The Future of Work

Artificial intelligence Anything you can do, AI can do better. So how will it change the workplace?

Artificial intelligence Anything you can do, AI can do better. So how will it change the workplace? The return of the machinery question After many false starts, artificial intelligence has taken off. Will it cause mass unemployment or even destroy mankind? History can provide some helpful clues, says Tom Standage THERE IS SOMETHING familiar about fears that new machines will take everyone’s jobs, benefiting only a select few and upending society. Such concerns sparked furious arguments two centuries ago as industrialisation took hold in Britain. People at the time did not talk of an “industrial revolution” but of the “machinery question”. First posed by the economist David Ricardo in 1821, it concerned the “influence of machinery on the interests of the different classes of society”, and in particular the “opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests”. "Today the machinery question is back with a vengeance, in a new guise" Thomas Carlyle, writing in 1839, railed against the “demon of mechanism” whose disruptive power was guilty of “oversetting whole multitudes of workmen”. Today the machinery question is back with a vengeance, in a new guise. Technologists, economists and philosophers are now debating the implications of artificial intelligence (AI), a fast-moving technology that enables machines to perform tasks that could previously be done only by humans. Its impact could be profound. It threatens workers whose jobs had seemed impossible to automate, from radiologists to legal clerks. A widely cited study by Carl Benedikt Frey and Michael Osborne of Oxford University, published in 2013, found that 47% of jobs in America were at high risk of being “substituted by computer capital” soon. More recently Bank of America Merrill Lynch predicted that by 2025 the “annual creative disruption impact” from AI could amount to $14 trillion-33 trillion, including a $9 trillion reduction in employment costs thanks to AI-enabled automation of knowledge work; cost reductions of $8 trillion in manufacturing and health care; and $2 trillion in efficiency gains from the deployment of self-driving cars and drones. The McKinsey Global Institute, a think-tank, says AI is contributing to a transformation of society “happening ten times faster and at 300 times the scale, or roughly 3,000 times the impact” of the Industrial Revolution. Mr Musk warns that "with artificial intelligence, we're summoning the devil" The Economist Just as people did two centuries ago, many fear that machines will make millions of workers redundant, causing inequality and unrest. Martin Ford, the author of two bestselling books on the dangers of automation, worries that middle-class jobs will vanish, economic mobility will cease and a wealthy plutocracy could “shut itself away in gated communities or in elite cities, perhaps guarded by autonomous military robots and drones”. Others fear that AI poses an existential threat to humanity, because superintelligent computers might not share mankind’s goals and could turn on their creators. Such concerns have been expressed, among others, by Stephen Hawking, a physicist, and more surprisingly by Elon Musk, a billionaire technology entrepreneur who founded SpaceX, a rocket company, and Tesla, a maker of electric cars. Echoing Carlyle, Mr Musk warns that “with artificial intelligence, we’re summoning the demon.” His Tesla cars use the latest AI technology to drive themselves, but Mr Musk frets about a future AI overlord becoming too powerful for humans to control. “It’s fine if you’ve got Marcus Aurelius as the emperor, but not so good if you have Caligula,” he says. It’s all Go Such concerns have been prompted by astonishing recent progress in AI, a field long notorious for its failure to deliver on its promises. “In the past couple of years it’s just completely exploded,” says Demis Hassabis, the boss and co-founder of DeepMind, an AI startup bought by Google in 2014 for $400m. Earlier this year his firm’s AlphaGo system defeated Lee Sedol, one of the world’s best players of Go, a board game so complex that computers had not been expected to master it for another decade at least. “I was a sceptic for a long time, but the progress now is real. The results are real. It works,” says Marc Andreessen of Andreessen Horowitz, a Silicon Valley venture-capital firm. In particular, an AI technique called “deep learning”, which allows systems to learn and improve by crunching lots of examples rather than being explicitly programmed, is already being used to power internet search engines, block spam e-mails, suggest e-mail replies, translate web pages, recognise voice commands, detect credit-card fraud and steer self-driving cars. “This is a big deal,” says Jen-Hsun Huang, chief executive of NVIDIA, a firm whose chips power many AI systems. “Instead of people writing software, we have data writing software.” In 2015 a record $8.5 billion was spent on AI companies, nearly four times as much as in 2010 The Economist Where some see danger, others see opportunity. Investors are piling into the field. Technology giants are buying AI startups and competing to attract the best researchers from academia. In 2015 a record $8.5 billion was spent on AI companies, nearly four times as much as in 2010, according to Quid, a data-analysis company. The number of investment rounds in AI companies in 2015 was 16% up on the year before, when for the technology sector as a whole it declined by 3%, says Nathan Benaich of Playfair Capital, a fund that has 25% of its portfolio invested in AI. “It’s the Uber for X” has given way to “It’s X plus AI” as the default business model for startups. Google, Facebook, IBM, Amazon and Microsoft are trying to establish ecosystems around AI services provided in the cloud. “This technology will be applied in pretty much every industry out there that has any kind of data—anything from genes to images to language,” says Richard Socher, founder of MetaMind, an AI startup recently acquired by Salesforce, a cloud-computing giant. “AI will be everywhere.” What will that mean? AI excites fear and enthusiasm in equal measure, and raises a lot of questions. Yet it is worth remembering that many of those questions have been asked, and answered, before. Find out more about AI and the Future of Work. Join The Economist's Deputy Editor for Facebook Live Q&A on Tuesday September 13th, at 4pm London time

Robots v humans Will your career be vulnerable to automation? Machine earning Jobs in poor countries may be especially vulnerable to automation BILL BURR, an American entertainer, was dismayed when he first came across an automated checkout. “I thought I was a comedian; evidently I also work in a grocery store,” he complained. “I can’t believe I forgot my apron.” Those whose jobs are at risk of being displaced by machines are no less grumpy. A study published in 2013 by Carl Benedikt Frey and Michael Osborne of Oxford University stoked anxieties when it found that 47% of jobs in America were vulnerable to automation. Machines are mastering ever more intricate tasks, such as translating texts or diagnosing illnesses. Robots are also becoming capable of manual labour that hitherto could be carried out only by dexterous humans. As many as 85% of jobs may be threatened by automation in Ethiopia The Economist Yet America is the high ground when it comes to automation, according to a new report* from the same pair along with other authors. The proportion of threatened jobs is much greater in poorer countries: 69% in India, 77% in China and as high as 85% in Ethiopia. There are two reasons. First, jobs in such places are generally less skilled. Second, there is less capital tied up in old ways of doing things. Driverless taxis might take off more quickly in a new city in China, for instance, than in an old one in Europe. Attracting investment in labour-intensive manufacturing has been a route to riches for many developing countries, including China. But having a surplus of cheap labour is becoming less of a lure to manufacturers. An investment in industrial robots can be repaid in less than two years. This is a particular worry for the poor and underemployed in Africa and India, where industrialisation has stalled at low levels of income—a phenomenon dubbed “premature deindustrialisation” by Dani Rodrik of Harvard University. "Rich countries have more of the sorts of jobs that are harder for machines to replicate" Rich countries have more of the sorts of jobs that are harder for machines to replicate—those that require original ideas (creating advertising), or complex social interactions (arguing a case in court), or a blend of analysis and dexterity (open-heart surgery). But poorer countries are not powerless. Just because a job is deemed at risk from automation, it does not necessarily mean it will be replaced soon, notes Mr Frey. The cheapness of labour in relation to capital affects the rate of automation. Passing laws that make it less costly to hire and fire workers is likely to slow its advance. Scale also matters: farms in many poor countries are often too small to benefit from machines that have been around for decades. Consumer preferences are a third barrier. Mr Burr is hardly alone in hating automated checkouts, which explains why 3m cashiers are still employed in America.

Cars of the future How are you going to get to your future workplace? Cars of the future How are you going to get to your future workplace? Cars of the future Ride-hailing apps such as Uber, Ola and Lyft are not only challenging taxi drivers around the world, they are also disrupting the car industry as a whole as people prefer to hail a ride than buy their own set of wheels

Learn more Subscribe today, and you'll recieve a free notebook Try 12 weeks with our student offer. You'll also receive a free notebook View all our offers via economist.com/studentoffer, or by hitting the Subscribe Now button above

The truly personal computer Why the smartphone is the defining technology of the age The truly personal computer Why the smartphone is the defining technology of the age THE Ood are an odd bunch. Among the more enigmatic of the aliens regularly encountered in “Doctor Who”, a television series about a traveller in time and space, they are mostly silent—though sometimes given to song—and disconcertingly squid-like. What is more, evolution has equipped them with two brains—one in their heads, the other carried around in their hand. There are 2 billion people around the world using smartphones The Economist Put an Ood onto public transport anywhere in the developed world, though, and—tentacles apart—he would barely raise a questioning eyebrow. The other passengers would be too busy paying attention to the parts of their brain that they now carry in their hands to notice anything particularly odd about an alien doing something very similar. There are 2 billion people around the world using smartphones that have an internet connection and a touchscreen or something similar as an interface. By the end of the decade that number looks set to double to just over 4 billion, according to Benedict Evans of Andreessen Horowitz, a venture-capital firm. Already hugely attractive—an estimated 500m will be sold in China this year—smartphones are getting both more useful at the top end and much cheaper at the bottom. The most popular brand in India, Micromax, sells basic models for under $40. Once phones are established in a market the expectation that everyone will have one—what Rich Ling of the Nanyang Technological University in Singapore calls the “mobile logic”—forces them even into initially reluctant hands, making them end up ubiquitous. The success is not a story of phones alone. From 2009 to 2013 the mobile industry invested $1.8 trillion on improving its infrastructure around the world, according to the Boston Consulting Group. Download speeds have increased by a factor of 12,000 and data rates have dropped to a few cents per megabyte (see chart 2). Along with Wi-Fi in homes and offices this has made it feasible to add to the phones’ own computing power that of data-centres far away. Amazon Web Services, the world’s biggest provider of such cloud computing, says it is now adding as much server capacity every day as its e-commerce parent required to run its entire global infrastructure ten years ago. Let it ring a little longer By 2020, something like 80% of adults will own a smartphone connected to this remarkable global resource. If they are anything like today’s Europeans and Americans, who are leading in these matters, they will use them for about two hours a day; if they are like today’s European and American teenagers they will use them more than that. The idea that the natural place to find a computer is on a desk—let alone, before that, in a basement—will be long forgotten. By 2020, something like 80% of adults will own a smartphone The Economist Like the book, the clock and the internal combustion engine before it, the smartphone is changing the way people relate to each other and the world around them. By making the online world more relevant, and more applicable, to every task from getting from A to B to finding a date to watching over a child to checking the thermostat it is adding all sorts of convenience. Beyond convenience, though, a computer that is always with you removes many previous constraints on what can be done when and where, and undermines old certainties about what was what and who was who. Distinctions that were previously clear—the differences between a product and a service, between a car owner and a taxi driver, between a city square and a political movement—blur into each other. The world is becoming more fluid. These changes and the tools driving them have refocused the computer industry. Thanks mostly to the iPhone, Apple—not so long ago a maker of niche desktops and laptops—is now worth more than any other company in the world and just had the most profitable quarter in history. Mr Evans reckons that its revenues are now greater than those of the whole personal computer (PC) business. Xiaomi, a fast-growing Chinese maker of smartphones, has become the