When I watch the television or listen to the radio nowadays, I’m constantly reminded of the opening lines of Dickens’ ‘a tale of two cities’:
‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way’.
You see some people, some businesses are doing very well indeed – their products or services are in great demand, they’ve held back employee wage rises for several years, they’re not dependent on anyone or anything, the profits and cash are rolling in. Meanwhile, for the individual or business next door it seems as if it couldn’t get much worse – and I particularly have in mind legal and accountancy services and retail – reduced demand for what they produce, downward price pressure on sales, high overheads and a dependency on someone or something, are all conspiring to make their lives very difficult indeed. How things have turned around for some in the space of just a few years!
But there’s far more to the subject of who’s doing well and who’s doing badly that I want to cover this month. I want to explore whether there’s something big behind these things. And what I’ll be exploring with you has in part risen out of reading a rather interesting book by a chap called Jaron Lanier and from my direct experience.
Jaron’s book’s called ‘Who owns the future’. I recommend it to anyone interested in technology – Jaron is a computer scientist and a philosopher – a highly dangerous combination in these fast moving times.
Let’s look at some of the things he and I are seeing…
But first of all, please explain these to me…
How is it that Kodak, a ‘photographic’ company with a proud 125 year history and over 140,000 employees went bust in 2012, virtually penniless with no one willing to bail it out beforehand, while in Spring of this year little known Instagram, itself a ‘picture business’, with just 13 staff and no product history, was sold for £1 billion to Facebook, making the owners, investors and all the staff (yes, even the one who’d started working for them 2 weeks earlier) instant multi-millionaires? Why is it that someone thinks Gareth Bale is worth £85m – about half the build cost of a major hospital such as Russells Hall – in transfer fees, and £16m a year, for kicking a ball around – again, please explain. Just what is going on? There are obviously some hugely powerful drivers at play here, what are they? And is there a lesson we should all be taking from this?
Are we seeing another budding Dot-com boom and bust or are such astronomical figures a sustainable product of the ‘Information Age’? Let’s explore this.
Right now, most of the economy isn’t ‘about ‘information’, there’s a real economy out there where people get their hands dirty working. Sure, we’re part way along a long path which should see most productivity become software mediated – yes even you lawyers and accountants out there, and certainly us insolvency practitioners – but right now we’re nowhere near there. But the juggernaut of automation has started on its long journey which should – but not within my lifetime – see almost everything from common everyday tasks such as driving, the housework, to most work tasks automated, carried out for us by networked systems and algorithms, bringing huge wealth to us all for no reward (even machines will build machines). But right now, we’re trying to make sense of the new technology we see every day in an old world setting, and we’re trying to best harness developing technologies to help us prosper in today’s largely ‘real’ business environment.
What I believe we have is a situation where technology is developing haphazardly, with those at the forefront drip feeding new things to us regularly to keep us happy, while we all work hard to capture reduced market share and pay over the odds for the technologies we’re given access to. The point is there are organisations out there that retain the best technologies for themselves and keep for themselves all the advantages they bring – and this enables them to make vast fortunes arguably at our expense. The High Street has never been our friend, but right now those behind many of the major digitally based organisations that exist outside of the High Street are not either. Rip off wider World! And looking at the state of the professions, in some ways it’s the middle class that are bearing much of the brunt – thousands are being squeezed out by new technology and new ways of doing things.
Why’s this happening?
Firstly, historically technological improvements created additional wealth and work creation opportunities for the masses – for example the Industrial Revolution saw people leaving the land to go to work in factories. This time around, the technological improvements we are seeing are destroying far more wealth creating opportunities (especially those created by previous technologies) than they make. For example, technology (and a few other things) is killing legal and accounting services – why employ an accountant in the UK when networks mean you can get ten for the same price in India?; why do lawyers need to employ highly salaried people doing a particular type of work when 50% of that job can be automated and priced down to one the client is willing to pay in these hard times?
Secondly, it’s not those with money or property who wield real power today. Those people and organisations who by controlling huge amounts of data have the capability of creating vast sums of money for themselves and others, like in the Instagram case, wield the real power. It matters not that they’ve not had to pay for that data – and Joe and Joanne Public will often give that data freely because they don’t understand its value! (Do you understand cookies?) In fact Joe and Joanne Public only seem to worry when their data is harvested without their consent by governments, they ignore the fact it’s harvested 24-7 365 by commercial organisations.
Those who control and know how to work that data by using the very best of today’s technology give themselves and their clients immense commercial advantage… by leveraging that data and combining it with winning,established, brands, they get to sell Gareth Bale products by the millions, or they support certain industries (banking, football being just two) where there’s huge excess. And much of this is done at the cost of the real economy. Interestingly, technology is also hurting some of the economic powerhouses of the past – and I don’t just mean Kodak – for example we now have to ask why we need our banks in anything like their present format when much of what they do can be automated or networked, the growth in social lending being one example – it’s one of the reasons why we’ve seen 40% of bank branches shut in the UK over the last 5 years.
So can these hugely cash generative organisations exist in a bubble, while the rest of the world works increasing harder to pay for it? How sustainable is their business model?
The answer is, they can’t continue existing in a bubble because the business model doesn’t work in the long term. The banks cannot hope to survive by lending only to those triple rated borrowers their systems tell them are 100% safe, in the long term they have to lend to the multitude to make good profits. The Football Premiership cannot exist on its own if the lower divisions and grass roots football are destroyed. But meanwhile the bubble, and the unfairness of it all, exists and there’s much pain felt by the majority. And that means more and more business in established sectors going to the wall, more lawyers failing, more accountants seeing their income ebb away, more retailers fail.
This makes for depressing reading in the short term, for most of us. What is good news is that because broad economic expansion is always far more lucrative and beneficial for all in the long term than the current winner takes all growth model, it can’t last forever. Getting all our kids into technology in a big way and letting the real economy slip away is a race to the bottom. These digitally focussed businesses need the real economy to prosper in the long term otherwise they can’t.
In the meantime, I fear for the future of the professions – one where the big firms dominate because they can afford networked systems and supply multiple service offerings doesn’t offer real choice, doesn’t distribute wealth or power fairly, doesn’t give our kids the opportunities we’d like them to have. There are debates over the future of technology that are worth us all having. Meanwhile, we all continue to struggle to make sense of this pre Star Trek era.
What else has been happening or is of interest?
This is two months old now, but still worthwhile reiterating if only because it’s the only important case to hit the courts this year on insolvency – company pension fund deficits are not ‘top of the shop’ to be paid out in administrations and other insolvencies, they are mere unsecured creditors. Click here.
If you are, or you have a client who’s interested in saving money – and who isn’t – consider this: signing up to the Black Country Business Energy Scheme. It’s also being rolled out outside of the Black Country. And it’s saving your competitors – and places such a schools, churches etc – a good deal of money. When you sign up, please tell them that Paul Brindley sent you! Here’s a link.
If you’re a director of a credit union that’s not doing well and would like to explore the things you really should be thinking about, click here to go to my recent Blog article.
Finally, I would really appreciate your feedback, good or bad, on my newsletter.