From Price Tags to Paychecks

The Labour Market (Not Inflation) is the new Economic Boogeyman

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Moshe Modeira
September 25, 2024

Commerce & Capital is a weekly ode to universal truths, first principles thinking, leading with integrity, learning with humility & executing with confidence.

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Hey Friends

For several years now, inflation has been the chief phantom haunting the minds of entrepreneurs, investors, financial professionals and everyday people.

The COVID-19 pandemic and its aftermath saw central banks and governments fixated on taming the inflationary beast, with policies hyper-focused on preventing the erosion of consumer purchasing power, maintaining economic stability and social order.

As we stand at the precipice of Q4 2024, the inflation boogeyman is being replaced by a new concern, one proving to be far more complex and difficult for anyone to confidently take grasp of: the fundamental transformation of labor markets.

The job numbers and labor market metrics, long heralded as key economic success indicators, are now being viewed with growing skepticism by observers. There's a growingly palpable sense that these figures may be masking a far more sinister truth.

Unemployment numbers sit at the heart of this shifting narrative. On paper, unemployment rates in many Western countries appear reassuringly low. Dig a little deeper, and a far more intricately nuanced picture emerges.

The official numbers fail to capture the growing army of underemployed workers — people forced into part-time roles when they desire full-time work — or demoralized job seekers who've simply dropped out of the labor force altogether. Labor shortages in critical, less “glamorous” industries, such as construction work, social work, nursing and medical work, has for some time been on a notable uptick.

What is causing great concern for sector analysts lately is that the jobs downturn is starting to bleed into core industries as well.

The skills gap between what society needs and what the workforce can offer has widened into a chasm. Many businesses are struggling to fill customer-facing and support positions, while qualified workers in legacy fields find themselves obsolete.

Perhaps most troubling is the persistent stagnation of wages. Even in periods of low unemployment, wage growth has remained stubbornly sluggish. This disconnect between job availability and earning power has been a persistent red flag for years now, signaling deep-seated issues within our labor markets. It raises uncomfortable questions about the quality of jobs being created and the true health of global economies — questions that have been left unanswered since the 2008 market crash.

The rise of the gig economy and the proliferation of part-time and contract work has really muddied the waters over the last decade. These roles created a growing class of workers who, while technically employed, lacks the financial security, stability and benefits of full-time employment. This has profound implications not just for individual workers rights but for the broader economy and social fabric.

Looming over all of these concerns is the suddenly accelerant onslaught of automation and artificial intelligence. No longer a science fiction trope, AI and robotics are finally here, their displacement of human workers becoming a pressing concern. Industries from product manufacturing to professional services are grappling with the double-edged sword of increased productivity vs the cost of human jobs.

The shift in focus from inflation to the complexities of the labor market signals that we are witnessing a fundamental transition in the economic cycle. The growth and inflationary pressures that characterized the pandemic years and the post-COVID recovery are now giving way to a period of slowdown and labor market restructuring.

Central banks and governments, long focused on inflation-fighting measures, need to pivot and dramatically shift their thinking about economic policy. We should see a new era of policies aimed at supporting employment, fostering wage growth and addressing the structural issues within our labor markets.

The health of the labor market is inextricably linked to broader social issues — income inequality, social mobility and overall quality of life. How we address these labor market challenges will shape not just our economic future, but the very fabric of our societies.

As founders, investors, entrepreneurs and creators — learn to look beyond headlines, published numbers and simplistic narratives. Cultivating the habit of reading between the lines of official reports and understanding the true state of our labor markets will become invaluable. Those of us who can deftly anticipate the myriad of policy shifts and economic transformations that lie ahead will be best positioned.

The future is going to bring us many challenges, but it's also ripe with opportunity for those who are prepared. Tomorrow belongs to those who are ready to face it head-on.

Onwards,

Moshe Modeira

Editor-in-Chief

Commerce & Capital

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Market Alpha: Sector Developments This Week

AI Market Machinations

Google's AI Leap: Google Cloud has unveiled Gemini 1.5 Flash and 1.5 Pro, featuring a 2M context window and improved search accuracy. This development signals Google's commitment to maintaining its competitive edge in the AI race, potentially impacting cloud service providers and search-related stocks.

OpenAI's Continued Dominance: The Information reports that Scale AI, a key player in AI data labeling, has seen revenue grow nearly 4X YoY to ~$400M in H1 2024. This growth underscores the increasing demand for AI infrastructure and services, benefiting companies in the AI supply chain.