world’s most valuable startup (see article). The smartphone has become information technology’s key product. It generates the most profits; it attracts the most capital and the brightest brains. Apple’s App Store and Google Play, the equivalent for the Android operating system—which runs on 82% of the world’s smartphones, as opposed to Apple’s 15%—now offer users more than 3m apps. Apple alone sold apps worth more than $14 billion in 2014. Phones which start off identical—much more so, say, than cars—can thus be customised to meet an almost infinite range of needs and enthusiasms. Cry Translator purports to interpret your baby’s mood; RunPee tells you when best to take a toilet break in any film (and fills you in on what you missed). The fact that they can see and hear, that they know where they are and how fast they are being moved and can sense or infer all sorts of other goings-on increases the advantages that smartphones enjoy over boxes which sit on desks. When’s the next bus; what’s that not-quite-recognised tune; how much would that conveniently bar-coded product cost somewhere else; is that really horse on the menu: the combination of local data and cloud computing answers questions in any circumstance a user might find himself. As well as letting people do ever more on their phones, apps let them do ever more things off their phones, too. If something can be connected to the internet—be it a door or a fridge or a thermostat—it can be accessed by an app. The phone is thus central to the success of the “internet of things”. Wearable technology products—fitness trackers, smart watches, clip-on cameras and the like—will mostly work through the wearer’s phone in a similar way. In part this is because giving wearables short-range wireless links to a phone, rather than their own connection to the internet, means that they can be built with smaller batteries and simpler circuits. In part it is because the phone is already a great way of reading, caching and acting on all sorts of data. The phone can be turned into a remote control for almost anything; you can even add a dog-whistle app to send commands to your pet. Please check the number The most famous app-based company, Uber, is valued at $41 billion because of the success it has had in turning the smartphone into a remote control for taxis. The smartphone gives the company’s two categories of user—drivers and passengers—the control that they need. And it gives the company’s algorithms the data they need, from car positions to customer feedback. Similar service providers are using smartphones to rejigger local logistics. Over the years many firms have tried to turn the delivery of groceries and other goods into a big business. The latest generation is much more likely to succeed thanks to the smartphones of freelance personal shoppers ready to jump into action should something need to be picked up. Instacart, one of the biggest such services, has contracts with more than 4,000 of them in 15 American cities. It has grown from $1m in revenues in 2012 to $100m last year. Such business models are not without critics; the way that “Plattform-Kapitalismus” integrates people’s lives and livelihoods ever more thoroughly into a network of market transactions is an increasing concern on the European left. The new businesses that smartphones and apps allow are not merely extending the internet; they are also reshaping it in a way that some of its current denizens may find hard to live with. One reason Google got itself into the smartphone world with the acquisition and development of Android was to adapt its business to a world of smartphones dominated by another company. When people access the internet with apps on a phone, rather than with a browser on a PC, they experience it differently. The internet looks a lot less like a set of connected pages, and that makes a business that depends on helping people find the page they want—and seeing ads in the process—look less compelling. Smartphone users mostly buy things through apps, not through searches or ads. If moving to phoneworld has been a challenge for companies born on the web—though Facebook offers an example of doing it successfully—it can be harder still for companies which had only just caught up with the web in the first place. Media companies used to rely on their users going to their websites (though getting them to pay to do so has always been tricky). But people are now finding stuff they want to read or watch through Facebook, Twitter and, increasingly, messaging services. Snapchat, hugely popular among teenagers because it allows them to send pictures that fade away after a few seconds, recently introduced a service called “Discover”. It offers articles and videos from CNN, National Geographic and others, which disappear after 24 hours. Some publications have already concluded that websites have had their day and are now planning to distribute their wares only directly. Other disruptions are more personal. As Eric Topol argues in his recent book “The Patient Will See You Now” the relationship between a doctor and a patient is another of the things that becomes more fluid in the age of the phone. Smartphones with the right sensors can collect medically relevant data, from body temperature to blood-glucose levels. They can send pictures of lesions and even double as an otoscope (for ear exams) and other sorts of medical instrument. Dr Topol, a cardiologist and the director of the Scripps Translational Science Institute, predicts this will give rise to “smart patients” who can talk to the doctor on a more equal footing. Less professional intimacies are also changing. The very local, fluid and action-oriented social networking made possible by apps like Tinder and Grindr is shaking up dating. On Tinder users upload a photo and a short profile and then get shown the pictures of other users nearby. If they like what they see, they swipe a picture to the right—and if not, to the left. If two users both swipe to the right, they can start chatting on Tinder’s messaging service and take it from there. The not-yet-three-year-old service is used by more than 30m people a day, who make about 1 billion swipes, leading to 13m matches. Social behaviour and etiquette have adapted to new technology in the past; they will do so again. At the unconscious level of habit smartphones are already oddly integrated into people’s lives. Particular spatial cues—getting into a lift or onto a train, for example—can reliably trigger a check of the screen. A similar effect in toilets is said to be the reason Samsung started making more models waterproof. A strange sensation Protecting users may not always be as easy as protecting their phones. Physiotherapists warn of “text neck”; unlike the Ood, humans evolved to keep all their brains balanced on top of their spines, and constantly hunching forward leads to stress and strain. Some psychologists warn of the danger of slipping past habit to addiction. They are warning not just of gambling apps, but of the more general way in which checking a phone, like gambling, is a search for an elusive reward in which every disappointment reinforces the desire to try again. David Greenfield, a psychologist and founder of the Centre for Internet and Technology Addiction, calls them “the world’s smallest slot machines”. Teenagers, whose time on phones dwarfs that of their elders (see chart 4), are developing a social life in which face-to-face and digital forms of contact are used interchangeably and often simultaneously. Manuel Castells of the University of Southern California talks of their phone-based lives playing out in a “timeless time” in which activities and exchanges happen in parallel or even backwards (when people’s lives come with timelines, it is a common experience to find out what they said first only after you know what they said next). That fluidity fits with other notions of the effects that the smartphone’s truly personal computing could have. Mechanical clocks allowed the days of the industrial revolution to be regularised in new ways; cars changed the landscape and extended the geography of people’s lives; the printed book made human knowledge more accessible, more easily built on and more thoroughly examinable, fixing it in bindings onto shelves. In its present, admittedly early, days the phone seems to permit earlier regimentation to relax. It encourages renting over buying, trying out over tying yourself down, co-ordinating things on the fly rather than in advance. Recent political protests have taken advantage of the new fluidity. Smartphones have not caused uprisings or revolutions, but they have affected their dynamics: mobilising has become much cheaper, centralised organisation less necessary. During recent protests in Ferguson, a suburb of St Louis, Missouri, and Hong Kong, messaging apps were used to co-ordinate activities on the ground in real-time. A fixed sense of place has still mattered a lot to these movements—witness Kiev’s Maidan, Cairo’s Tahrir Square, New York’s Zuccotti Park, Hong Kong’s Civic Square. Protest-movement metonymy of this sort reflects the way that physical space is becoming “a function of the virtual world”, in the words of Thomas Sevcik of Arthesia, which provides advice to city governments. The refiguring of public spaces as political platforms reflects the way that the purpose of physical places, be they roads or rooms or buildings, now depends less on where they are and what they were designed for, and more on what is being done with the screens that they contain or that people have brought into them. Such changes will prove fascinating to social scientists, for some of whom the smartphone has become both telescope and microscope, allowing them to see social phenomena both more precisely and on a grander scale than ever before. Optimists, such as Alex Pentland of MIT’s Media Lab, argue that the vast amounts of data phones can provide could underpin a new, predictive “social physics”. This new science might be capable of modelling, and thus helping to alleviate, many of the world’s problems, from epidemics to violence (and, indeed, epidemics of violence). Wild time has just begun For pessimists, however, smartphones are miniature versions of the “telescreens” in George Orwell’s “1984”, omnipresent tools which allow the thought police to identify enemies of the state. The security services in democracies have shown a keen interest in the ability to get into as many smartphones as possible (see article). Those in autocracies are doubtless doing the same. Around the world people are rushing to buy machines through which they can be monitored at previously impossible levels of intimacy—monitored by the state, by companies entrusted with their data, by hackers who steal their information, and by peers who just see what has been posted. Phone-based social media, messaging services and other apps already make people’s lives more public. Hacks into the cloud have been exposing parts of people’s phone-based lives they would rather have kept private. Democracies may be able to find acceptable solutions to some of the problems posed. Mr Pentland calls for a “new deal on data”, which would include giving individuals clear rights on their personal data and allow them to better control how the information is used. In “The Black Box Society” Frank Pasquale of the University of Maryland argues for more transparency in the use of data both by governments and companies—and limits on the uses to which they are put. There are technical fixes to some problems. California now insists that smartphones have “kill switches” that allow their owners to lock their devices from afar if they get stolen, thus reducing their value to thieves and protecting the data they could be used to access. The latest versions of both Apple’s iOS and Google’s Android automatically encrypt user data on smartphones in such a way that only the user can decrypt them. "People will live in perpetual contact both with each other and with the computational power of the cloud" Perhaps the most fundamental question about the fluid world of the smartphone is whether its currents will, in general, bring people together or move them apart. The Ood-ignoring, text-neck-risking screen-focused commuters on trains and buses seem even more isolated from each other than they used to be. In 2013 security footage on a San Francisco Muni train showed a number of passengers failing to notice a man playing with a pistol until he shot someone. The title and tagline of a book by Sherry Turkle of MIT seem to sum up something real: “Alone Together—Why We Expect More From Technology and Less From Each Other”. Then again, the devices really do bring people closer together. They do it casually, by ensuring that there is always someone to play a game with, or indeed hook up with. They do it commercially, matching people needing jobs to people wanting them and people with goods to sell to people who want to buy. They do it impersonally, with celebrity selfies sent to huge numbers of followers, and they do it intimately, with near-constant conversation within families and lifelong links to friends you might otherwise have lost. They may do it in a way that lets people exclude voices that challenge them; they may do it in ways that are unutterably banal. They may do it differently according to age and gender—some research suggests that, at least in some cultures, women use phones to enrich and strengthen existing social bonds by sharing photos and the like, while men use them to create new, weaker bonds based on shared interest. But they do it nonetheless. The new computing’s tendency to the fluid will, in all likelihood, mean that the current form of the phone will not last forever. The truly personal computing phones make possible, though—the sort which adapts you to your surroundings and vice versa—seems sure to persist. People will live in perpetual contact both with each other and with the computational power of the cloud. The Ood, it is worth remembering, did not just have two brains, one in the head and one in the hand—they had a third, planetary brain, telepathically shared by all. It may yet be to such a world that, with phones in hand, pocket and purse, humanity makes its way.

