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A little bit of Piketty
Thomas Piketty's book, "Capital in the Twenty-First Century," has been all the rage in political circles this year. Piketty is a French economist and his book focuses on wealth and income inequality in Europe and the US since the 19th century. The book has been widely heralded as a watershed tome by The Economist, Paul Krugman and others.

The review that interested me the most, however, is that by Lawrence H. Summers titled, "The Inequality Puzzle." Dr. Summers is a heavyweight when it comes to economics. Dr. Summers reviewed Piketty's book in "Democracy, a Journal of Ideas."

Two paragraphs in Dr. Summers' review caught my attention. The first is perhaps not as important to us in business as the second: "...A brief look at the Forbes 400 list also provides only limited support for Piketty's ideas that fortunes are patiently accumulated through reinvestment. When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year. They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes 400 who inherited their wealth is in sharp decline..."

Here is the part that really caught my attention: "...Even where capital accumulation is concerned, I am not sure that Piketty's theory emphasizes the right aspects. Looking to the future, my guess is that the main story connecting capital accumulation and inequality will not be Piketty's tale of amassing fortunes. It will be the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead..."

"So, Jim," I can hear you saying, "what the heck does this have to do with the pulp and paper industry?"

The first piece tells us that ownership driven by wealth is going to continuously change. That is no surprise as I said. If you have been in this industry more than three or four weeks, you have seen ownership of public and private pulp and paper companies change monthly. I have been watching this closely for nearly forty years and can tell you with great assurance there is continual churn.

The second quote I provided is where things get serious. Summers agrees with me (or I agree with him) that computerization and automation are the big issues facing us directly ahead. I'll submit these matters are a bigger issue than Climate Change. Essentially, we are approaching the time when the Luddites are finally going to be proven correct. We know in industry that we continue to see ever increasing automation and computerization. This has created an opportunity to manufacture better, more consistent products more economically than ever before. From a competitive point of view, we must continue to march down this path, otherwise we will be left in the dust.

However, as a society, we are reaching a point where many, many people will have absolutely nothing to do, for nearly all the menial jobs will have been replaced by electronics. This leaves us with a declining customer base.

We see pulp and paper companies moving towards products to serve an older generation (adult diapers, packaging for items in the geriatric care area and so forth). What we have not yet seen is a move towards ultra economical essential products (think bathroom tissue) for those who are living on the barest of budgets. For unless we all transition to what is euphemistically called "planned economies," what Summers and I see as the future leaves an ever larger portion of the population living on a very small income.

The challenge of providing goods and services for those with little cash income is an opportunity that is just around the corner. Thus far, we have expected governments to handle this problem, a job they have often done poorly. The companies that can determine how to do so, when the basic exchange medium, money, is in short supply for a large sector of the economy, will find a way to thrive.

Twenty years ago, what I just said I would have been labeled as completely insane. However, the past twenty years has seen services that boggle the mind delivered to us for free by computer and software giants. Who, for instance, would have ever dreamed that a service like Google Earth would be available, let alone free? There are many other items in the internet and computer world that fit in the same category. Who can say such "economics" won't come to tangible items, as well?
Jim Thompson is Executive Editor of Paperitalo Publications. He can be reached by email at jthompson@taii.com.
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