MEK Insight – Global “slowcession,” puzzling job markets, a warning for America, and more
“Permacrisis” – the 2022 word of the year as selected by the Collins English Dictionary. Defined as “an extended period of instability and insecurity,” the concept of permacrisis “accurately encapsulates today’s world,” according to the Economist magazine. In its forward-looking “World Ahead 2023” summary, the magazine editors noted three global shocks from last year that justify their assessment: 1) the American-led post World War II order was severely challenged by Russian leader Vladimir Putin’s aggression against Ukraine and “most profoundly by the persistently worsening relationship between America and Xi Jinping’s China.” 2) The Ukrainian war led to the “biggest commodity shock since the 1970s” and “a warp speed reshaping of the global energy system.” 3) The “loss of macroeconomic stability” in the form of growth-sapping inflation and economic turmoil.
U.S. in “fundamentally stronger shape”
The good news? According to the official opinion across the Atlantic, the U.S. economy is in “fundamentally stronger shape than either China’s or any in Europe.” Instead of expressing recession fears and a contracting economy, one now hears more of a “slowcession.”
Further good news? “We can now say for the first time that the disinflationary process has started,” said Federal Reserve Chair Jerome Powell on Feb. 7, quoted in Bloomberg BusinessWeek. (UPDATE: as of early March, new predictions of a pending recession emerged, as consumer confidence eroded and inflation levels returned – see comments about the “GODOT recession” (the recession “that’s always six months away”) in the Wall Street Journal here)
Of course, the inflation rate promptly ticked up slightly in the January 2023 inflation report, colored by the New York Times as “inflation’s alarming staying power.” As many can personally attest, food and restaurant prices continue to climb, topping out at 8.2 percent over the past year. But at the same time, airline prices and used cars dropped a couple of percentage points, a welcome change.
Even more good news: on Feb. 13, the European Commission also announced, “no recession” now expected in 2023 and European inflation has “passed its peak.” That’s quite different from the “brutal recession” formerly expected on the Continent. Growth estimates for the bloc, despite continued shockwaves from Russia and Ukraine, may now near 1 percent. As EU Commissioner for the Economy Paolo Gentiloni remarked: “we have entered 2023 on a firmer footing than anticipated: the risks of recession and gas shortages have faded and unemployment remains at a record low.”
The No. 1 Economic Event of 2023
Back to the Economist, the magazine’s analysts claim that the No. 1 economic event of 2023 will be the reopening of China in a post-pandemic world. Demand for goods and services funneling into the Asian country will impact, even disrupt economies and supply chains across the globe. As BusinessWeek asserted in late January, “for a world economy grasping for good news, a rebound in demand from China will be welcome.” A feared flood of deadly COVID-19 cases failed to fully materialize as millions of Chinese workers and families traveled across the country during the Lunar New Year celebration, further powering up expectations.
As BusinessWeek predicts, “Thanks to the reopening, China may well account for half of the global gross domestic product growth this year,” with China’s economy expanding upwards of 5%, reflecting its economic muscle during the Great Recession of 2008.
But will the Sino recovery actually help America and the world? “Don’t bank on it,” warns the Feb 14 Wall Street Journal. In a front-page account, reporters Jason Douglas and Stella Yifan Xie note: “China’s recovery after years of Covid-19 lockdowns will likely look a lot different from previous ones…This time, China is deeply in debt, its housing market is in distress, and much of the infrastructure the country needs is already built.”
Ironically, we today have at least three populist economic themes, each specific to its own country with its own inward-looking economic initiatives: America First, China First, and India First.
Changing global demographics
Sometime in April, India will become the world’s most populous nation, leaping over China’s 1.4 billion people. As India and China switch places (China’s population has actually peaked and is now decreasing), the 2023 lineup of most populated areas will be: India, China, the European Union (obviously excluding Russia) and the United States.
What’s a major difference, particularly comparing India to America? According to Pew Research, India is a much younger demographic, with people under the age of 25 accounting for more than 40% of India’s population. Conversely, the other two ranking nations, China and the United States, have rapidly aging populations.