Banks? No, thanks! Today's graduates are forging completely new career paths. Read how Banks? No, thanks! Graduates are turning away from traditional banking roles, towards startups, tech giants and consultancies “AN INVESTMENT banker was a breed apart, a member of a master race of dealmakers. He possessed vast, almost unimaginable talent and ambition.” So wrote Michael Lewis in his 1989 book, “Liar’s Poker”. Mr Lewis charted the ascent into investment banking of the most talented graduates in the 1980s, a situation that still held true as the financial crisis struck in 2007. Then, 44% of Harvard’s MBAs landed a job in finance; 12% became investment bankers. Yet in the class of 2013 only 27% chose finance and a meagre 5% became members of Mr Lewis’s master race. "In 2007, 46% of London Business School's MBA graduates got a job in financial services; in 2013 just 28% The trend is the same at other elite business schools. In 2007, 46% of London Business School’s MBA graduates got a job in financial services; in 2013 just 28% did, with investment banking taking a lower share even of that diminished figure. At the University of Chicago’s Booth School of Business, the percentage of students going for jobs in investment banking has fallen from 30% in 2007 to 16% this year. Since the crisis, investment banks have culled the recruitment schemes through which they once hired swathes of associates straight from business schools. Instead, they rely more on recruiting the brightest undergraduates, in the belief that it is more productive—and better value—to develop cohorts of junior analysts in-house, rather than those with fixed ideas honed on expensive MBA programmes. It is not just that the supply of investment-banking jobs has diminished; so has MBAs’ enthusiasm for them. Once, they wanted nothing more than to climb a bank’s greasy pole, with the vast riches this promised. But regulation has stunted bankers’ bonuses and, perhaps as important, MBAs increasingly seek the flexibility to switch careers within a few years. Investment banks expect long-term loyalty, notes an MBA who did a spell in banking, whereas students see them as “a stepping stone into private equity or a hedge fund”. This is one reason why there has been a revival in business-school graduates’ interest in working as consultants. Almost 30% of students at the elite business schools now typically find work at consulting firms. In 2007, 23% of London Business School’s MBAs joined such organisations, last year 29% did. At Chicago the number has risen from 24% to 31% over the same period. Indeed four big consultants—McKinsey, Bain, the Boston Consulting Group and A.T. Kearney—accounted for 19% of the 472 students hired from Chicago’s MBA programme last year. This should not be surprising. Before investment banks were in vogue, consulting seemed the natural home for business-school students’ talents. The general-management focus of most MBA programmes, and their use of the case-study method, make them ideally suited to the job. An old consulting joke tells of the newly minted MBA sitting at his desk, demanding: “Bring in the first case!” "Almost 30% of students at the elite business schools now typically find work at consulting firms." Whereas banks expect MBAs still to be with them in five years, consulting firms ask recruits: “Whom do you see hiring you in five years?” Encouraging them to think about life beyond the firm has several benefits, consultants believe. It attracts the strongest candidates and it gives the firms a high-powered network of alumni who may become future clients. For MBAs, the exposure to different industries and the access to senior managers that a consulting job brings are a perfect base from which to launch a new career, says Julie Morton of Chicago Booth. That base salaries for those going into consulting are among the highest for any industry—a median of $135,000, compared with $100,000 for Chicagoans signing up with an investment bank—only makes the choice easier. Not just in it for the money Even if investment banks were still able to offer the financial rewards they once could, students’ priorities seem to be changing. Contrary to MBAs’ reputation as breadheads, in a survey by The Economist for our latest full-time MBA ranking (see article), less than 5% said that higher pay was their most important consideration when deciding to enroll at business school, far behind factors such as “to open new career opportunities” (58%) or “personal development” (15%). Sceptics might respond: they would say that, wouldn’t they? And MBAs’ ostensible disregard for the size of their pay packets must be put into context—a student from a top ten school in The Economist’s ranking will still earn an average basic salary of $118,000 immediately after graduation. Nonetheless, it is somewhat surprising given that they are also likely to have accumulated huge debts. Harvard reckons its MBA can cost $250,000 for two years’ board and study, and that is before forgone salary is taken into account. Another big beneficiary of MBAs’ loss of interest in banking is the technology industry. Of the top eight recruiters at INSEAD, a business school with campuses in France and Singapore, half now fall into this category: Amazon, Microsoft, Samsung and Google. (The other half were consultants.) The proportion of Chicago MBAs landing jobs at technology firms has risen from 6% to 12% since 2007. At Stanford, in the heart of Silicon Valley, it is close to a third. “Many students want to be part of an entrepreneurial environment and make an impact, to feel they are building and shaping something,” says Ms Morton. Tech firms and consultants both appeal to the growing number of students who want to gain the right experience to start their own business. A survey by the Graduate Management Admission Council, an association of business schools, found that although only 4% of MBAs have entrepreneurial experience when they enter their course, 26% say they want to start companies after they graduate. Competition for the best students is also coming from the non-bank financial-services sector, notably hedge funds and private-equity (PE) firms. Five years ago it was rare for such places to recruit MBAs straight from campuses. Instead they would often poach talent from the banks. But now several big schools, including Harvard and Wharton, are building formal recruiting ties with such firms. They are helped