Artificial intelligence - The Economist · PDF fileThe return of the machinery question After many false starts, artificial intelligence has taken off. Will it cause mass unemployment

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

Artificial intelligenceAnything you can do, AI can do better. So how will itchange the workplace?

The return of themachinery question

After many false starts, artificialintelligence has taken off. Will it causemass unemployment or even destroymankind? History can provide somehelpful 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 machineryquestion is back with avengeance, 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 artificialintelligence, we're summoning thedevil"

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 wasspent on AI companies, nearly fourtimes 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.

The world is going touniversityBut is it worth it?

The world is going touniversity

But is it worth it?

“AFTER God had carried us safe to New England, and

we had builded our houses, provided necessaries for

our livelihood, reared convenient places for God’s

worship and settled Civil Government, one of the next

things we longed for and looked for was to advance

learning and perpetuate it to posterity.” So ran the

first university fundraising brochure, sent from

Harvard College to England in 1643 to drum up cash.

America’s early and lasting enthusiasm for higher

education has given it the biggest and best-funded

system in the world. Hardly surprising, then, that

other countries are emulating its model as they send

ever more of their school-leavers to get a university

education. But, as our special report argues, just as

America’s system is spreading, there are growing

concerns about whether it is really worth the vast

sums spent on it.

University enrolment is growingfaster even than demand for thatultimate consumer good, the car

The Economist

The modern research university, a marriage of the

Oxbridge college and the German research institute,

was invented in America, and has become the gold

standard for the world. Mass higher education started

in America in the 19th century, spread to Europe and

East Asia in the 20th and is now happening pretty

much everywhere except sub-Saharan Africa. The

global tertiary-enrolment ratio—the share of the

student-age population at university—went up from

14% to 32% in the two decades to 2012; in that time,

the number of countries with a ratio of more than half

rose from five to 54. University enrolment is growing

faster even than demand for that ultimate consumer

good, the car. The hunger for degrees is

understandable: these days they are a requirement for

a decent job and an entry ticket to the middle class.

There are, broadly, two ways of satisfying this huge

demand. One is the continental European approach of

state funding and provision, in which most

institutions have equal resources and status. The

second is the more market-based American model, of

mixed private-public funding and provision, with

brilliant, well-funded institutions at the top and

poorer ones at the bottom.

The world is moving in the American direction. More

universities in more countries are charging students

tuition fees. And as politicians realise that the

“knowledge economy” requires top-flight research,

public resources are being focused on a few privileged

institutions and the competition to create world-class

universities is intensifying.

In some ways, that is excellent. The best universities

are responsible for many of the discoveries that have

made the world a safer, richer and more interesting

place. But costs are rising. OECD countries spend

1.6% of GDP on higher education, compared with

1.3% in 2000.

"OECD countries spend 1.6%of GDP on higher education,compared with 1.3% in2000"

If the American model continues to spread, that

share will rise further. America spends 2.7% of its GDP

on higher education.

If America were getting its money’s worth from higher

education, that would be fine. On the research side, it

probably is. In 2014, 19 of the 20 universities in the

world that produced the most highly cited research

papers were American. But on the educational side,

the picture is less clear. American graduates score

poorly in international numeracy and literacy

rankings, and are slipping. In a recent study of

academic achievement, 45% of American students

made no gains in their first two years of university.

Meanwhile, tuition fees have nearly doubled, in real

terms, in 20 years. Student debt, at nearly $1.2

trillion, has surpassed credit-card debt and car loans.

None of this means that going to university is a bad

investment for a student. A bachelor’s degree in

America still yields, on average, a 15% return. But it

is less clear whether the growing investment in

tertiary education makes sense for society as a whole.

If graduates earn more than non-graduates because

their studies have made them more productive, then

university education will boost economic growth and

society should want more of it. Yet poor student

scores suggest otherwise. So, too, does the testimony

of employers. A recent study of recruitment by

professional-services firms found that they took

graduates from the most prestigious universities not

because of what the candidates might have learned

but because of those institutions’ tough selection

procedures. In short, students could be paying vast

sums merely to go through a very elaborate sorting

mechanism.

If America’s universities are indeed poor value for

money, why might that be? The main reason is that

the market for higher education, like that for health

care, does not work well. The government rewards

universities for research, so that is what professors

concentrate on. Students are looking for a degree

from an institution that will impress employers;

employers are interested primarily in the selectivity

of the institution a candidate has attended. Since the

value of a degree from a selective institution depends

on its scarcity, good universities have little incentive

to produce more graduates. And, in the absence of a

clear measure of educational output, price becomes a

proxy for quality. By charging more, good universities

gain both revenue and prestige.

What’s it worth?

More information would make the higher-education

market work better. Common tests, which students

would sit alongside their final exams, could provide a

comparable measure of universities’ educational

performance. Students would have a better idea of

what was taught well where, and employers of how

much job candidates had learned. Resources would

flow towards universities that were providing value

for money and away from those that were not.

Institutions would have an incentive to improve

teaching and use technology to cut costs. Online

courses, which have so far failed to realise their

promise of revolutionising higher education, would

begin to make a bigger impact. The government

would have a better idea of whether society should be

investing more or less in higher education.

Sceptics argue that university education is too

complex to be measured in this way. Certainly,

testing 22-year-olds is harder than testing 12-year-

olds. Yet many disciplines contain a core of material

that all graduates in that subject should know. More

generally, universities should be able to show that

they have taught their students to think critically.

Some governments and institutionsare trying to shed light oneducational outcomes

The Economist

Some governments and institutions are trying to shed

light on educational outcomes. A few American state-

university systems already administer a common test

to graduates. Testing is spreading in Latin America.

Most important, the OECD, whose PISA assessments of

secondary education gave governments a jolt, is also

having a go. It wants to test subject-knowledge and

reasoning ability, starting with economics and

engineering, and marking institutions as well as

countries. Asian governments are keen, partly

because they believe that a measure of the quality of

their universities will help them in the market for

international students; rich countries, which have

more to lose and less to gain, are not. Without

funding and participation from them, the effort will

remain grounded.

Governments need to get behind these efforts.

America’s market-based system of well-funded, highly

differentiated universities can be of huge benefit to

society if students learn the right stuff. If not, a great

deal of money will be wasted.

Banks? No, thanks!Today's graduates are forging completely new careerpaths. Read how

Banks? No, thanks!

Graduates are turning away fromtraditional banking roles, towardsstartups, 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 BusinessSchool's MBA graduates got a job infinancial 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”.

"Almost 30% of students atthe elite business schoolsnow typically find work atconsulting firms"

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 elitebusiness schools now typically findwork 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

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Tech companies such as Kobalt provide an alternative route for musicians to find

fans and manage their money—without having to rely on a record deal.

Workers on tapFind out why the rise of the on-demand economy posesdifficult questions for workers, companies and politicians

Workers on tap

The on-demand economy is small, butgrowing

IN THE early 20th century Henry Ford combined

moving assembly lines with mass labour to make

building cars much cheaper and quicker—thus

turning the automobile from a rich man’s toy into

transport for the masses. Today a growing group of

entrepreneurs is striving to do the same to services,

bringing together computer power with freelance

workers to supply luxuries that were once reserved for

the wealthy. Uber provides chauffeurs. Handy

supplies cleaners. SpoonRocket delivers restaurant

meals to your door. Instacart keeps your fridge

stocked. In San Francisco a young computer

programmer can already live like a princess.

"The on-demand economy issmall, but growing quickly"

Yet this on-demand economy goes much wider than

the occasional luxury. Click on Medicast’s app, and a

doctor will be knocking on your door within two

hours. Want a lawyer or a consultant? Axiom will

supply the former, Eden McCallum the latter. Other

companies offer prizes to freelances to solve R&D

problems or to come up with advertising ideas. And a

growing number of agencies are delivering freelances

of all sorts, such as Freelancer.com and Elance-oDesk,

which links up 9.3m workers for hire with 3.7m

companies.

The on-demand economy is small, but it is growing

quickly. Uber, founded in San Francisco in 2009, now

operates in 53 countries, had sales exceeding $1

billion in 2014 and a valuation of $40 billion. Like the

moving assembly line, the idea of connecting people

with freelances to solve their problems sounds simple.

But, like mass production, it has profound

implications for everything from the organisation of

work to the nature of the social contract in a

capitalist society.

Baby, you can drive my car—and stock my fridge

Some of the forces behind the on-demand economy

have been around for decades. Ever since the 1970s

the economy that Henry Ford helped create, with big

firms and big trade unions, has withered.

Manufacturing jobs have been automated out of

existence or outsourced abroad, while big companies

have abandoned lifetime employment. Some 53m

American workers already work as freelances.

The on-demand economy allowssociety to tap into its under-usedresources

The Economist

But two powerful forces are speeding this up and

pushing it into ever more parts of the economy. The

first is technology. Cheap computing power means a

lone thespian with an Apple Mac can create videos

that rival those of Hollywood studios. Complex tasks,

such as programming a computer or writing a legal

brief, can now be divided into their component

parts—and subcontracted to specialists around the

world. The on-demand economy allows society to tap

into its under-used resources: thus Uber gets people

to rent their own cars, and InnoCentive lets them rent

their spare brain capacity.

The other great force is changing social habits. Karl

Marx said that the world would be divided into people

who owned the means of production—the idle

rich—and people who worked for them. In fact it is

increasingly being divided between people who have

money but no time and people who have time but no

money. The on-demand economy provides a way for

these two groups to trade with each other.

This will push service companies to follow

manufacturers and focus on their core competencies.

The “transaction cost” of using an outsider to fix

something (as opposed to keeping that function

within your company) is falling. Rather than

controlling fixed resources, on-demand companies

are middle-men, arranging connections and

overseeing quality. They don’t employ full-time

lawyers and accountants with guaranteed pay and

benefits. Uber drivers get paid only when they work

and are responsible for their own pensions and health

care. Risks borne by companies are being pushed back

on to individuals—and that has consequences for

everybody.

Obamacare and Brand You

The on-demand economy is already provoking

political debate, with Uber at the centre of much of

it. Many cities, states and countries have banned the

ride-sharing company on safety or regulatory

grounds. Taxi drivers have staged protests against it.

Uber drivers have gone on strike, demanding better

benefits. Techno-optimists dismiss all this as

teething trouble: the on-demand economy gives

consumers greater choice, they argue, while letting

people work whenever they want. Society gains

because idle resources are put to use. Most of Uber’s

cars would otherwise be parked in the garage.

The truth is more nuanced. Consumers are clear

winners; so are Western workers who value flexibility

over security, such as women who want to combine

work with child-rearing. Taxpayers stand to gain if

on-demand labour is used to improve efficiency in the

provision of public services. But workers who value

security over flexibility, including a lot of middle-

aged lawyers, doctors and taxi drivers, feel justifiably

threatened. And the on-demand economy certainly

produces unfairnesses: taxpayers will also end up

supporting many contract workers who have never

built up pensions.

"Governments that outlawon-demand firms are simplyhandicapping the rest oftheir economies"

This sense of nuance should inform policymaking.

Governments that outlaw on-demand firms are simply

handicapping the rest of their economies. But that

does not mean they should sit on their hands. The

ways governments measure employment and wages

will have to change. Many European tax systems treat

freelances as second-class citizens, while American

states have different rules for “contract workers” that

could be tidied up. Too much of the welfare state is

delivered through employers, especially pensions and

health care: both should be tied to the individual and

made portable, one area where Obamacare was a big

step forward.

But even if governments adjust their policies to a

more individualistic age, the on-demand economy

clearly imposes more risk on individuals. People will

have to master multiple skills if they are to survive in

such a world—and keep those skills up to date.

Professional sorts in big service firms will have to

take more responsibility for educating themselves.

People will also have to learn how to sell themselves,

through personal networking and social media or, if

they are really ambitious, turning themselves into

brands. In a more fluid world, everybody will need to

learn how to manage You Inc.

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Still a must-haveMBAs remain surprisingly popular, despite the headwinds

Still a must have

It's no stranger to criticism, but the MBAis 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 businesswere awarded in America in 2012,making it easily the most populardiscipline among post-graduatestudents

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 avaluable 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 schoolsare losing ground to thosebased in emergingeconomies"

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 toimprove its business schoolsto meet demand for localmanagers"

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 MBAprogramme can attract, few schoolswill consider dropping theprogramme 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?”

Generation uphillAre millennials being given enough of a chance to reachtheir full potential?

Generation uphill

Millennials are the brainiest, best-educated generation ever. Yet theirelders often stop them from reachingtheir full potential, argues Robert Guest

SHEN XIANG LIVES in a shipping crate on a

construction site in Shanghai which he shares with at

least seven other young workers. He sleeps in a bunk

and uses a bucket to wash in. “It’s uncomfortable,” he

says. Still, he pays no rent and the walk to work is

only a few paces. Mr Shen, who was born in 1989,

hails from a village of “mountains, rivers and trees”.

He is a migrant worker and the son of two migrants,

so he has always been a second-class citizen in his

own country.

Mr Shen doubts that he will ever beable to buy a flat in Shanghai..."It'sunfair," he says

The Economist

In China, many public services in cities are reserved

for those with a hukou (residence permit). Despite

recent reforms, it is still hard for a rural migrant to

obtain a big-city hukou. Mr Shen was shut out of

government schools in Shanghai even though his

parents worked there. Instead he had to make do with

a worse one back in his village

Now he paints hotels. The pay is good—300 yuan

($47) for an 11-hour day—and jobs are more plentiful

in Shanghai than back in the countryside. His

ambition is “to get married as fast as I can”. But he

cannot afford to. There are more young men than

young women in China because so many girl babies

were aborted in previous decades. So the women

today can afford to be picky. Mr Shen had a girlfriend

once, but her family demanded that he buy her a

house. “I didn’t have enough money, so we broke up,”

he recalls. Mr Shen doubts that he will ever be able to

buy a flat in Shanghai. In any case, without the

right hukou his children would not get subsidised

education or health care there. “It’s unfair,” he says.

There are 1.8 billion young people in the world,

roughly a quarter of the total population. (This report

defines “young” as between about 15 and 30.) All

generalisations about such a vast group should be

taken with a bucket of salt. What is true of young

Chinese may not apply to young Americans or

Burundians. But the young do have some things in

common: they grew up in the age of smartphones and

in the shadow of a global financial disaster. They fret

that it is hard to get a good education, a steady job, a

home and—eventually—a mate with whom to start a

family.

There are 1.8 billion young people inthe world, roughly a quarter of thepopulation

The Economist

Companies are obsessed with understanding how

“millennials” think, the better to recruit them or sell

them stuff. Consultants churn out endless reports

explaining that they like to share, require constant

praise and so forth. Pundits fret that millennials in

rich countries never seem to grow out of adolescence,

with their constant posting of selfies on social media

and their desire for “safe spaces” at university,

shielded from discomforting ideas.

This report takes a global view, since 85% of young

people live in developing countries, and focuses on

practical matters, such as education and jobs. And it

will argue that the young are an oppressed minority,

held back by their elders. They are unlike other

oppressed minorities, of course. Their “oppressors” do

not set out to harm them. On the contrary, they often

love and nurture them. Many would gladly swap

places with them, too.

In some respects the young have never had it so

good. They are richer and likely to live longer than

any previous generation. On their smartphones they

can find all the information in the world. If they are

female or gay, in most countries they enjoy freedoms

that their predecessors could barely have imagined.

They are also brainier than any previous generation.

Average scores on intelligence tests have been rising

for decades in many countries, thanks to better

nutrition and mass education.

