We are living through another industrial revolution. Information and communications technology is transforming the way we live and do business, as people and knowledge are being connected ‘anytime and anywhere’. If anything, it could be argued that this new industrial revolution is set to gather speed, as ‘anytime and anywhere’ begins to extend from anyone to anything. The next phase of digitisation, which some call the ‘internet of things’, connecting billions of devices and people, opens up the prospect of faster growth across a broad range of industries.
Remarkably, many economists disagree with this. They argue that the impact of the ICT revolution is not as radical as the ones that preceded it, which were based on technologies such as the steam engine, the railways, and then electricity, the internal combustion engine, and the telephone.
Some go so far as to suggest that the net effect on economic growth may be negative. Many traditional businesses are being sunk by the digital tide. Smarter computing is also eliminating many traditional jobs. And the losses are moving up the skill scale, as increasing numbers of knowledge workers are exposed to digital competition. Only a highly skilled elite, and the owners of the new technology, stand to gain.
Rising inequality, it is argued, will be a drag on economic growth. Because the poor tend to spend a higher proportion of their income than do the rich, a shift in the distribution of income away from the poor will tend to depress spending and hence growth.
Worse, they say that the ‘anytime anywhere economy’ is already past its best, that technological progress itself is slowing down, and that its impact on growth is waning. Prominent among them is Professor Robert Gordon, who has argued forcefully that productivity has slowed despite the improvements in information technology. He expects this to continue, thereby hurting economic growth.
However, there are several reasons why such techno-pessimism may be misplaced.
First, part of the growth slowdown in recent years surely reflects the damage wrought by the financial crisis, rather than a waning in technical progress.
Secondly, the recent past may not be a good guide to the future pace of technical progress. Past major technological breakthroughs, such as the invention of electricity, have taken decades to have their full effect. By that standard, this industrial revolution is still in its early stages. And it is easy to forget how recent the diffusion of mobile and internet technology has been. According to some estimates, the number of mobile connected devices is set to exceed the global population this year, tripling in less than a decade.
Thirdly, a distinctive characteristic of the ‘anytime anywhere’ economy is powerful network effects of the technology, which mean its benefits will tend to spread at an accelerating pace. A key aspect of this is that as lagging businesses and countries adopt state-of-the-art technology this enhances its value to early adopters.
Fourthly, the fashionable focus on inequality in the developed world tends to overlook the massive reduction in global inequality arising from the convergence arising from the new technology. Hundreds of millions of people in the emerging world are being lifted out of poverty to join the ranks of the middle class and boost global growth. In any case, it is open to governments to do more to inequality through redistributive and structural policy measures.
This brings us to a final, crucial, point. With the emerging world, led by China, joining the party, the coming decades will see an acceleration in the human and digital resources devoted to innovation. This will fuel the potential of the ‘anytime anywhere’ economy to connect not just anyone, but anything. The so-called ‘internet of things’ promises a world in which embedding of computers into physical objects and devices will enable them to be networked both to each other and to networked people, who in turn will increasingly be using wearable and embedded devices. Cisco has highlighted the potential of this, estimating that the internet currently connects around 10 billion to 15 billion devices globally, less than one percent of things that could be connected.
One of the engines of this next phase of the ‘anytime anywhere anything’ economy is an explosion of data collection and analysis. Applying machine learning and predictive analytics will be essential if we are not simply to drown in ‘big data’. But, as Wired magazine co-founder Kevin Kelly said, “machines are for answers; humans are for questions”: the data is only useful if it is answering the right questions, which ultimately requires human judgement.
This holds out the prospect of massive job opportunities to capitalise on the scope for mass personalisation of goods and services offered by the new technologies. Some estimates suggest that for every job destroyed by the internet around another two and a half are created.
But will the potential of ‘anytime anywhere anything’ economy be realised? Pessimists point to the lacklustre performance of business investment. Many big companies are sitting on big pots of cash which they are reluctant to spend. Yet this is due largely to the hangover from the financial crisis, which will dissipate over time as the developed economies deleverage. Confidence will ultimately return. Predicting exactly when that might happen is not easy, but as the pipeline of new technological advances continues to fill, the more likely it will arrive.
About Mark Cliffe
Mark Cliffe is chief economist of ING Group. Based in London and Amsterdam, he leads a team of economists and strategists in 16 offices around the world. Mark travels the world explaining and debating the outlook with customers from the corporate and financial worlds, and is frequently quoted in the media. During a career of over 25 years, he has worked for a variety of financial services firms, including HSBC and Nomura Research Institute.