by the fact that many students have already had some finance experience before enrolling: 17% of Harvard’s latest MBA class came from a PE or venture-capital firm. Students from other backgrounds are also attracted by the dynamic atmosphere these outfits offer. Michel, a recent graduate of Kellogg School of Management, for example, says PE appealed to him and his peers over banking because the firms are smaller and the work more entrepreneurial and hands-on. If self-fulfillment is indeed the priority for millennial MBAs, then banks need to do some serious rebranding. “I have never heard anything about the corporate culture of investment banks that sounds like it’s an environment I’d like to work in,” says a business-school graduate who chose consulting. Added to this, MBAs also seem to have discovered a sense of moral purpose. At London Business School the fastest-growing student society is something called the “Net Impact” club, says Lara Berkowitz, a senior career adviser at the school. This means thinking about how to build careers that have a positive impact on the world around them, such as running ethical-investment funds or corporate-social-responsibility programmes. Attacked on so many fronts, banks are trying to fight back. Some are running campaigns urging graduates not to believe media stories portraying them as greedy or evil. Others are trying to lure recruits by persuading them they will help make the world a better place. Goldman Sachs’s job portal advertises opportunities to work on community projects alongside positions for analysts: “That’s why you come and work at Goldman Sachs, because you can make a difference in the world,” trills its recruitment video. A few banks are trying to change their culture, taking a tougher line on sexual harassment of female staff and advocating a healthier work-life balance, perhaps even allowing the odd work-free Saturday. For the business schools’ brightest and best, though, all this may not be enough. Where would you rather work? Banking and finance sector

Tech industry

Elsewhere

Still a must-have MBAs remain surprisingly popular, despite the headwinds Still a must have It's no stranger to criticism, but the MBA is still hugely popular THE master of business administration (MBA) is no stranger to damning criticism. In the 1950s an influential report commissioned by the Ford Foundation lambasted the degree for being weak and irrelevant. In the 1980s Business Week reported that firms were bemoaning “the inability of newly minted MBAs to communicate, their overreliance on mathematical techniques of management and [their] expectations of becoming chairman in four weeks”. In the 2000s observers noticed that firms involved in corporate disasters, such as Enron and Lehman Brothers, tended to be run by alumni from prestigious business schools. 192,000 masters degrees in business were awarded in America in 2012, making it easily the most popular discipline among post-graduate students The Economist Yet the MBA remains hugely popular. Nobody knows exactly how many people study for the degree globally, but 192,000 masters degrees in business were awarded in America in 2012, making it easily the most popular discipline among post-graduate students. Worldwide 688,000 people sat the GMAT, the de facto entrance exam for MBA programmes, in 2014—although this is down considerably from 2008, when 745,000 took the test. Do you think MBAs are still a valuable degree to have? Yes, there will always be demand for MBA graduates

No, the MBA has failed to move with the times The reason for this drop is partly cyclical: people tend to apply to business schools during downturns in an attempt to shelter themselves from the economic storm. But the MBA faces many longer-term problems. The most pressing is tighter visa requirements in parts of the rich world. It may seem obvious that countries would wish to attract and retain the brightest young minds. But to the despair of business-school deans, both America and Britain—the two most popular destinations for foreign students—now place tougher restrictions on foreign students who want to stay and work in the country after they finish studying. In America foreign MBA graduates must find a firm to sponsor them for an H-1B visa, which entitles them to work for up to three years in the country, with the possibility to extend to six years. But the demand for these visas by far exceeds supply. America caps the number of H-1Bs at a total of 85,000 (the first 20,000 applications are reserved for students of a master’s degree). These are snapped up within days. In Britain graduates must find work even before their student visa expires if they want to stay in the country. Such restrictions are a particular problem for MBA programmes because many students choose a business school based on where they want to work after they graduate. Predictably, countries with a more welcoming attitude, such as Canada, are seeing applications from abroad rise. In contrast, the proportion of applicants interested in American schools fell from 83% in 2007 to 73% in 2015, according to GMAC, a business-school body. Canada and other countries do not just covet foreigners deciding whether to apply to American schools. The Canadian government has hired giant billboards in Silicon Valley reading “H-1B Problems? Pivot to Canada” to attract disgruntled foreign graduates. “If [American firms] can’t import the talent, they will export the jobs,” says Matt Slaughter, the dean of the Dartmouth College’s Tuck School of Business. “Unlike lawyers or doctors, the MBA qualification is transferable across borders.” "Western business schools are losing ground to those based in emerging economies" Such concerns highlight the fact that MBA graduates are still in demand among employers. At schools included in The Economist’s latest ranking of full-time MBA programmes, 89% of students found a job within three months of graduating. Their median basic salary is close to $100,000, an increase of 88% compared with their pre-study salaries. But some things have changed: banks, for instance, have become much less keen on MBAs since the financial crisis (perhaps because business-school alumni were often singled out as the culprits). Western business schools are also losing ground to those based in emerging economies. The share of students who send their GMAT scores to an Asian and Australasian business school—a good proxy