Today we are experiencing another industrial revolution driven by a rapid advance of information technology, meaning combinations of computers, smartphones and other digital systems via the Internet. Again many things & services are getting much cheaper and so available for the masses. Smart phones for instance give everybody access to super computers (via cloud computing) for low & dropping costs. As a result internet-based firms and other technology companies are transforming the way humans work, shop and relax. The internet, which is getting faster, accelerates the spread of knowledge, along with its application, and fosters economic growth. This process is accelerating.
In 1999 Ray Kurzweil, futurist and "director of engineering" @ Google, had already formulated the "law of accelerating returns". Kurzweil, like many before him, described that the development of humanity is accelerating - and so does technology (a brief history ). The pace of technological progress—especially information technology—speeds up exponentially over time because there is a common force driving it forward. Each new generation of technology stands on the shoulders of its predecessors (kurzweil). Improvements in technology enable the next generation even better technology. Because each generation of technology improves over the last, the rate of progress from version to version speeds up. Since the early 19th century (the first industrial revolution) the technological progress has been enabling companies to produce more & more goods & services with the same amount of employees. In the year 1981 Buckminster Fuller described “the principle of doing ever more with ever less weight, time and energy per each given level of functional performance" (acceleration). This process translates into falling costs, rising profit margins, climbing earnings & a growing global economy.
Satya Nadella, the CEO of Microsoft, recently declared that during the new decade," the defining secular trend will be the increasing rate of digitization of people, places, and things. This malleable power of software will drive productivity growth across all industries, leading to more inclusive economic growth far beyond the domains of consumer tech today" (seekingalpha).
In 2011 Marc Andreessen claimed that "software is eating the world" (a16z.com ). The technological development in the recent years and steeply climbing stock prices of software-focused companies give him right. Andreessen observed that "more and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. More than four billion people worldwide own smartphones, giving every owner instant access to the full power of the Internet, every moment of every day".
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The digitization increases the flow of information and reduces the cost of data. Data can be gained, processed and stored faster and cheaper. New ideas can spread faster, encouraging discoveries and inventions and boost the technological progress. Falling information costs are lifting the productivity of the economy, creating more markets and are raising incomes.
In the coming years software will be even more connected with the Internet via cloud computing. New technologies, like 5G, a high-speed wireless network, are making these connections much faster & stronger. Cloud providers like Amazon`s AWS are giving their customers access to giant external data centers - for very low & constantly dropping costs. The cloud works like a yeast for the whole economy. Cloud computing enables startups to launch faster and more cheaply, Newcomers and established companies can use a massive & cheap computer power to introduce new products quickly without spending much for information technology (IT). Cloud computing supports companies to organize their whole business, to create new products, to find cheap suppliers, to manage customer relations and so on. This means more choices, better products, and lower prices for consumers.
Via cloud computing everybody will be able to use Artificial Intelligence (AI), meaning software - like Amazon`s Alexa - which is capable to learn and to develop itself. Cloud companies also offer access to quantum computing which speeds up pace and capacity of calculating. These technologies help to manage highly complicated issues like weather prediction, genetic engineering and much more.
In the coming years more & more devices like thermostats, TVs, refrigerators, household appliances will be connected to the world wide web which will make our life easier and create new markets for a lot of companies (Internet of Things). Smart watches for instance can be used for 24/7 medical observation and health monitoring to prevent heart attacks and to discover other medical problems.
The described digitization process supports radical changes in a lot of industries. The transport sector - which has been almost stagnating since the 1930s - is starting a new revolution. Tesla cars and other electric vehicles, which use a lot computer power, are beginning to replace combustion engines, driven by falling costs and a growing environmental awareness. Electric cars are already more efficient than traditional vehicles because they have fewer mechanical parts and Tesla`s Giga factories are more productive than traditional car producers (worth). Self-driving cars, buses, trucks & trains, all steered by AIs, will reduce the number of accidents and lower the costs of transportation because they are more efficient than human drivers. Drones, controlled by sophisticated software (of course), are reducing the time & costs of deliveries. Tesla CEO Elon Musk started the "Boring Company" which builds tunnel boring machines. He wants to dig a network of cheap tunnels which are optimized for electric vehicles. Musk also plans to implement Hyperloop - a high-speed transportation system ( reduced-pressure tubes in which pressurized capsules ride on an air cushion driven by linear induction motors and air compressors). All these trends will make transportation much cheaper & environmentally friendly - creating another tailwind for the global economy.
