5-Bullet Friday – March 4th

Here are some of the news that have caught my attention recently:

  1. Negative interest rate: Why people are paying to save?
  2. The robots are coming for Wall Street.
  3. Our ingenuity will revive growth in global productivity – eventually.
  4. Veterans deserve our help to move from the battlefield to the boardroom.

1-Negative interest rate: Why people are paying to save? While it sounds improbable and illogical, this is the reality in the eurozone, in Denmark, Sweden, Switzerland and Japan. Central banks offer a negative rate on commercial banks’ excess funds held on deposit at the central bank. In effect, private sector banks have to pay to park their money. Many central banks have exhausted traditional measures to stimulate artificially the economy. It has been almost 8 years since the great 2008 recession. Unfortunately, few countries have addressed the root causes of imbalances in their economy. We are in uncharted territory. These unprecedented measures are generating tremendous distortions and risks to the financial system. We are addicted to credit and this seems like a Hail Mary! What is the way out? We may figure it out the hard way. I certainly hope this will not be the case as central banks have few ammunitions left to stimulate the economy.

2-The robots are coming for Wall Street. Software is eating the world and financial sector employees are not immune to the threat.  The industry benefited for years from the credit expansion and the financiarization of the world until the 2008 crisis. Employment in the industry hasn’t fully recovered and it is about to face its greatest challenge. If ‘‘in 10 years Goldman Sachs will be significantly smaller by head count than it is today’’, I think it is fair to assume the industry is likely to shrink as a result of greater automation. Millions of office jobs in all industries are in jeopardy worldwide – Oxford academics released a paper claiming that 47 % of current American jobs are at ‘‘high risk’’ of being automated within the next 20 years. Of all jobs, those in finance are perhaps most at risk. Former CEO of Barclays has said that he’s expecting a coming series of ‘‘Uber moments’’ to hit the financial industry. Even in a less-harsh scenario, he expects a decline of at least 20 %. Technology will destroy jobs and create new opportunities. While it’s difficult to estimate the net impact of new technologies, it’s certain that it will disrupt the industry and labor will need to evolve more rapidly than ever.

3-Our ingenuity will revive growth in global productivity – eventually. In theory, economic / GDP growth is simple. Productivity growth + Demography = GDP growth. The problem is that productivity growth has weakened over the past decade at the same moment that demographic supports have also turned. The demographic outlook is weak for the next several decades and productivity’s prospects are contested. The skeptics argue that current innovations don’t collectively generate a net benefit to society. Furthermore, they argue the technologies of the future won’t have a breakthrough impact like technology did in the past industrial revolutions. I am optimistic that we will be positively surprised by the ingenuity of humans. Science continues to advance and the rules and incentives that have cultivated generations of inventors remain in place. Over the long run, the prospect of faster innovation should support overall productivity growth.

4-Veterans deserve our help to move from the battlefield to the boardroom. Veterans who want to make the move into corporate roles face multiple challenges. Unfortunately, many employers in Canada don’t recognize the business value of veterans’ experience. It appears that misconceptions abound in the corporate world about the value of military experience. Every year, more than 5,000 Canadian Armed Forces members are released by the military and seek to adjust to civilian life. It is with shame that I learn that many Canadian companies make little effort to recruit veterans. I believe veterans have a lot to teach to the business world and their experiences can be extremely valuable. Without generalizing, Canadians tend to be too conservative and not entrepreneurial enough. Perhaps we should turn to Israel for inspiration. The small country of some 7M citizens has the highest density of start-ups in the world and a growing economy despite having access to very few natural resources. The common perception of military service appears to be different there. It is believed that the mandatory military service has a broader cultural impact on Israel and is one of the factors stimulating the dynamism of the country. Improvisation, flat hierarchies, accountability, risk taking / management, innovation, and competitiveness are encouraged at a young age throughout the military service. While Israel may be the benchmark in terms of integrating veterans to civilian life, is not the only dynamic country with a mandatory military service. Small, innovative countries such as Denmark, Finland, Singapore, South Korea, Sweden, and Switzerland also have a compulsory military service. Perhaps an additional side benefit of service is the contribution to citizens’ strong sense of national mission.

5- Enjoy the spring break!

 

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About Ludovic Dumas

Ludovic transforms innovative companies into world-class organizations. He is an investment professional at an investment firm representing the interests of one of the most successful families in Canadian business. Before joining the private equity world, Ludovic was an investment banker at CIBC and with ING Group’s investment banking team in Frankfurt, Germany. Mr. Dumas was also a management consultant with Deloitte where he worked on corporate strategy, restructuring, market analysis, due diligence, and economic development mandates. Specialties Mergers & acquisitions, capital raise, corporate strategy, entrepreneurship.
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