The aforementioned “commodities shock” produced a global surge in off-shore drilling operations. As an insatiable global demand for energy emerges from Ukrainian-related supply chain issues and high prices for crude drive profits, some 600 drilling rigs are raking in $400,000 a day each for offshore contractors seeking black gold. New drill towers dot the coast of Brazil, Guyana and Suriname, and Saudi Arabia and the United Arab Republic have punched up offshore drilling with 174 rigs in what’s being called a new “supercycle,” according to the Wall Street Journal.
A puzzling job market
Meanwhile, as once-widespread fears of a global recession have largely receded, there remain puzzling caveats. In early February the Wall Street Journal chronicled how America unemployment dropped to “a 3.4% employment rate, the lowest since Woodstock.” At the same time, major technology job layoffs are rampant: Apple, Amazon, Dell, Google, Apple, Salesforce, Microsoft, and Zoom all laid off highly-prized tech workers by the thousands. What’s happening?
WSJ reported: “Driving the jobs growth are large but often overlooked sectors of the economy. Restaurants, hospitals, nursing homes and child-care centers are finally staffing up.” In January, the healthcare sector (which is undergoing several workforce challenges – Becker’s Hospital Review claims that workforce is the No. 1 problem keeping CEOs awake) unexpectedly added 58,000 jobs.
Indy tech leaders speaking as part of the Venture Club of Indiana’s outlook meeting in January opined that technology companies were largely adjusting their workforce to match pre-pandemic levels. Bloomberg BusinessWeek confirms that viewpoint, but has a different view on a macro scale, noting that “the tech economy in 2022 increased its announced job cuts by 649 percent.”
However, Bloomberg is optimistic, noting a culture shift in the tech economy, and rebuffing fears of a second Dot-com crash. “Tech today is far larger and wired much more deeply into the globe’s infrastructure via chips, software and cloud computing.”
The big tech workforce in the Silicon Valley and elsewhere will recover for the most part, except for one group in the short-term. Bloomberg quotes Palo Alto recruiter Mark Dinan: “The [laid off] people who are getting hammered are the people who went to coding academies” in the region as opposed to securing a more traditional technology degree from MIT or Stanford.
Ironically, Bloomberg elsewhere noted that auto manufacturers themselves are now running their own specialized coding academies for a new generation of vehicles. Noting a “continuous demand for talent,” Bloomberg found that smart cars intensely drive new software centric culture. With the help of Amazon, General Motors is “setting up a coding academy to retrain as many as 1,000 people a year.”
Despite some recent local tech layoffs at companies like Salesforce, demand for Indiana tech talent remains high. For example, a special “Connect to Mission” symposia presented Feb. 7 by senior technical leadership from the $2 billion Naval Surface Warfare Center (NSWC) in southern Indiana laid out extraordinary high demand for engineers and scientists to meet development needs.
A new generation of technology requires a fresh and highly skilled workforce for Electronic Warfare (surface, air, and expeditionary), Radar Technologies, and Force Level Electronic Warfare, according to Dr. Angie Lewis, NSWC Crane’s Technical Director, who opened the event at the WestGate Academy.
Purdue’s new HardTech Corridor in Indiana
As first profiled a year ago in Forbes, Purdue’s new president Mung Chiang is wasting no time in capturing, refining, and establishing new technology assets to create a “Hard Tech Corridor” linking the state-of-the-art Purdue West Lafayette campus through I-65 to new high-tech and pharma manufacturing capacity to Lebanon (Indiana) new LEAP innovation district and then further to the Hoosier capital to match up with a newly muscular Purdue University at Indianapolis.
Described by Dr. Chiang as a “bookend” for the “63-mile-long hard tech corridor,” the newly defined Indianapolis campus is expected to “graduate thousands of science, technology, engineering and math students in the city to connect with urban-oriented opportunities, including health care, sports tech and entrepreneurship,” according to the Indianapolis Business Journal.
Dr. Chiang says the potential transformation ignited by the Hard Tech Corridor will be fueled by a new focus on microelectronics, biopharmaceuticals and aerospace sectors.
Innovation declining in America?
As the Hoosier state ramps up its technology innovation capacity, including an expected major $84 million semiconductor manufacturing campus in the WestGate@Crane Technology Park (near the NSWC Crane facility on I-69), the state appears to be bucking a potential national trend of innovation decline.
While well-attended over prior pandemic-sapped gatherings, CES 2023 took a different bent this year, according to the report What’s Next for Brands from TWBA Chiat Day. Authored by TWBA’s NEXT group, the report asserted that “big breakthrough leaps were harder to find” at the typically dazzling consumer electronics gathering.
