Sunday, 24 January 2016

Searching for growth

Time to ponder the big economic issue of our time; economic growth, or rather lack of it. The world economy is moribund right now (with a few bright spots such as Poland); growth is either low (much of the West), negative (Russia, Brazil) or decelerating (China, India).

Last week's Economist reviewed a book by Robert Gordon, in which the economics lecturer analysed the roots of US growth over the past century and half, and concluded that it is doomed to slow down, because it's no longer creating major, life-changing products or services.

How about the internet, and all the wonders that from it derive? "The invention of the driverless car will have less impact on society than the invention of the car." "We wanted flying cars, we got 140 characters" - two ideas in the Economist's review.

We have too much stuff.  The Economist last week touched on a strand of thought that I aired last month (see this post. I was delighted to see the William Morris quote I used repeated in the Economist article!). The average American house has 300,000 things in it, we learn. How much do we need?

The average American car spends 95% of its time quietly depreciating away on the drive or in front of the office. What a waste. The average power drill is used for a total of eight minutes across its entire lifetime. The internet is likely to make us buy fewer things and share more of them.

Robert Gordon's premise is not new. In his book Wired Life, published in 1999, Charles Jonscher took a counterintuitive look at the internet revolution as it was unfolding. These were the days before Google, smartphones, mobile apps or IoT, so the full scope of the coming revolution was not yet apparent. Mr Jonscher's premise was that the internet, marvellous though it is, would be as nothing compared to the real industrial revolution - of railways, steel, electricity, hygiene and the internal combustion engine. The real human leap was suddenly being able to travel from the village in which you were born - and your ancestors spent their lives in - to the seaside or to a big city in just a few hours. It was the end of the drudgery of housework brought about by the vacuum cleaner and the washing machine.

Daily newspapers, radio, cinema, television, transport for all (trains, bicycles, buses, affordable cars) - the upowszechnienie* of these inventions transformed lives beyond all comparison with those of our pre-industrial forefathers. The rolling out of the above created economic growth on a hitherto unprecedented scale. As Charles Jonscher wrote, his grandmother witnessed greater change than he's done to date. You can have a digital detox for a week or so, but try going without the benefits brought to us by the Industrial Revolution for even a day.

The internet has sped up - immeasurably - access to information which was already there, or in the case of Big Data, has allowed us to aggregate and synthesise new value from it. New growth comes in the form of new efficiencies, many of which end up destroying jobs. Industrialisation created jobs that new efficiencies in agriculture destroyed. Yet the IT revolution will not, ultimately create jobs. Robots in factories, algorithms in accountancy. The future will keep the clever and driven very busy, but the intellectually less well-endowed and lazy will find it increasingly hard to find gainful employ. Unlike industrial workers in the 1950s, they will not have disposable income to spend on things that drive further growth. Robots will end up paying their social benefits.

Mobile apps will certainly continue to bring incremental benefit to our lives. (I'd love a more efficient way of monetising unwanted things than the hassle of selling them on eBay or Allegro.) But new apps will not bring about another huge leap forward in humanity as the onset of the Industrial Revolution did.

What will? What do we all want, what will all pay for?

Longevity and health. I'd love to live to 200, hell - 500. Providing I'm mentally and physically in good shape and able to make the most of the opportunities that superlongevity can offer. And I'm sure seven billion consumers would share this dream.

In the short term, any new breakthroughs in life sciences will bring benefit only the wealthy (and those on clinical trials). Regulatory authorities will have a high old time trying to regulate a brave new world, where indeed, the unregulated future is that we will see Alphas and Epsilons evolving differently.

But there is hope. Last week, we learned that there are now seven billion mobile phones in use around the planet. This doesn't yet mean one per human being, as many of us in the developed world have two. But I remember back in the mid-1990s, in my first job in Poland (for CenterTel - now Orange), hearing with disbelief the head of marketing predict that in a few years' time, mobile phones would be as cheap as shoes. Back then, a Motorola cegła (brick) had a huge battery the size of an encyclopedia and cost as much as a Fiat 126p Maluch. This was a time when only 85,000 Poles had a mobile phone. The same may happen in life sciences, only we will have to wait far longer, for regulatory reasons.

In the 1950s, the average family in the UK was spending a third of its income on food. Today it's one-eighth. The money saved goes towards the big costs associated with displaying social status (big house, big car, exotic holidays) and furthering that status into the next generation (private education).

The future will see further falls in the costs of living, leaving more for - what?

There's never been a worse time for hoarding capital. Interest rates are close to zero. Bond yields are extremely low. Stock markets are wobbly. There's in there's investing in innovation - would you punt your money on a start-up unless you had a excellent knowledge of its market niche?

So we have a world full of debt, of capital sitting around doing nothing, of people with too many things not knowing what to buy next - and in such a world, corporations are seeking growth. Maybe the currently understood engines of growth are spluttering.

America, as I've written before, is good at Thinking Big and having a Can-Do Attitude. We all need to adopt these mental attributes. If a new technology or business model works - roll it out on the largest imaginable scale. But life sciences, biotech, requires a completely different approach. A new app can be written, tested and delivered to market in months. A new drug or medical treatment can take ten years or more before receiving final regulatory approval. This does not go down too well with investors, who don't like the massive swings in share price as successive rounds of clinical trials go worse or better than expected on the long road to market.

Growth - big growth - of the order mankind experienced over the past two centuries - is looking less and less likely. The only hope is in life sciences - after all - what else would you want to spend large chunks of your disposable income on? But the capitalist system working within a democratically established regulatory framework is not going to bring about a life sciences revolution overnight - nor even over a decade. Gene therapy, nanotechnology, personalised medicine driven by Big Data - this will take ages to roll out, and will require close collaboration between academia, pharmaceutical business, healthcare providers and regulators. Get these to work together better, and we might see a new engine for rapid economic growth taking hold.

Thanks to Tim Richards (@aerohaveno) for pointing me to Will Hutton's Guardian piece from 31 January 2016 setting out the same basic thought. "If having more no longer satisfies us, perhaps we've reached peak stuff," says Mr Hutton. In which case, Poland still has a long way to go. Its people are a long way from being sated with objects.

* Upowszechnić = to spread, to diffuse, distribute, popularise, propagate, promulgate - none get sufficiently close to the meaning of this useful word. U-pov-SHEH-neetch - literally, 'to make universal' or 'to make commonplace'.

This time three years ago:
The more it snows - a decent snowfall in Warsaw

This time four years ago:
A Dream Too Far - short story

This time six years ago:
Compositions in white, blue and gold

This time seven years ago:
Dobra and the road

This time eight years ago:
Polish air force plane full of VIPs crashes on landing in bad weather

No comments: