Future Economy

The Bad News: Uber and Avis and Japan will be as dead as Kodak.
The Good News: Robots won’t take your job and health care will be cheaper.

Story Joe Aaron

I like to call myself an “economic futurist,” to which you may well ask, “What the heck is an economic futurist?”

A futurist identifies trends in society. An economic futurist attempts to anticipate the economic impact of those trends. