We have been writing for some time now about economic and political uncertainty. One factor underpinning both these conditions is the technological change that is transforming the economy, disrupting long-standing industries, eliminating jobs, and creating tremendous anxiety about the future of employment.
Indeed, we often hear the argument that the world is changing faster than ever and we are on the edge of a precipice of joblessness—the “rise of the robots” will make us all unemployable and worse, unnecessary. But is this correct? How does it relate to current market conditions? And are we supposed to do anything about it?
First, it pays to remember that the tremendous amount of angst about artificial intelligence (AI) and the scary-sounding “rise of the robots” is not actually new or exclusive to our present circumstance. This anxiety has been around for a long, long time— Mary Shelley’s famous novel Frankenstein essentially captures the fear inherent in technology run amok, and man’s ability to innovate and create an AI well beyond his capacity to control. This anxiety explains well how a book written 200 years ago still resonates so powerfully today.
Second, our entire economic system is based on the principle of creative destruction, and technological change has always driven massive structural shifts in the economy. Let’s look at one obvious example—agriculture. The absolute peak in the number of Americans employed in the agriculture sector occurred in 1916, when such workers accounted for nearly a third of the total workforce. Today, the percentage of Americans employed in agriculture stands at just 1.5%. Now, according to a study of the period from 1929 to 2006, agricultural output increased by a factor of six in that time, while the broader economy grew by a factor of 13.1
This suggests two things:
- that the agriculture sector itself is radically more productive today than in the past, and
- that workers freed from the farm have gone on to find even more productive employment elsewhere in the economy.
This latter point is not to be understated— innovation in one area or segment of the economy tends to create wealth and opportunity that translates to other areas of the economy. For example, according to one estimate, since the broad introduction of the computer spreadsheet around 1980, fully 400,000 bookkeepers lost their jobs. But 600,000 new accounting jobs have been created—computation became radically cheaper and more accessible, so the value of and demand for data analysis increased dramatically.2 Indeed, the modern financial services industry in all its incarnations would not have been possible without the computational power of the personal computer and spreadsheets.
What is to Be Done?
This broader, long-term perspective provides important insight and context around current market conditions, where debates rage about valuations and the future relevance of entire industries.
We believe that actively investing in the companies transforming our lives through innovation is central to achieving financial goals.
Certainly, the purpose of financial markets is to allocate capital among companies with competing visions of the future. This central fact is one important reason we back active portfolio management—we believe it is vitally important to be able to differentiate among companies best able to earn attractive returns on capital and manage fundamental economic and technological change.
With respect to multi-asset portfolios and investor financial goals more broadly, we see little reason to deviate from predetermined asset targets or financial plans. Indeed, we believe that actively investing in the companies transforming our lives through innovation is central to achieving financial goals.
1 Alston, Julian, et al., Persistence Pays: U.S. Agricultural Productivity Growth and the Benefits from Public R&D Spending, Natural Resource Management and Policy 34, 9, 2010.
2 Goldstein, Jacob, and David Kestenbaum, “Episode 606: Spreadsheets!” Audio blog post. Planet Money. NPR, February 25, 2015.
The opinions expressed are those of Rich Weiss and are no guarantee of the future performance of any American Century Investments portfolio.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.