AI in Consumer Tech: Spotify's rollout of AI Playlist features and Snap's integration of Google's Gemini for chatbot enhancements highlight the growing incorporation of AI into consumer-facing applications. This trend will create new opportunities in the consumer tech and entertainment sectors.

🔑 Key Insight: The AI gold rush is intensifying, with major tech players and startups alike vying for dominance. Look for companies solving real-world problems with AI, particularly in areas like improved search, content creation and personalized user experiences.

Political Shifts + Corporate Strategy

Meta's Political Distancing: Sources report that Mark Zuckerberg aims to distance Meta from politics, scaling back charitable causes and employee activism. This strategic shift could impact Meta's public perception and regulatory relationships.

Geopolitical Tensions: Swedish prosecutors have linked Iran to a mass text message campaign, highlighting ongoing geopolitical tensions that will affect operations and security for international tech companies and cybersecurity firms.

🔑 Key Insight: Tech companies are increasingly navigating complex political landscapes. Firms adept at playing the PR game, managing for political risks and maintaining neutral positions may well see reduced regulatory pressures.

Tech Transitions + Market Opportunities

Smartsheet Acquisition: Smartsheet's agreement to a $8.4B acquisition by Blackstone and Vista Equity Partners signals continued interest in productivity software. This could spark further consolidation in the sector.

Streaming Hardware Evolution: Roku's unveiling of the $100 Ultra streaming player with improved specs indicates ongoing innovation in the streaming hardware market, potentially impacting the broader entertainment and home technology sectors.

GitHub's European Expansion: GitHub's offer of EU region options for enterprise cloud customers reflects the growing importance of data localization and compliance with regional regulations.

🔑 Key Insight: Companies adapting to regional regulations and investing in hardware innovations are likely to see increased market share and customer trust.

Emerging Trends + Future Outlook

AI Ethics and Governance: The launch of the Partnership for Global Inclusivity on AI by the US and tech giants highlights the growing focus on responsible AI development.

AR/VR Advancements: Meta's shipment of 700K+ Ray-Ban smart glasses units underscores growing consumer interest in wearable AR technology.

Content Distribution Shifts: Digital news publishers, facing declining traffic and ad revenues across social media, are finding hope in WhatsApp as an alternative platform to Google and Facebook for content distribution and audience engagement.

Cybersecurity Focus: Torq's $70M Series C raise for IT security workflow automation highlights the continued importance of cybersecurity investments.

Hardware Renaissance: Raspberry Pi's strong H1 2024 results, with revenue up 61% YoY, points to ongoing demand for affordable computing hardware, potentially benefiting the broader semiconductor and IoT sectors.

🔑 Key Insight: Investors should consider building a balanced portfolio that includes established tech giants adapting to the new AI-driven landscape, cybersecurity innovators, and companies at the forefront of AR/VR and content distribution technologies.

Q4 2024 Investment Overview

Looking ahead to Q4 2024, several key trends and factors are likely to shape the investment landscape.

AI-Focused Tech Stocks: Companies at the forefront of AI development and implementation are poised for continued growth. Look for cloud service providers, AI infrastructure and consumer tech firms successfully integrating AI features.

Cybersecurity Sector: With increasing geopolitical tensions and the growing importance of data protection, cybersecurity firms are likely to see increased demand.

Enterprise Software Consolidation: The Smartsheet acquisition signals potential for further M&A activity in the productivity and enterprise software space.

AR/VR and Wearable Tech: Meta's remarkable success with Ray-Ban smart glasses suggests growing consumer interest in wearables, a fuzzy area for once upon a time.

Semiconductor and IoT: Strong results from companies like Raspberry Pi indicate ongoing demand for affordable hi-tech computing hardware.

Content Distribution Platforms: The success of platforms like WhatsApp Channels in driving traffic to news outlets suggests evolving content distribution models.

Regulatory Compliant Tech: Companies demonstrating adaptability to regional regulations may see increased market share.

Cautious Approach to Ad-Dependent Stocks: With some major tech firms distancing themselves from political content, there may be short-term volatility in ad revenues.

Forecast: Q4 2024 is likely to favor tech companies that successfully balance innovation in AI and emerging technologies with adaptability to regulatory pressures and evolving consumer perspectives and worldviews. A diversified portfolio including leaders in AI, cybersecurity and next-gen hardware, complemented by carefully selected growth stocks in AR/VR and enterprise software, could be well-positioned to capitalize on the evolving tech landscape. Investors should continue to think about geopolitical risks, potential tech regulation changes and shifts in consumer behaviour that could impact these sectors. Individual investment decisions should always be made based on optimally calculated personal financial goals — and risk tolerance.

