“All we have to fear is fear itself!” This would be a good time for Winston Churchill to repeat that great piece of advice, but this time he would have to add office buildings and elevators among other things. But during the time we have been fearing them, it’s become increasingly clear that we have not been needing them.
Our strategies have been doing well during this period, in part because we have always taken seriously our job to predict the future, and the future got here quicker this year. There is performance information and a detailed discussion of our top and bottom performers later in this report.
I remember a few years back when I asked if we had a phone book in the house and my young son looked at me with the oddest expression, “a phone . . . book?” I’m starting to think “office . . . building?” is heading down the same digital pathway. Urban office workers and their managers along with the infrastructure that serves them have all learned simultaneously that the time, trouble and cost of “getting to work” is wasted when everyone is already at work. In truth, along with the phonebook, our offices are also now on our phone. Hello! Yes, I am at work.
A lot of us in the information business have been able to work remotely for a long time. As long as the computer didn’t weigh too much, and the modem speeds were above 1200 baud, that is. Still, the expectation was always that if you weren’t on the road on business you were at your desk. ‘Working from home’ was frowned on if it was any more than a rarity. Now look at us. What an odd new world where no one has to commute to work.
Well, wait a minute. For 5,000 years people pretty much worked and lived at the same place. At home on the farm, or the tiny commercial class lived above their shops. This was a pretty common set up for a long time. So now it seems likely that what we are really seeing, and it took a global pandemic to notice it, is that humanity has solved an enormous problem that has been holding us back for a few hundred years, logistics.
The industrial revolution brought an enormous leap forward in per capita productivity. One hour of human labor began to generate many multiples of what was possible at any time during the prior 5,000 years. The earliest productivity enhancing tools were brought to the worker, and there were improvements over the centuries, but beginning in Northampton, England in 1743 and in Lowell, Massachusetts in 1822 there was an enormous leap forward in per capita productivity which brought an enormous problem. The new factories could dramatically increase worker productivity, but now rather than the tools coming to the worker, the workers had to all be brought to the tools.
This was the model of the industrial age. Bring the workers to the factories. Alongside the factory, office workers naturally needed a place to conduct business. As time went on, there was a need to use the telephone switchboard, a xeroxgraphy device, perhaps a Dictaphone, conduct a meeting in an air-conditioned room, use a computer. Most importantly, all the contracts and secret formulas were in a safe in the corporate fort. The trains, subways, bus routes, restaurants, shoeshine guy, hotels, etc., grew up to serve these office businesses. Manufacturing workers moved out and office workers moved in. Mass Attracts Mass, E-Bay used to remind us. That has always held true in cities.
Now we simply have the return of the old model to the office worker. It took about 178 years from the textile mill in Lowell for technology to solve the logistics problem of getting office workers in front of their most productive equipment without hauling them 30 miles a day and back, and it took management another 20 years to realize it had happened. Bottom line, there is an argument that GDP is about to benefit from the giant reduction in expense related to moving office workers to a specific physical location in order to reach peak productivity. It took a pandemic to realize it, but the daily migration of nearly a billion people to the office and back is about to end. Businesses save the cost of seating everyone, and workers save the cost of the commute. It’s win/win. I do not know if the shift is exactly like railroads replacing canals, but I do notice there are not a lot of canals.
According to the Texas A&M Traffic Institute, 128 million people in the United States commute a round trip total of 54 min per workday, or roughly 250 hours per year. The Institute suggested that 20% of that was wasted in traffic jams, and a board member there was quoted saying “There is no way to clear the roads.” Like many great societal leaps in productivity, the one we are in was also unseen.
Assuming the dumb estimate 80/20 rule that just 20% of commuting will continue – after all, the Panama Canal is still doing good business, if not the Erie – the math says there are about to be 25.6 billion hours returned to formerly commuting workers. No longer necessary. It is easy to see this development as a giant negative. Worker displacements like this often are seen that way. Fortunately, the wealthiest world in history can now better assist displaced commuter infrastructure workers in identifying higher and better uses for their labors, and those are temporary displacements. Human skills and instincts will lead those hours to higher and better use. But the commuter hours saved are a permanent benefit to society, an annuity of fewer hours needed to get all the work done. Where will those saved hours go?
The two most productive economies in the world according to the OECD are the U.S. and Germany at just about $65 per hour as of 2017. Assuming people will be as productive with that time as the current average, an 80% reduction in commuting adds $65 per hour x 200 hours x 128 million commuters = $1.67 trillion, a roughly 8% increase in GDP. This completely excludes the benefits that come from these hours being redeployed into higher and better uses, which is where humanity shines. Obviously, some of those saved hours will go toward goofing off, known as the leisure industry, which has been growing faster than GDP for 170 years, and where we’ve been over-weighted since the inception of the strategy, but some hours will go toward solving bigger problems, and inventing new productivity tools, which increasingly includes lengthening human life itself — so we can work and goof off even more in the future. In the short term, it seems there could be a chance for a surprisingly better than average annual growth in GDP for several years.
This estimate excludes the commuter infrastructure workers that have been displaced, but those workers will find more productive jobs. Former farm workers and canal workers are all earning more per hour and many are happier than in their former roles. Farm workers are now 1% of workers, vs 72% in 1820 according to the Bureau of the Census. That is a GDP boost that isn’t well measured, which is the benefits of happier, less stressful lives tailored less around the timetable of railroad and rush hour traffic and more around personal productivity.
There may not have been a time in history when so many people were lurched at once into a world where each day is more productive than it was last year. Hours per day of not driving, not commuting, not walking the endless aisles of retail stores, will all come back into more hours of doing other things. Assuming at least some of those aren’t used sleeping, it seems we could be on the front end of a long period of innovation created by the billions of extra hours the world suddenly has to think of ways to do things better, cheaper or faster, the building blocks of productivity; sudden awareness by billions of people that they can re-invest hours per day for the rest of their working lives. What will this mean for commerce? We will keep trying to figure that out. Please click here to view Sterling Partners Equity Advisors Small-Cap Value Performance. Thank you for your interest in Sterling Partners Equity Advisors.
Kevin E. Silverman, CFA
Chief Investment Officer
John A. Schattenfield
Head of Distribution