In fact, the NEXT report noted that “it feels like the pace of innovation has slowed down.” The report tapped January 2023 coverage from Nature magazine that contended that “Disruptive science has declined – and no one knows why” The report documents how disruptive research declined precipitously between 1945 and 1970, slowing and leveling off between 1999 and 2010.
Bloomberg also noted a change at CES, stating that “pragmatism reigns” in 2023. Drawing a difference between prior shows, CES this year avoided the futuristic “Jetsons lifestyle” and was “spotlighting less-sexy technologies that are here and now.” Tracking a new practical focus on items like self-driving tractors and electric-powered trucks, Bloomberg reported that “the coin of the realm at this year’s CES is profit, not potential.” The upshot is that former high-flying technologies “are now migrating into areas that are becoming actual products.”
A thought? If disruptive innovation is in fact declining, nature abhors a vacuum. Indiana could become a new leader in semiconductor chip research and manufacturing, as well as hypersonic technology.
After spy balloons, then what?
While handwringing for spy-cum-UFO balloons crest and diplomats struggle to contain fallout, analysts point up other concerns. Writing for Bloomberg, Stanford strategist Niall Ferguson warns of alarming potential issues behind the Pentagon-speak “domain awareness gap.”
His concern? “If a major conflict breaks out with China, America’s once-vaunted defense industrial base will be exposed as a comatose geriatric, not a sleeping giant.” Citing Paul Kennedy’s classic The Rise and Fall of Great Powers, Ferguson recognizes Kennedy’s “special emphasis on manufacturing as a source of power, for the simple reason that in time of war there is no substitute for having an economy that can mass-produce weapons.”
Ferguson does point out that “efforts are already underway to address such problems,” noting a rise in innovation of military technology and moves to address concerns. If the United States was attacked directly by Chinese forces, the U.S. would doubtless quickly move to reclaim its former leadership position as an industrial superpower (China is presently No. 1 – two years ago Chinese manufacturing value-added was nearly double that of America.)
To conclude this issue of MEK Insight, it is worth noting Ferguson’s thoughtful citing and analysis of the “What Makes A Power Great” treatise in the July/August 2022 issue of Foreign Affairs.
Author Michael J, Mazarr, a senior political scientist at the RAND corporation, claims: “In the struggle for advantage among world powers, it is not military or economic might that makes the crucial difference but the fundamental qualities of a society: the characteristics of a nation that generate economic productivity, technological innovation, social cohesion, and national will” (emphasis added).
The seven leading characteristics, according to the RAND study are:
- a driving national ambition,
- shared opportunity for citizens,
- a common and coherent national identity,
- an active state,
- effective social institutions,
- an emphasis on learning and adaptation, and
- significant diversity and pluralism.
Years ago at the end of the Cold War (today a relic of history for some) America came out on top over the Old Soviet Union because of its qualities of being “energetic, innovative, productive, and legitimate.” Do those same qualities come to the fore in a U.S./China contemporary comparison?
The full answer bears a careful reading of Mazaar’s Foreign Affairs article, but in summary, a comparison of these characteristics does not come out initially in favor of the present leader of the West.
A warning for America?
Mazarr points out: “The primary threat to U.S. dynamism and competitive standing comes not from without but from within: from changes in the character of American society.” Note this extended quote:
“The United States displays some of the characteristics of a once dominant power that has passed its competitive prime: by some important measures, it is complacent, highly bureaucratized, and seeking short-term gains and rents rather than long-term productive breakthroughs. It is socially and politically divided, cognizant of the need for reforms yet unwilling or unable to make them, and suffering a loss of faith in the shared national project that once animated it.
“China clearly benefits from a potent national will and ambition, both domestically and internationally, and a unified national identity among much of the population. It has an active state that is pouring resources into human capital, research and development, high technology, and infrastructure.”
Thankfully, the story of America and 2023 is not yet fully written.
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Curated by Michael Snyder, MEK.
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Disclaimer
The forward-looking statements in this analysis reflect MEK views and collected information at the time such statements were made with respect to current and future events and are not a guarantee of future developments or performance. Readers are strongly cautioned that reliance on forward-looking statements involves known and unknown risks and uncertainties.