Commerce & Capital: The Economy Oligopoly

The Persistence of Core-Periphery Economy Model

Last week, we dipped our toes into a topic simmering beneath the surface of global economic discourse: the Wealth Concentration Conundrum.

This appears to be a golden goose that no one ever touches. We’re only too happy to continue spotlighting what is evidently one of the most enormous barriers to establishing equitable global prosperity.

Remember when we talked about how the world's purchasing power is clustered in just a handful of countries? We weren’t the first to take note of this — it's a well-documented economic phenomenon known as the Core-Periphery Model or World Systems Theory.

This concept, pioneered by sociologist Immanuel Wallerstein in the 1970s, posits that the global economic system is divided into core countries (wealthy, industrialized nations) and peripheral countries (poorer, less developed nations).

Despite decades of globalization, this model stubbornly persists.

Let's look at some hard numbers:

  • According to the World Bank, as of 2023, the top 10 countries by GDP account for about 66% of the global economy.

  • The U.S. alone represents about 25% of global GDP.

  • The G7 countries (Canada, France, Germany, Italy, Japan, the UK, and the U.S.) account for nearly 45% of global GDP.

World Bank, 2023

But GDP doesn't tell the whole story. Let's talk purchasing power:

  • The top 10 countries by household final consumption expenditure account for over 60% of global consumer spending.

  • The U.S. again leads the pack, representing about 29% of global consumer expenditure.

World Bank, 2023

The Emergence of the Economy Oligopoly: What we're witnessing here isn't just a simple imbalance — it's the manifestation of what we've come to call the “Economy Oligopoly.” 

Much like how a handful of firms can dominate an industry, we see a small cartel of nations effectively controlling the global economic narrative. This oligopoly isn't just about wealth; it's about economic influence, market access, and having the power to shape global financial rules. Consider this:

  • The G7 countries, despite representing only about 10% of the world's population, control nearly all major global financial institutions.

  • The vast majority of the world's reserve currencies belong to this oligopoly.

  • Most multinational corporations that dominate global trade are headquartered within these few countries.

World Bank, 2023

This Economy Oligopoly creates a self-reinforcing cycle: Their economic might allows them to attract an exponential amount of capital, talent, and resources, further cementing their position at the top of the global economic hierarchy.

As we grapple with the reality of this Economy Oligopoly, the challenge for entrepreneurs becomes even clearer. It's not just about tapping into wealthy markets; it's about figuring out how to navigate a global economic system that's structured to favor a select few nations. Breaking into this oligopoly — or finding ways to democratize it and usher more world economies into prosperity — will become a defining challenge for future generations of global business leaders.

Historical Echoes: This concentration of wealth isn't a new phenomenon. It's a pattern that's repeated throughout history.

  • In the 16th-18th centuries, a handful of European maritime powers dominated global trade.

  • The 19th century saw the concentration of industrial might in a few Western nations.

  • Post-WWII, economic power consolidated around the U.S. and its allies.

What's fascinating is how persistent the pattern has proven to be across history. Despite seismic shifts in technology, geopolitics and economic systems, the core-periphery dynamic continues to stubbornly endure.

World Trade Map, 2000. The “Core” areas in blue are still the world’s richest economies.

The Digital Mirage: Now, you might be thinking, "But what about the internet? Hasn't that leveled the playing field?" Well, yes and no. While digital platforms have indeed opened up global opportunities, they've also created new forms of concentration. Look no further than the tech giants — mostly headquartered in the U.S. and China — that currently dominate the digital economy.

  • The top 5 tech companies by market cap (all U.S.-based) are worth more than the GDP of entire continents.

  • Digital advertising spend, a key revenue source for many online businesses, is overwhelmingly concentrated in a few markets, with the U.S. accounting for about 40% of global spend.

The Academic Angle: Economists have been grappling with this issue for decades. The New Economic Geography theory, developed by Paul Krugman in the 1990s, provides further insight. It suggests that economic activity tends to cluster due to increasing returns to scale and transportation costs. In other words — wealth attracts more wealth, creating a self-reinforcing vortex of concentration. This theory helps explain why, despite advances in communication and transportation, economic activity remains stubbornly concentrated in specific regions.

The Way Forward: So, where does this leave us? Are we doomed to a world of perpetual economic inequality? Not necessarily.

