The economics of disruption: BlackRock exec discusses winners and losers in technological shift

Mark Wiseman and Jacquie McNish at the Canadian Club in Toronto. Photo courtesy of Mike Hagarty.

There is significant potential to generate profit in the age of disruption. That was the message Mark Wiseman, the chairman of BlackRock Alternative Investors, told the audience at Canadian Club in Toronto on February 2.

"This is a great time to be an investor," Wiseman told Wall Street Journal Canadian correspondent Jacquie McNish in front of several hundred people from the financial sector. "We have to use more technology and we have to learn a lot more and have a view on things we're not used to pricing, like geopolitics and what someone might tweet overnight. But I look at that as an opportunity to actually participate in markets and find a way to generate that all-elusive alpha [high return on investments]."

In 2016, before moving to BlackRock -- which manages $6.4 trillion for institutional investors and very wealthy individuals in more than 100 countries -- Wiseman was president and chief executive officer of the Canada Pension Plan Investment Board for four years.

He gave the example of the shift from paper to electronic airline tickets to posit that the general population is the biggest beneficiary of the technological changes and associated job losses rocking the world.

"Airline tickets today are about six per cent cheaper -- adjusted for inflation, etcetera -- than they were 10 years ago. And yet the [profit] margins of the airlines are up. So why is that?

"It's because the system has become more efficient. We have disintermediated the travel agent. You can't even find a travel agent today.

"That entire productivity gain, all of that efficiency -- the winner is the consumer. The consumer has captured the economic rent from that productivity, or most of it. And that's going to happen industry by industry by industry."

He did admit, though, that the vast majority of companies will be mortally wounded in the process.

"In all of these industries that are being disrupted by technology, scale matters. Because you need to be able to spread your cost over a larger and larger base. So Amazon wins. Google wins. Netflix wins. Alibaba wins. Expedia wins. We’ve got to keep in mind that in every single industry that has been disrupted by technology, the winners are the scale players or the very specialized boutiques. So if you’re a retailer, you’d better be Amazon, or you’d better be scented candles from your craft store in Vermont. Everybody in between is going to get squeezed."

The same applies to investing firms -- and also to Canada as a whole.

"One of the biggest things that I discovered from moving to Canada from the U.S. is the definition of scale. This country, unless our businesses expand outside of our borders, we are doomed. Because we don’t have enough scale in this country to compete, and so the Canadian winners have to be global because they have to be able to access the scale of global markets."

What are some of the remedies for this? He and several others created the Century Initiative to push the idea that Canada’s population needs to climb to 100 million by the year 2100.

"We will grow with current immigration levels to about 50 million people in this country by 2050. And then we stop. So unless we address this issue by, among other things, increasing immigration, increasing the ability of women to succeed in the workforce, by creating things like national childcare program, by focusing on our education system, we are going to see that sort of 'barely hanging on middle-power status’ [and] by the time our children are sitting on this stage or sitting in this audience, it'll be a very, very different discussion."

However, not everyone agrees with Wiseman's views.

One of the dissenters is Sam Gindin.

Gindin, who did not attend the Canadian Club event, is a retired union official and academic. He was the Packer Chair in Social Justice at York University in Toronto until 2010. He also has written several books, most recently co-authoring The Contradictions of Pension Fund Capitalism.

In an interview, he said he is tired of the pontification of the powerful and the subsequent fatalistic debates about the ravages of our present economic system.

"All we have left is lamentations about how bad a particular businessman or politician is or whether to choose a future that ranges from bad to horrible -- rather than how we can use technology and our collective potential to construct a radically more meaningful existence than that offered by capitalism."

Rosemary Frei is an independent, full-time journalist, videographer and activist focusing on economic and social justice issues.

Image: Mike Hagart

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