© 2017 IMD – International Institute for Management Development. Not to be used or reproduced without permission.

Arturo Bris – Professor of FinanceDirector, IMD World Competitiveness Center

The Changing Game of Global Competition

© 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

© IMD 2017

Source: Datastream

80

85

90

95

100

105

110

Inde

x, N

ov 8

= 1

00Stock Markets Afer Trump

WORLD EMERGING MARKETSEUROPE USACHINA 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

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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 Institute5

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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 000U

SD p

er P

erso

n, C

onst

ant 2

016

Productivity of Labor

United States Germany Switzerland United Kingdom Brazil Japan China India Ukraine

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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%

UnitedStates

Germany Switzerland UnitedKingdom

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 Guardian11

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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

13

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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

Perc

ent o

f Ass

ets

Thou

sand

Dol

lars

General Electric - Productivity and Investment

Sales per Employee (Left Scale) Capex to Assets (Right Scale)

© 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

© IMD 2017 17

$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%

© IMD 2017 18

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

1980-1990 1990-2000 2000-2010 2010-2016

Revenues per Employee - % Change

Apple Nestlé

© IMD 2017 19

-5%

0%

5%

10%

15%

1980-1990 1990-2000 2000-2010 2010-2016

Profits per Employee - % Change

Apple Nestlé

© IMD 2017

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

© IMD 2017

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

The

com

pens

atio

n-pr

oduc

tivity

gap

: a v

isua

l ess

aySu

san

Flec

k, J

ohn

Gla

ser,

and

Shaw

n Sp

ragu

e

© IMD 2017

Taxes

26

5

7

9

11

13

15

17

19

Tax Revenues (% of GDP)

Euro area OECD members United States

© IMD 2017

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

© IMD 2017

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

© IMD 2017

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.

29

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Technology is mobile, and so is employment

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I tell you what will NOT work

Collaborative Economy

32

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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

34

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In Summary

2008 Today

Corporate Profits

GDP

Wages