for applications—has nearly doubled to 8.1% since 2007. Eight-and-a-half Asian business schools now make it into our ranking of full-time programmes (INSEAD has campuses in France and Singapore). These numbers are small, but they are likely to rise. China, in particular, plans to improve its business schools to meet demand for local managers. "China, in particular, plans to improve its business schools to meet demand for local managers" Established schools are also disrupting themselves. Over the past five years the number of master-in-management (MiM) degrees, which unlike MBA programmes admit students straight from university without prior work experience, has shot up. In America even schools such as Michigan, Duke and Notre Dame are embracing what was once considered a strictly European qualification. Despite covering much of the same ground as an MBA, MiM programmes also tend to be much cheaper. Every student who graduates from them is likely to be one fewer lucrative MBA candidate in the future. Not all business schools are affected in the same way. Students will always, it seems, want an MBA from Harvard, Chicago or London Business School. It is those with lesser reputations that face the toughest times. More than two-thirds of full-time programmes costing under $40,000 a year reported either flat or declining application numbers in 2015, according to GMAC. In contrast, most of those charging more than $40,000 said that their applicant pool had grown. No matter how few people an MBA programme can attract, few schools will consider dropping the programme altogether The Economist That suggests an oversupply of MBA programmes. Those taking an economics class in one of them might reasonably expect a shakeout. Alas, in the world of business schools such laws do not seem to apply. No matter how few people an MBA programme can attract, few schools will countenance dropping the programme altogether: a business school is defined by its MBA. As Stephen Hodges, the president of Hult International Business School, puts it: “Is a business school really a business school if it doesn’t offer an MBA?”

The walled world of work Why unemployment among millennials is a massive waste of resources Millennials and work Why youth unemployment is a massive waste of resources CRISTINA FONSECA CAUGHT pneumonia a week before her final exams. “I thought I would die,” she recalls. When she recovered, she reassessed her priorities. As a star computer scientist, she had lots of job offers, but she turned them all down. “I realised that I didn’t want to spend my life doing anything that was not really worthwhile.” She decided to start her own business. After a year of false starts she co-founded a company called Talkdesk, which helps other firms set up call centres. By using its software, clients can have one up and running in five minutes, she claims. "Elite youth today are multilingual, global-minded and digitally native" Ms Fonseca’s success helps explain why some people are optimistic about the millennial generation in the workplace. At 28, she is providing a completely new service in support of another service that did not exist until quite recently. She lives in Portugal but does business all over the globe. She sounds very much like several other young entrepreneurs your correspondent met while researching this report, such as a Russian who set up a virtual talent agency for models (castweek.ru); an Asian-American electric cellist who teaches people how to make new sounds using a laptop (danaleong.com); and a Nigerian starting a new publishing house for African romantic novelists (ankarapress.com). Elite youth today are multilingual, global-minded and digitally native; few can remember life before the internet or imagine how anyone coped without it. The best-known of them changed the world before they turned 30, including Facebook’s Mark Zuckerberg, Google’s Sergey Brin and Larry Page, and Instagram’s Kevin Systrom. The global economy works well for such people. Digital startups require far less capital than, say, building a factory, and a brilliant piece of software can be distributed to millions at minimal cost. So today’s whippersnappers of great wealth have made their money much faster than the Rockefellers and Carnegies of old. Youth unemployment in France is 25% and has been scandalously high for three decades The Economist But the world of work has been less kind to other young folk. Florence Moreau, a young architect in Paris, had the double misfortune to leave university in 2009, when the world economy was on its knees; and to be French. “I really need a full-time, permanent job,” she says. Under France’s 3,800-page labour code, workers on permanent contracts receive generous benefits and are extremely hard to get rid of. So French firms have all but stopped hiring permanent staff: four-fifths of new employees are on short-term contracts. Ms Moreau has had eight jobs, none lasting for longer than 16 months. With a small child at home, she has to keep looking for the next one. “It’s tiring,” she sighs. One employer suggested that she should become an “entrepreneur”, doing the same job as before but as a contractor, so that the firm could keep her on indefinitely without incurring heavy ancillary costs. She refused. Insiders v outsiders Youth unemployment in France (using the ILO definition of youth as 15-24-year-olds) is 25% and has been scandalously high for three decades. Occasionally the government tinkers with labour rules, but voters have little appetite for serious reform. Ms Moreau rejects the idea that insiders enjoy too many legal protections, and that this is why outsiders find it so hard to break in. She blames exploitative employers, and doubts that any government, left or right, will fix the problem. Rigid labour rules are tougher on young workers than older ones. People without much experience find it harder to demonstrate that they are worth employing. And when companies know they cannot easily get rid of duds, they become reluctant to hire anyone at all. This is especially true when the economy is not growing fast and they have to bear the huge fixed cost of all the older permanent employees they took on in easier times. France is not alone in having such problems. In the euro area, Greece, Spain and Italy all have rules that coddle insiders and discourage outsiders. Their youth unemployment rates are, respectively, 48%, 48% and 