The ChangingGame of Global Competition Arturo Bris – Professor of Finance Director, IMD World Competitiveness Center

1. © 2017 IMD – International Institute for Management Development. Not to be used or reproduced without permission.
Arturo Bris – Professor of Finance
Director, IMD World Competitiveness Center
The Changing Game of Global Competition

2. © IMD 2017
Ask an Economist
 “…if Clinton wins it should be up about 3 percent and if Trump wins, it
should go down 7 percent"
 Eric Zitzewitz, Economics Professor at Dartmouth College, at NBC on Nov 3

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 Source:
Datastrea
m
80
85
90
95
100
105
110
Index,Nov8=100
Stock Markets Afer Trump
WORLD EMERGING MARKETS
EUROPE USA
CHINA MEXICO
In Annualized Terms
(Nov 8-Nov 23)
WORLD +31.5%
CHINA +29.7%
USA +96.2%
ASIA PACIFIC -18.5%
EUROPE -49.7%
EMERGING -70.7%
MEXICO -98.3%.
Ask an Economist

4. © IMD 2017
Between 1000 AC and 1930 real World GDP per capita
increased by a factor of 3
21 over
the 20th century
In the first decade of the 21st century, the population of the
world has produced more economic output than in the first
19 centuries of the common era combined.
World GDP per capita has increased by a factor of
4

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We are living in the best of times
Source: McKinsey Global Institute
5

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Massive increase in productivity of labor
6
Labor productivity per person employed in 2016 US$ (Annualized)
Source: Corporate Board
$ 0
$ 20 000
$ 40 000
$ 60 000
$ 80 000
$ 100 000
$ 120 000
$ 140 000USDperPerson,Constant2016
Productivity of Labor
United States Germany Switzerland United Kingdom Brazil Japan China India Ukraine

7. © IMD 2017
Why?
Technology of course
7

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Productivity Puzzle
8
% Increases in Labor productivity per person employed in 2016 US$ (Annualized)
Source: Corporate Board
-5%
-3%
-1%
1%
3%
5%
7%
9%
United
States
Germany Switzerland United
Kingdom
Brazil Japan China India Ukraine
Productivity of Labor Growth
1950-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2010 2011-2017

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Hypotheses
 Data is wrong
 We work less
 Even though we produce more, what we produce is cheaper
 We work in less productive jobs
 It is the 2008 crisis
 Services are less productive than manufacturing
 Technology does not make us more productive
 …or, at most, technology only make some companies more productive
9

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Hypotheses
 Data is wrong
 We work less
 Even though we produce more, what we produce is cheaper
 We work in less productive jobs
 It is the 2008 crisis
 Services are less productive than manufacturing
 Technology does not make us more productive
 …or, at most, technology only make some companies more productive
10

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Source: The Guardian
11

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Hypotheses
 We work less
 Even though we produce more, what we produce is cheaper
 We work in less productive jobs
 It is the 2008 crisis
 Services are less productive than manufacturing
 Technology does not make us more productive
 …or, at most, technology only make some companies more productive
12

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Jobs and Automation
Source: PWC
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Hypotheses
 We work in less productive jobs
 It is the 2008 crisis
 Services are less productive than manufacturing
 Technology does not make us more productive
 …or, at most, technology only make some companies more productive
14

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Crisis?
15
0%
2%
4%
6%
8%
10%
12%
0
100
200
300
400
500
600
PercentofAssets
ThousandDollars
General Electric - Productivity and Investment
Sales per Employee (Left Scale) Capex to Assets (Right Scale)

16. © IMD 2017
Hypotheses
 It is the 2008 crisis
 Services are less productive than manufacturing
 Technology does not make us more productive
 …or, at most, technology only make some companies more productive
16

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$0
$500
$1 000
$1 500
$2 000
$2 500
$3 000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Revenues per Employee
Google Apple Novartis Nestlé
Number of Employees 1982-2016:
Apple: +42%
Nestlé: +129%

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-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
1980-1990 1990-2000 2000-2010 2010-2016
Revenues per Employee - % Change
Apple Nestlé

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-5%
0%
5%
10%
15%
1980-1990 1990-2000 2000-2010 2010-2016
Profits per Employee - % Change
Apple Nestlé

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McKinsey: “Our productivity estimates assume that
people displaced by automation will find other
employment.”
“Although automation is a global phenomenon, four
economies—China, India, Japan, and the United
States—account for just over half of the total wages and
almost two-thirds the number of employees associated
with activities that are technically automatable by
adapting currently demonstrated technologies”
20

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The Impact of Automation on Jobs
21
100 200
Analog Economy Digital Economy

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The Impact of Automation on Jobs
22
100 200
100
Average Productivity: 100
0
Average Productivity: 200
Analog Economy Digital Economy

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The Impact of Automation on Jobs
23
100
100
100
200
20
50
Average Productivity: 100 Average Productivity: 90
Analog Economy Digital Economy

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Google “Playmobil Finance Professor”
24

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Salaries
25
Thecompensation-productivitygap:avisualessay
SusanFleck,JohnGlaser,andShawnSprague

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Taxes
26
5
7
9
11
13
15
17
19
Tax Revenues (% of GDP)
Euro area OECD members United States

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Taxes
27
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
France Germany Japan Switzerland United Kingdom United States OECD Average
Taxes Around the World
Taxes on corporate income as % of total taxation 1980 Taxes on corporate income as % of total taxation 2014
Taxes on personal income as % of total taxation 1980 Taxes on personal income as % of total taxation 2014

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Taxes
28
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Effective Tax Rates
Alphabet Apple Altria Group Novartis

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Technology is going to create a massive gap between the rich and the poor
(Switzerland and Burundi), but also between technologically-advanced countries
(China and the US), and the rest
The gap is self-perpetuating because fiscal rules will continue penalizing labor and
production against technology in all countries.
Moreover, technology creates monopolies, and therefore market power and rents.
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Technology is mobile, and so is employment

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I tell you what will NOT work
 Collaborative Economy
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I tell you what will NOT work
 Collaborative Economy
 Investor Activism
 Protectionism
 Taxes
 A halt to automation
33

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Scary?
Source: Kai-Fu Lee “The Real Threat of Artificial Intelligence,” New York Times June 24, 2017
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In Summary
2008 Today
Corporate
Profits
GDP
Wages