Machiavelli wrote in his Second Treatise that you make your own fortune in this world by putting yourself in a position to take advantage of the opportunities that come your way. By fortune Machiavelli meant luck, but it works both ways.
Drivers of opportunity now are changes created by global economies undergoing the fourth industrial revolution, as capital and labour reallocates ahead of future technological advancements in artificial intelligence, quantum computing and distributed production technologies like 3-D printing. But individual’s fortunes are changing now as we progress deeper into the Fourth Industrial Revolution, as not everyone is, or can be, prepared for the changes to come, let alone recognize and seize the opportunities created by advancing technologies.
The nature of industrial revolutions is to increase both productivity and wages, while increasing employment in the long run. In effect the ‘economic pie’ gets larger. However, in the near term, there may be periods of technological unemployment, dislocation and rising inequality. Over the past forty years, we have moved out of the second Industrial Revolution, through the third and into the fourth. The Third Industrial Revolution (1970–2000) was defined by the move from mechanical/analogue to digital, with widespread adoption of electronics from both the home and work environment. The Fourth Industrial Revolution (2000 onwards) in which we find ourselves today anticipates the dawn of true Artificial Intelligence with advances in robotics, nanotechnology and quantum computing.
With the benefits of technological revolutions ‘old’ jobs tend to be lost before ‘new’ jobs are created. We witnessed this disruption as the United States and Canada moved through the Third and into the Fourth Industrial Revolutions from 1970 until the present. The decline of the US Rust Belt and the rise of Silicon Valley is an old story now, but the magnitude of social and economic disruption during this shift towards the new service-based economy can be seen in US non-farm payroll report.
From 1970 to 2000, the US service sector increased its percentage of non-farm payrolls from 50% to 65%, whereas producing sectors fell from 32% to 19%. As of February 2020 the US producing sector was 14% of non-farm payrolls and the service sector was 71%. In contrast, from 1970 to now, government sector payrolls in the US was flat, changing from 18% to 15%.
What has occurred is that the manufacturing economy is declining while the service-based economy is growing. One driver is the increasing economic importance of intangible capital. Intangible assets include intellectual property, such as patents and trademarks, but also product quality and intellectual capital. Investing in intangible capital is impactful and is estimated to be responsible for 1/3rd of the labor productivity growth in the European Union and the United States between 2000-2013.
While delivering future economic benefits to business, deploying intangible capital also contributes to technological and thus societal growth. Owning an abundance of intangible assets could enable some economies, companies and individuals to propel themselves through periods of disruptive technological change, while a paucity may leave some others behind.
Although societies, economies, business and individuals have relatively equal access to the opportunity to develop intangible assets, they do not have an equal ability to do so. There will be winners and losers as we move further through the Fourth Industrial Revolution. This is not dissimilar to the distribution of intelligence and physical ability among humans – these characteristics may have a normal distribution, but they are not equally distributed. (For instance, this writer has lived with symptoms similar to Multiple Sclerosis for much of my adult life).
That may not be fair, but fairness does not exist at nature, it may exist in human nature. Fairness is just an artificial human construct, less tangible than the intangible assets underpinning the physical technological components within your mobile phone, which have themselves a planned obsolescence lifecycle. Similarly, fairness may or may not continue as a dominant evolutionary trait – that is for game theorists and geneticists to argue. What is more certain is the uncertain future availability of existing social safety nets as the pace of change quickens.
Knowing that the pace of change is getting faster each year encourages Northland to dedicate significant time and capital to understanding the past, being up to date on the present, and to think about the future. By doing so, we have a better chance to avoid large potential risks and to take advantage of opportunities that present themselves. The ultimate objective is to help protect and grow your family’s wealth over generations.
Richard Scarisbrick, JD Law - Chief Compliance Officer