
earnings penalty. In 1970 8% of temporary workers
lived below the poverty line; in 2014 it was 15%.
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.
A survey by the Federal Reserve in 2013 found that a
big share of temps consider themselves overqualified
for their jobs. Less than a third see their job as a
“stepping stone to a career”.
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
is nearly one in ten. Big, concentrated and enduring
pockets of temporary workers suggest that temping
agencies are being used not just to smooth out
fluctuations in demand, but also to lower labour
costs.
"More than 26% of tempsparticipate in social safety-net programmes, comparedwith 14% of permanentworkers"
The proliferation of ill-paid temp work affects
temporary and permanent workers alike. Many of the
costs that employers of temps avoid, including
prevailing wages and health-care costs, are now
borne in part by taxpayers in the form of increased
spending on Medicaid, food stamps and other welfare
schemes. More than 26% of temps participate in at
least one of these social safety-net programmes,
compared with 14% of permanent workers.
The growth of the temping industry affects labour
markets in other ways. On the positive side, by
offering positions to workers who might otherwise be
unemployed, temping reduces the unemployment
rate. Temps also insulate permanent employees from
downturns in the business cycle, thereby improving
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 co-
workers. A study published in 1999 by Mr Katz and
Alan Krueger of Princeton University found that
states with a higher share of temporary employment
in the late 1980s experienced lower wage growth in
the 1990s. These results have held up: in states where
less than 2% of the workforce was employed by
temping firms in 2000, wages of permanent workers
grew an average of 3% a year between 2000 and
2015; in states with a higher proportion of temp
workers, wages grew at an annual rate of 2.6%. Such
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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