By Gareth Vaughan
The impacts on the global economy of technology will probably be broader than the development of China over the past couple of decades into a full participant, according to the ANZ Group's chief economist Richard Yetsenga.
Speaking to interest.co.nz in a Double Shot interview Yetsenga said the epoch of China means the world economy with China as a full participant is radically different from the world before this occurred. However, he argues the impact of technological change may be even bigger.
"China now accounts for 25% of global manufacturing production, 25 years ago it was 5%, half of global steel production, it's the largest trading nation, [there are] more Chinese tourists than anyone else. I mean you go on. So China has clearly shifted the plates in a way that was almost unimaginable. I think technology's at least that big but the impacts are probably broader," said Yetsenga.
Technology, he said, is changing the narrative around the political debate, it's changing the way labour markets function and it's changing the efficiency of the allocation of capital across a whole range of sectors. He noted this week's announcement from Amazon about entering the US health sector.
"Amazon's not entering the health sector to build hospitals. They're there to improve the provision of that health service between the producer and the consumer like they've done in retail...So I think we're going to be debating a whole lot of issues that we thought were resolved," said Yetsenga.
"If you step back for a minute and think about the parts of any modern economy where you have technology based new entrants, it's very difficult to think of a part of the economy which doesn't have that. In fact health was one of the sectors I would've said doesn't have that."
"What technology is doing is often liberalising capacity which was already there and using it more efficiently. So Uber is a great example, 95% of cars in any advanced economy typically are parked at any one time. That capacity existed but was not being used properly. Uber has mobilised that," Yetsenga said.
"The freeing up of retail space because we increasingly shop online, that retail space enters the economy [and] something else has to happen to it."
Yetsenga sees a "twin puzzle" across almost every economy he looks at. This is weaker than expected wage growth, and business fixed investment not recovering the way it normally would.
"And I think technology links those things in a way which says actually this is becoming quite pervasive for us. Ultimately productivity is the only route to sustainably higher living standards."
Yetsenga also said economic growth levels aren't strong enough to deal with the structural issues that it normally deals with when economies recover out of a cyclical slowdown.
"It [growth] is probably not going to help us out of housing affordability problems in countries where we have them. It's probably not going to help us out of these political situations where electorates are signalling that their life is just not as great as they thought it might be. And it's not going to help generate long-term growth. I think we're going to have to work harder on all of those things," said Yetsenga.
"We've been through this golden age of globalisation over the last couple of decades which has seen the largest global increase in living standards we've ever seen. But within countries often living standards have started to diverge. And if rates of growth are lower structurally, and I think they are...I just don't think we are going back to the rates of growth we had pre-crisis."
"With any distribution around lower rates of growth there are going to be more people whose lives are going backwards in GDP terms. And I think that's what you can see when you look at the way electorates have behaved the last couple of years around voting patterns," Yetsenga said.
"I think governments have to work out how they're going to deliver economic growth because ultimately that's how we get higher living standards delivered in a way where everybody feels like their boat's being lifted rather than other boats being lifted ahead of them."
He notes Finland's "experiment" with a living wage against the backdrop of technological transformation.
"When we start to think about the implications of technology for occupations and skills and labour markets, having that real world experiment I think is going to be very useful. I do think it [universal basic income] is going to be part of the debate," said Yetsenga.
In the video he also talks about where the global economy is at, how the Australian and New Zealand economies will fare this year, and his expectations for global inflation. And here's an article by Yetsenga where he looks at why GDP and welfare are parting company.
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