However, addressing this imbalance will require concerted effort on multiple fronts:

  • Policy Interventions: Governments in both core and peripheral countries need to implement labour policies that foster more equitable economic development.

  • Technology Democratization: We need to ensure that the benefits of technological advancement are more equitably distributed globally.

  • Education and Skill Development: Investing in skills programs and education is crucial for peripheral countries to move up the value chain.

For entrepreneurs, understanding this global economic chessboard is crucial. It's not about abandoning global ambitions, but about being strategic in how we approach them. It means being clear-eyed about where the opportunities lie, while also working to create new opportunities in underserved markets.

CTA: Thinking Beyond Current Paradigms

Let's challenge ourselves to think beyond the current map. What if things could be different? How can we leverage our skills, our technologies and our entrepreneurial spirit to create a more equitable global economy? It's a daunting challenge, but also an exciting opportunity to reshape the world for the better.

What are your thoughts on this persistent concentration of global wealth? What choices have you been forced to make? How has it affected your entrepreneurial life journey? Drop us a comment below, or send us a message 👁️ 📣 🚀 

🌍 Social Media

Paddy Galloway, a renowned YouTube strategist, gives a very valuable interview on the incredible Jay Clouse Podcast. This is bar none one of the most important videos on content creation and navigating Youtube for brand and business. Paddy emphasizes that any niche can achieve viral success with the right approach. He emphasizes expanding beyond narrow topics to attract broader audiences using the CCN — Core, Casual, New — framework (we will deep dive into this mental model in the coming weeks). Galloway stresses the importance of pre-production work, including careful topic selection and packaging, which can lead to exponential growth in views. He introduces the concept of "total addressable market" (TAM) to assess potential viewership and outlines common traits of viral videos. Galloway provides examples of successful niche expansion in areas like permaculture and woodworking, demonstrating how seemingly limited topics can attract millions of views with the right strategy.

One of the greatest things any founder or entrepreneur or creator can do is to surface a copy of the Steve Job’s “Lost Interview” from the mid 90s. It was shot in a perfect moment in time when he was still at the helm of NeXT, months away from his fateful rejoining of Apple. It’s some of the most dazzlingly honest business and life advice one can ever come across. This is an excerpt from that interview.

📚 Book Shelf

The Beginning of Infinity: Explanations That Transform the World by David Deutsch. An intellectually stimulating, dense read — I’m making my way through this one as it was highly recommended by a friend. The Beginning of Infinity is an ambitious 2011 book exploring the limitless potential of human knowledge. Deutsch, a theoretical physicist, argues that good explanations have universal applicability, critiques "bad philosophy" and advocates for objective truth. The book offers a unique perspective on humanity's capacity for advancement through rational inquiry.

Autobiography of Malcolm X by Alex Haley. This is the definitive autobiography about perhaps my favourite Black American civil rights leader from the 1960s civil rights era — Malcolm X. This book traces Malcolm’s transformation from a troubled, incarcerated youth to a prominent leader. It candidly explores his evolving views on race relations, his pilgrimage to Mecca and the fateful downturn in his relationship with the Nation of Islam. It’s a raw, honest read that remains a crucial work for understanding the civil rights movement and Black American experience in the 20th century.

The Mamba Mentality by Kobe Bryant. One of my favourite books of all time, I revisit this one every couple years. In the book, Kobe details his meticulous approach to the game of basketball, both physically and mentally. He shares strategies for preparation, performance and leadership that defined his 20-year NBA career. Kobe discusses his infamous work ethic, his approach to studying opponents and his relentless pursuit of improvement. The Mamba Mentality is a blueprint for achieving excellence in any field through mindset, dedication, passion and cultivating unwavering focus.

📰 Article Of The Week

Why Did Caroline Ellison Do It? by Elizabeth Lopatto, The Verge: The article explores Caroline Ellison's role in the FTX fraud case and her recent sentencing. It paints a picture of Ellison as a high-achieving perfectionist who became entangled in fraudulent activities largely due to her desire to please Sam Bankman-Fried, with whom she had a romantic relationship. The cult-like environment at FTX/Alameda is described, and how Ellison's nature as an obedient, approval-seeking individual made her vulnerable to manipulation. Unlike Bankman-Fried, Ellison fully cooperated with authorities when caught, providing crucial evidence. The complexity of Ellison's story amidst one the largest financial scandals in history is highlighted — from her immediate confession to her unusual level of cooperation as noted by Judge Lewis Kaplan.

See y’all next week! Would love to hear your thoughts — leave your comments below.

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