"Over 25% of youngsters inmiddle-income nations and15% in rich ones are NEETs"

Yet much of their talent is being squandered. In most

regions they are at least twice as likely as their elders

to be unemployed. Over 25% of youngsters in middle-

income nations and 15% in rich ones are NEETs: not

in education, employment or training. The job market

they are entering is more competitive than ever, and

in many countries the rules are rigged to favour those

who already have a job.

Education has become so expensive that many

students rack up heavy debts. Housing has grown

costlier, too, especially in the globally connected

megacities where the best jobs are. Young people

yearn to move to such cities: beside higher pay, they

offer excitement and a wide selection of other young

people to date or marry. Yet constraints on the supply

of housing make that hard.

For both sexes the path to adulthood—from school to

work, marriage and children—has become longer and

more complicated. Mostly, this is a good thing. Many

young people now study until their mid-20s and put

off having children until their late 30s. They form

families later partly because they want to and partly

because it is taking them longer to become

established in their careers and feel financially

secure. Alas, despite improvements in fertility

treatment the biological clock has not been reset to

accommodate modern working lives.

Throughout human history, the old have subsidised

the young. In rich countries, however, that flow has

recently started to reverse. Ronald Lee of the

University of California, Berkeley, and Andrew Mason

at the University of Hawaii measured how much

people earn at different ages in 23 countries, and how

much they consume. Within families,

intergenerational transfers still flow almost entirely

from older to younger. However, in rich countries

public spending favours pensions and health care for

the old over education for the young. Much of this is

paid for by borrowing, and the bill will one day land

on the young. In five of 23 countries in Messrs Lee

and Mason’s sample (Germany, Austria, Japan,

Slovenia and Hungary), the net flow of resources

(public plus private) is now heading from young to

old, who tend to be richer. As societies age, many

more will join them.

Politicians in democracies listen to the people who

vote—which young people seldom do. Only 23% of

Americans aged 18-34 cast a ballot in the 2014 mid-

term elections, compared with 59% of the over-65s.

In Britain’s 2015 general election only 43% of the

18-24s but 78% of the over-65s voted. In both

countries the party favoured by older voters won a

thumping victory. “My generation has a huge interest

in political causes but a lack of faith in political

parties,” says Aditi Shorewal, the editor of a student

paper at King’s College, London. In autocracies the

young are even more disillusioned. In one survey,

only 10% of Chinese respondents thought that young

people’s career prospects depended more on hard

work or ability than on family connections.

All countries need to work harder to give the young a

fair shot. If they do not, a whole generation’s talents

could be wasted. That would not only be immoral; it

would also be dangerous. Angry young people

sometimes start revolutions, as the despots

overthrown in the Arab Spring can attest.

Do you think millennials the worldover are being given a fair shot?

No, the challenges stacked against millennials

are far too great

Yes, no previous generation has had it so good

Tempted by temping?Temping is growing. The quality of jobs it provides isn't

How the 2% lives

Temping is on the increase, affectingtemps and staff workers alike

AT THE BMW factory in Spartanburg, South Carolina,

brand new sport-utility vehicles roll off the assembly

line with the regularity of a German express train.

Work rotas at the vast facility, alas, are not always so

reliable. Between 2007 and 2009, amid the turmoil of

the financial crisis and ensuing recession, BMW hired,

then laid off and then re-hired some 700 temporary

workers through a firm called Management, Analysis

and Utilisation (MAU). Josef Kerscher, the luxury

carmaker’s American boss, likened the conditions that

prompted the wild fluctuations in Spartanburg’s

temporary workforce to a “rollercoaster”. Such

volatility is not uncommon for America’s temps,

however, whose numbers are growing even as their lot

in life diminishes.

Demand for temps has never been higher. The

industry now provides work for some 2.9m people,

over 2% of the total workforce. The American Staffing

Association, an industry group, reckons that it

generated over $120 billion in revenue in 2015.

Since the American economicrecovery began in 2009, temporaryemployment has been responsiblefor nearly one in ten new jobs

The Economist

Since the economic recovery began in 2009,

temporary employment has been responsible for

nearly one in ten net new jobs.

But as temping has grown, the quality of the jobs it

provides has deteriorated. In the 1950s and 1960s

temping was seen as a way for educated people with

time on their hands—college students, school

teachers on holiday and middle-class housewives—to

earn a little extra cash. One early study found that

about half of female temps during the 1960s had

some college education, nearly twice the national

rate. The typists, stenographers and other clerical

workers supplied by temping agencies earned wages

only slightly below those of permanent workers.

Perhaps most important, temp agencies were not seen

as second-rate employers. “There is nothing

demeaning about working for such an

organisation,” Barron’swrote in 1962; “Many workers

prefer to do so.”

Just 8% of temps have andadvanced degree compared with12% of permanent workers

The Economist

According to the Census Bureau, temps today are

disproportionately young, single and black or

Hispanic. More than half are men. If the temps of the

1960s were relatively educated, today’s are more

likely than permanent workers to be high-school

dropouts. Just 8% of them have an advanced degree

compared with 12% of permanent workers. Perhaps

unsurprisingly, given all that, temps earn 20-25% less

than their permanent counterparts. Even after

controlling for demographic characteristics such as

age and education, Lawrence Katz, an economist at

Harvard University, reckons temps face a 15%

earnings penalty. In 1970 8% of temporary workers

lived below the poverty line; in 2014 it was 15%.

Such conditions have stigmatised temporary

employment—so much so that workers seek out

temping jobs only as a last resort. In 2005, the last

year temporary workers were thoroughly surveyed by

the Census Bureau, eight in ten said they would

prefer a permanent job. More than half said they were

working as a temp not for the added “flexibility”, a

claim frequently made by industry boosters, but

because it was the only work they could find.

A survey by the Federal Reserve in 2013 found that a

big share of temps consider themselves overqualified

for their jobs. Less than a third see their job as a

“stepping stone to a career”.

Although temps account for just 2% of America’s

workforce, there is wide variation at the local level.

In Queens County, New York (home to the borough of

the same name), fewer than one in 200 workers is

employed by temp agencies. In Greenville County,

South Carolina, just a few miles from BMW’s factory, it

is nearly one in ten. Big, concentrated and enduring

pockets of temporary workers suggest that temping

agencies are being used not just to smooth out

fluctuations in demand, but also to lower labour

costs.

"More than 26% of tempsparticipate in social safety-net programmes, comparedwith 14% of permanentworkers"

The proliferation of ill-paid temp work affects

temporary and permanent workers alike. Many of the

costs that employers of temps avoid, including

prevailing wages and health-care costs, are now

borne in part by taxpayers in the form of increased

spending on Medicaid, food stamps and other welfare

schemes. More than 26% of temps participate in at

least one of these social safety-net programmes,

compared with 14% of permanent workers.

The growth of the temping industry affects labour

markets in other ways. On the positive side, by

offering positions to workers who might otherwise be

unemployed, temping reduces the unemployment

rate. Temps also insulate permanent employees from

downturns in the business cycle, thereby improving

job stability.

Yet according to a paper published in 2013 by David

Pedulla of Stanford University, permanent employees

who work alongside temps worry more about job

security. They also take less pride in their firm and

have worse relationships with managers and co-

workers. A study published in 1999 by Mr Katz and

Alan Krueger of Princeton University found that

states with a higher share of temporary employment

in the late 1980s experienced lower wage growth in

the 1990s. These results have held up: in states where

less than 2% of the workforce was employed by

temping firms in 2000, wages of permanent workers

grew an average of 3% a year between 2000 and

2015; in states with a higher proportion of temp

workers, wages grew at an annual rate of 2.6%. Such

findings lend support to the view of David Autor of

MIT that the use of temping agencies, while

beneficial to individual workers and firms, “may exert

a negative externality on the aggregate labour

market—that is, it is a ‘public bad’.”

Thank you for reading

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