Why 2019 Feels Like 1929—And What We Can Do to Change Course
- by Geoffrey Garrett
Global trends like populism, automation, and U.S.-China tensions threaten to upend today’s economic prosperity, but there’s much we can do to avoid a major financial downturn.
Last week, I welcomed the amazing Wharton MBA Class of 2021 to campus. It’s no surprise that the optimism in the room was palpable. I, too, am an optimist by nature. But my message to our students was that we must all be realistic optimists, not naive ones. For me, that means acknowledging that we must all do whatever we can to navigate and reverse three intersecting geoeconomic and geopolitical trends:
- After four decades of ever-increasing engagement between China and the United States, the world’s two leading powers seem increasingly determined to decouple their economies from each other—making a second Cold War a reality and superpower war more likely.
- Notwithstanding that past technological revolutions have improved both the quality of life and the world of work, the combination of robots and AI threatens to destroy many more jobs than it creates—undermining the foundations of a good life based on a good job.
- While it remains tempting to dismiss the recent rise of anti-establishment politics as an aberration, the roots of populism run much deeper and stronger—weakening the foundations of democracy and increasing the chances of international conflict.
In my darkest moments, I fear that 2019 is looking more like 1929. Ninety years ago, economic inequality was at an all-time high in America and Europe. The seeds of authoritarian nationalism were sprouting in Asia, Europe, and Latin America. World War I had destabilized the old global order without creating a new one. Against this backdrop, the stock market crash of October 1929 then ignited the horrendous cascade of depression, fascism, and World War II—arguably the worst 15 years in history.
The notion that we could even remotely be near such a global paroxysm may seem unthinkable today. But I bet that is how everybody living the life of The Great Gatsby and Downton Abbey in the late 1920s felt, too.
The good news today is that while a market correction (and potentially a recession) seem likely sometime, the chances of a crash on the scale of 1929 appear remote. This gives us some time—time to do all we can to reverse the big trends, time to make sure the 2020s are not a replay of the 1930s.
Part of what we must do no doubt requires demanding more of our political leaders—to be more open about the challenges we face and more creative about the potential solutions. But I implored our students to embrace the real difference they can make: that bottom-up actions by the many can change the world as much as, or more than, the actions of even the most effective leaders.
So, my suggestions for change are part policy wonkism, part personal wisdom. Let me start with the wonkish perspective.
The new big idea today is to “decouple” the world’s two leading economies. I think that is about the worst thing that could happen, and not only for the obvious reason that it would destabilize the global economy and increase prices for consumers all over the world. A Brookings report published in February noted: “The U.S.-China economic relationship delivers more benefits to the U.S. than is commonly understood. For example, recent data shows that U.S. exports to China support around 1.8 million jobs in sectors such as services, agriculture, and capital goods.”
I have long thought “Cold War” was the wrong description of China-U.S. relations, precisely because of the dense thicket of interconnections that has grown between the two economies over the past 40 years. In part, this is because of trade and investment by multinational companies with global supply chains and distribution networks.
Decoupling would jettison all this economic ballast. With flash points like Hong Kong, the South China Sea, and Taiwan, tying the hands of each side by binding their economies together is the best way to ensure stability. Decoupling would have the opposite effect—making conflict more likely.
It is easy today to deride American engagement as having failed to change China. But it has had the massive benefit of reducing the likelihood of superpower conflict. Reversing course now would inevitably make conflict more likely.
The Future of Work
The economists’ glib optimism on technological change—“we don’t know where the jobs will come from, but we know they will be there”— doesn’t comfort anyone worried about the future of work when venerable institutions like McKinsey and Oxford University are predicting that automation might eliminate half of all of today’s jobs.
Economists are correct that new technologies are increasing efficiency and safety while making products better rather than cheaper. But no one should hide from the reality that some people will lose jobs in the process and many more will fear they will be next.
Any job that can be automated (routine jobs that require rapid, error-free repetition) will inevitably be automated. But non-routine jobs—not only high-tech jobs for coders and engineers, but also personal-services jobs like nurses and teachers—are in high and rising demand, and they aren’t vulnerable to automation.
What we need is to prepare more people for the world of non-routine work. That means not only more education for more people, but also education that is better targeted to the skills non-routine work requires—skills that are both hard (and technical) and soft (and social). In addition to non-routine jobs, work that requires empathy and emotional intelligence will be harder to automate. Research from Wharton’s Sigal Barsade has shown that positive emotions exert a powerful influence in the workplace, by contributing to creativity and teamwork. It is hard to imagine robots taking over such work.
“Leadership” is the clichéd antidote to the nativist, nationalist, anti-immigration, and anti-globalization sentiment that is so prominent today. But providing this leadership is hard, because it means replacing emotive slogans with plain-speaking proposals that are rooted to deep realities.
First, leaders must defend technology and globalization by both explaining how they really work, and how societies the world over have benefited from them. With all the focus on job creation, we tend to forget everyone is a consumer, and consumers would lose big time from reversing these megatrends—and not just because of tariffs. For example, having iPhones “made in America” (rather than assembled in China from components made all around the world) would probably increase their cost somewhere between 50 percent and 100 percent. Does anyone really want that?
Second, leaders must then not only show real empathy for the people who have been dislocated by technology and globalization (because they have eliminated jobs) but also present compelling plans for extending the benefits to them. Here, education looms very large. Issues of access and affordability are no doubt very important. But so, too, is changing the focus of education to align skills with the new world of work demands.
What Can We All Do?
I acknowledge that all this might feel very distant from our daily lives. But it is not. Indeed, we can all take steps that will make a big difference in the lives of others. Call it “embracing the positive societal externalities of what we do as individuals.”
If that sounds too much like social science jargon, here are four maxims that I try to live by every day, and that I encourage students to live by, too:
- Be an optimist, but be a realistic one. (Don’t live in your bubble; keep your eyes open.)
- Follow your passions, but think about your impact on others. (Do well, but do good, too.)
- Be true to yourself, but try to walk in the shoes of others. (Have empathy and be compassionate.)
- Focus on what matters, but be active members of your communities. (Stand up and be counted.)
We are living in challenging times. But we can, and we must, do all we can to ensure that our best days are ahead of us.
Geoffrey Garrett is Dean, Reliance Professor of Management and Private Enterprise, and Professor of Management at the Wharton School of the University of Pennsylvania. This post was originally published on LinkedIn, where he was named an “influencer” for his insights in the business world. View the original post here. Follow Geoff on Twitter.