The power of much faster & cheaper calculations will also support progress in engineering, robotics, nanotechnology & biotech. Robots, controlled by more or less intelligent software, will make factories more productive and eventually compensate for a shrinking workforce that will be a result of an ageing population. Software controlled machines will literally "print" parts of other machines and devices by using computational power, lasers and basic powdered metals and plastics (3D printing). In some years companies & persons can produce many things exactly bespoked for individual tastes with low costs. Technological progress will also enable the creation of new material, built at the atomic level (Nanotechnology). These trends could revolutionize everything from chemistry to aeronautics, for example, by creating new medicines, new fabrics and building material. Scientists are already working on a new material which is much stronger & lighter than steel (economist).
The secular shift to digital will also reshape the healthcare sector which could lead to a longer & more healthful life for all of us. Sophisticated machines (health technology ) are improving the quality of healthcare through earlier diagnosis, less invasive treatments and reductions in hospital stays and rehabilitation times. Advancing software, including machine learning (AI), which is made cheap via cloud computing, will help develop better health systems and assist doctors with the diagnosis and deduction of disease. Digital systems also support companies and university scientists to develop new vaccines and cures by adapting or exploiting processes found in living organisms (Biotechnology). Altering plants by genetic engineering makes them more resistant against pests and more tolerant of temperature changes and droughts. Food gets more affordable and could be enhanced with vaccines against cancers and other diseases.
This technological progress will also curb energy prices by increasing energy supply & reducing energy demand. History shows that decades with cheap oil - like the 2010s and the period 1982 through 1999 - are prosperous, decades with expensive & volatile oil (like the 1970s and the 2000s) are not (driveby). Technological progress in the US (fracking) delivers relatively cheap oil & natural gas, reducing the dependency from unreliable sources like Russia & Opec. Therefore the risk of violent oil price spikes -which caused most recessions of the past - are very low. Alternate energies like solar & wind craft will get cheaper and luxury car producer Rolls-Royce and other companies want to develop small nuclear reactors, which would deliver cheaper energy without the emission of green house gases. Energy prices will also be curbed by reduced demand. New technologies, especially electric cars, trucks & buses will reduce the demand for gasoline significantly & curb global warming.
The subdued costs for energy and falling prices for manufactured goods & food will keep inflation rates low. The Federal Reserve and other central banks don`t need to hike their interest rates sharply to break inflation which often caused a recessions & bear markets in the past. Therefore the low interest rates will continue for years and inspire investments that will add to the economic growth.
And the tailwinds from the emerging markets will get stronger thanks to the ongoing catching up process in China and other emerging markets. People in Asia, Latin America & Africa have a tremendous backlog demand because income & fortune are much lower than in the Western world. There are billions of talented & diligent people who want to reach the US and European standard. Therefore there are billions of people who are working hard and who are investing to be able to expand their consumer expenditures in the decades ahead. The emerging economies don`t need to invent the wheel twice, they benefit from the experience of the Western countries, the digitization and the falling information costs. China is already cutting edge in sectors like artificial intelligence, drones and high-speed train networks. Rapid growth of the economies in China & Co. means that many more people get well educated, becoming scientists, doctors, engineers, innovators, investors & entrepreneurs - a boost for the global economy.
To repeat myself: All these beneficial developments will work together, they will strengthen each other and might merge into a kind of Cambrian explosion, creating a benign snowball effect, which will foster a period of prosperity - the roaring twenties.
Enjoy!
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