(Drivebycuriosity) - We are living in interesting times. The Covid-19 pandemic is disrupting almost everything and forcing everyone - governments, consumers & companies - to adapt and to change their behavior. The crisis, as challenging it is, reminds me of Friedrich Nietzsche`s claim: "What doesn`t kill us, will make us stronger". I believe that the global economy will recover stronger than it was before. There is a chance that the recent changes started a new wave of innovations like in the 1920s when the Spanish Flu from 1918/19 was followed by the Roaring Twenties.
History shows that consumer and businesses are more willing to change behavior during setbacks (twitter). After the 1918/19 pandemic an economic boom began and ran from 1919 till 1929 which led let to significant changes in lifestyle and culture (yardeni). These "roaring twenties" were turbocharged by a technological revolution which changed the whole world. Sharply falling costs & prices led to explosive sales growth of cars & radios. A lot of other things, including telephones, refrigerators, electric washing-machines, cosmetics, rayon (a synthetic fiber used for stockings & lingery instead of silk & wool) and many more goods also became much cheaper and available for the masses.
Alibaba`s
CEO Daniel Zhang, the leader of China´s largest Internet company,
claims that the pandemic - and her forces of change - create new
opportunities ( alibaba). The current pandemic already started a wave of new businesses. In the US nearly 4.5 million business applications were filed in 2020 — the highest number on record, and an increase of 24% from the year before (cbsnews ). Germany, Europe`s largest economy, is also experiencing a rush of start-ups ( spiegel.de )
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The current pandemic is accelerating the fundamental trends that have been shaping economy & society in the recent decade. The rise of the Internet gained even more speed and turned into a great leap. Covid-19 reduced the resistance against technological progress (faz.net ). The pandemic forces many people to work, learn, shop, educate & entertain themselves from home which is fostering digitization and raising efficiency & productivity of the economy. The latest US employment report said that about one-quarter of those working were doing so from home.
The virus is boosting the digitization process, which is fostering productivity across all industries, leading to more economic growth. Microsoft`s CEO Satya Nadella said recently "the pandemic has proven the PC’s central role in keeping people connected, productive, and secure ...What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry" (transcript ). Last April Nadella already reported “two years of digital transformation took place in two months” ( microsoft ).
(UK source )
Online sales worldwide are surging, more people are working from home, they are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Home office & remote learning will raise productivity of the whole economy because many people spend less time with commuting. One commentator wrote: "Valuable collaborations with colleagues, customers, regulators or other partner companies aren’t delayed by the vagaries of the various groups’ availability to meet in person, navigating being in different cities, flights, hotels, etc. Collaboration happens as soon as you have the idea to meet via Zoom" ( marginalrevolution). This commentator also mentioned "the wasted productivity time that work travel eats up by putting high value workers in low productivity transit mode….Uber to airport, security lines, wait for flight in the terminal, maybe grab an hour of in-flight WiFi to catch up on email, land, taxi on the airstrip for 20 minutes, Uber to hotel…"
Not only consumers are changing their behavior, companies are forced to adapt as well. We are witnessing an accelerated shift toward digital technologies that are faster, less expensive, more productive and raise creativity. Companies are compelled to streamline operations and they are using more & more Internet & and other software applications to get more efficient, creative & productive. The pandemic forces them to get faster and make their products & services cheaper and more convenient. These changes are accelerating the ongoing digitization process, using Internet and other software applications more intensely. The CEO of Bill.com, an online service, said: "We believe the ongoing pandemic has accelerated the need for businesses to focus on digital transformation” (seekingalpha).
Companies that are specializing in online services, like e-commerce, cloud computing, online-education, payments, video-conferences and more, are experiencing a boom which is making them much stronger. They are now amassing a lot of cash which they invest in their infrastructure which will be the yeast of the economic growth.
Microsoft`s Satya Nadella expects: “The next 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”.
I assume that the global economy will benefit a lot from cloud computing. 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.
Companies which use Internet and other software applications for money transfers and other financial services - known as digital finance or fintech - are taking off. They are reducing the costs of financial transactions and are making the world of finance more efficient & flexible. Fintech will be the yeast of the economy.
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 pandemic caused a knowledge explosion and enabled pharma companies & research institutes to create a vaccine miracle in less than 12 months. A series of new vaccines, based on mRNA technology, are already fighting the pandemic. Israel vaccinated already more then half of their population and Great Britain follows with almost 30%. One commentator wrote: "The ability to encode and deploy arbitrary mRNA in our bodies sure seems like a game changer—it allows us to essentially program our cells to make whatever proteins we want. In the case of the COVID vaccines, the vaccine payload instructs our cells to make the coronavirus spike protein, which our immune system then learns to attack" ( elidourado ).
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.
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 new Roaring Twenties.
Enjoy!
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