Robots could make the UK’s north-south divide even worse

Robots at work in a Japanese warehouse. Image: Getty.

Technological progress is normal. A steady flow of new developments enables a gradual increase in prosperity. But sometimes – and perhaps now is such a time – that flow is not so steady. Synchronous fundamental developments allow leaps forward to be made in multiple dimensions.

Progress in artificial intelligence, robotics, and genetics all promise change that is unusually wide ranging. The benefits – which include improved gadgets, health and food security – are easy to appreciate. Equally, though, there are challenges posed by rapid change – especially for workers who have invested in skills that are set to become obsolete.

To some extent, these implications have already become evident over the last 20 years. The labour market has been “hollowing out”, with more jobs available at the top and (to a lesser extent) bottom of the skills distribution, but fewer jobs in the middle. And the recent dramatic changes in technology are likely to exacerbate this over the next couple of decades.

Some observers have argued that a large proportion of current jobs in developed economies are at risk. But alarmist predictions of this kind likely fail to recognise that jobs morph over time. And so do the skills required to undertake particular jobs. Nevertheless, the changes we are seeing do pose unusual challenges.

Economic divide

In a recent report, the Centre for Cities has investigated the likely geographical impact of these changes in employment, across urban areas within the UK. In doing so, it combined predictions by Nesta on the demand for skills in 2030, with information about the current spatial distribution of jobs requiring these skills.

The results are striking. More than a quarter of jobs in many northern conurbations are in occupations where employment is likely to decline. The highest proportions are in Mansfield, Sunderland and Wakefield. These are areas with economies dominated by specific manufacturing – such as drinks production in Mansfield and car production in Sunderland – and retail activity.

By way of contrast, only around 16 per cent of jobs in London are in such occupations. London also has a much greater concentration of jobs that require the type of creativity only humans, rather than technology, can provide. And in Oxford and Cambridge – whose economies are dominated by the universities – the proportion is below 13 per cent.

Some of the areas where workers are likely to experience most turbulence are also those that were similarly hit by the decline of coal production in the 1980s.


Preparing humans

How best then can people prepare for these challenges? The offer of retraining will help some, particularly those workers with intermediate skills – an extra push could help them negotiate the hurdle separating low skill from high skill employment. But that said, if history is anything to go by, retraining often fails to deliver.

But the promise of a world in which intelligent robots undertake production for the benefit of humans has led many observers to be attracted by the idea of a universal basic income. This is the idea that, by taxing the fruits of improved technology, we could all, it seems, get something for nothing. Those who wish could live a life of ease, while others could top up their basic income by working.

At a fundamental level, this amounts to replacing current social security arrangements with a flat rate income that is paid to all – regardless of whether or not they are in work.

The realities

But given current technology, the level of such a payment (at the moment) would not be high – perhaps enough to cover private health insurance, pensions and other needs. That said, in future, as the gains from technology increase, it could rise. But the attention given to the universal basic income is a bit of a red herring – and it is not the only solution that should be on the table.

The real issue here is more general: how do we ensure the gains from technological change are distributed fairly across society?

A true property-owning democracy – where people hold equity in technology – would protect against inequities. But owning property means that people also own the right to sell it.

The ConversationIt is clear then that there are future tensions that society has yet to get to grips with. And of course there is always the concern that, if robots are smart enough to do all this, for how long will they stay stupid enough to remain slaves to idle humans?

Geraint Johnes, Professor of Economics, Lancaster University.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.