Technology to spawn the next black swan: BlackRock CEO

Singapore

THE sweeping changes brought on by technology in various industries could be a destabilising force in the job market and in societies, particularly in developing countries, says the CEO of the world's largest asset management firm BlackRock.

Technology has already driven, and will continue to drive, persistently lower oil prices, said BlackRock's Larry Fink, who spoke at a Credit Suisse conference here on Tuesday. But in developing countries, technology is changing key sectors such as manufacturing and agriculture - and at a time when such countries are trying to grow their middle class, and create jobs.

"We don't need human beings to pick fruits and vegetables anymore," Mr Fink told conference participants.

"This is what I believe is the next black swan: global instability through technology that is not able to create jobs fast enough. When we talk about structural unemployment, when we talk about a more fragmented society, when we talk about a society that has greater inequities when it comes to income, it's only going to be accelerating, and much more in the developing world than in the developed world."

Notably, China, which was reported as the world's top buyer of industrial robots in 2013, is also undergoing major reform, and still needs more work in expanding its capital markets to prevent a "boom-bust" scenario, noted Mr Fink.

He also argued that regulators and governments may not be tuned in to the impact that technology has on economies. "When I was in the Middle East, I spent a lot of time with the governments of the various countries. They have no idea why the oil prices are down," said Mr Fink, pointing out that innovation such as fracking emerged from the US.

"I remain resolute in my view that no other country in the world has better technology and better imagination than the United States. At this moment in time, in the United States, we have 800,000 students, not US-born, going to our universities. It is the highest level in the history of the United States. So for those who think the education system in the United States is failing, think again," he said.

"The societies that have incredible education systems are the societies that are going to be able to adapt."

This also comes as the speed of the rise in the greenback will impact economic growth at a time when the Internet offers price transparency for global shoppers, said Mr Fink. Over the last few years, many small US merchants have sold their merchandise overseas through Internet platforms, he observed. "In the last six months, with the change in the valuation of the dollar, we're seeing non-US enterprises selling their merchandise to the US - a big swing," Mr Fink added.

"My wife, who buys a lot of make-up, does it mostly on the Internet. And she doesn't pay attention to where it's being sourced from. So she bought from a very important brand of make-up - and it was shipped from a small merchant in Singapore."

He expects the US Federal Reserve to hike interest rates from September. Given the expectations of a weak first quarter for GDP growth, the Fed is likely to take another 3-4 months "to look at data and see where they're going", said Mr Fink.

He sees Europe's GDP growth outpacing that of the US in the first quarter, but said systemic problems remain in the region. "It's too early to say if this sugar high would transform to a more stable Europe, for a longer period of time," said Mr Fink.

"(European Central Bank president) Mario Draghi has allowed the governments to walk away from any strong fiscal response. For Europe to really find its way over the long cycle, it's going to require real government action, and indeed, we're not seeing much of it."