40%. Developing countries, too, often have rigid labour markets. Brazilian employees typically cost their employers their salary all over again in legally mandated benefits and taxes. South Africa mixes European-style labour protections with extreme racial preferences. Firms must favour black job applicants even if they are unqualified, so long as they have the “capacity to acquire, within a reasonable time, the ability to do the job”. Some 16% of young Brazilians and a stunning 63% of young South Africans are unemployed. Globally, average youth unemployment is 13% compared with the adult rate of 4.5%. Young people are also more likely than older ones to be in temporary, ill-paid or insecure jobs. Joblessness matters for several reasons. First, it is miserable for those concerned. Second, it is a waste of human potential. Time spent e-mailing CVs or lying dejected on the sofa is time not spent fixing boilers, laying cables or building a business. Third, it is fiscally ruinous. If the young cannot get a foot on the career ladder, it is hard to see how in time they will be able to support the swelling number of pensioners. Fourth, joblessness can become self-perpetuating. The longer people are out of work, the more their skills and their self-confidence atrophy, the less appealing they look to potential employers and the more likely they are to give up and subsist on the dole. This “scarring” effect is worse if you are jobless when young, perhaps because that is when work habits become ingrained. Thomas Mroz of the University of North Carolina, Chapel Hill, and Tim Savage of Welch Consulting found that someone who is jobless for a mere six months at the age of 22 will earn 8% less at 23 than he otherwise would have done. Paul Gregg and Emma Tominey of the University of Bristol found that men who were jobless in their youth earn 13–21% less at age 42. And David Bell of the University of Stirling and David Blanchflower of Dartmouth College found that people who were unemployed in their early 20s are less happy than expected even at the age of 50. Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist The Economist “The first ten years are essential. They shape careers in the long term,” says Stefano Scarpetta of the OECD, a think-tank for mostly rich countries. This is when people develop the soft skills that they do not pick up at school, such as conscientiousness, punctuality and teamwork. Over the next decade more than 1 billion young people will enter the global labour market, and only 40% will be working in jobs that currently exist, estimates the World Bank. Some 90% of new jobs are created by the private sector. The best thing for job creation is economic growth, so policies that promote growth are particularly good for the young. Removing regulatory barriers can also boost job creation. Mr Scarpetta applauds recent attempts in Spain, Italy and Portugal to make labour rules a bit more flexible, but argues that such laws should generally be much simpler. For example, it would be better to scrap the stark distinction between temporary and permanent contracts and have only one basic type of contract in which benefits and job security accumulate gradually. Denmark shows how a labour market can be flexible and still give workers a sense of security. Under its “flexicurity” system companies can hire and fire easily. Unemployed workers are supported by the state, which helps them with retraining and finding new jobs. Trade unions often favour a minimum wage. This can help those who already have jobs, but if it is set too high it can crowd out those with the fewest skills and the least experience, who tend to be young. It makes more sense to subsidise wages through a negative income tax, thus swelling take-home pay for the lowliest workers without making them more expensive for the employer. But this costs taxpayers money, so many governments prefer to raise the legal minimum wage, passing the cost on to others. America’s Democratic Party is pushing to double the federal minimum wage, to $15 an hour—a certain job-killer. Putting the tyke into tycoon Making it easier for young people to start their own business is essential, too. They may be full of energy and open to new ideas, but the firms they create are typically less successful than those launched by older entrepreneurs. The young find it harder to raise capital because they generally have a weaker credit history and less collateral. They usually also know less about the industry they are seeking to enter and have fewer contacts than their older peers. A survey by the Global Entrepreneurship Monitor found that businesses run by entrepreneurs over the age of 35 were 1.7 times as likely to have survived for more than 42 months as those run by 25-34-year-olds. "As economies grow more sophisticated, demand for cognitive skills will keep rising" Young sub-Saharan Africans show the greatest enthusiasm for starting their own business: 52% say they would like to, compared with only 19% in rich Western countries. This is partly because many have little choice. There are fewer good jobs available in poor countries, and in the absence of a welfare state few people can afford to do nothing. Bamaiyi Guche, a Nigerian 17-year-old, is a typical example of a poor-country entrepreneur. He goes to school from 8 to 12 every morning, then spends the afternoon in the blazing sun selling small water sachets to other poor people without running water in their homes. He makes $1 a day, half of which goes on his school fees. He wants to be a doctor one day. Some youngsters from well-off families forge careers as “social entrepreneurs”, seeking new ways to do good. Keren Wong, for example, recognises that she was “born into privilege”. (Her parents were prosperous enough to support her at Cornell University.) A Chinese-American, she now runs a non-profit called BEAM which connects teachers in rural Chinese schools so they can swap ideas for teaching more effectively. Alas, there is a huge mismatch everywhere between the skills that many young people can offer and the ones that employers need. Ms Fonseca says she cannot find the right talent for Talkdesk. “I need very good engineers, very good designers and people who speak very good English. But there aren’t enough of them,” she says. As economies grow more sophisticated, demand for cognitive skills will keep rising. The world’s schools are not even close to meeting it.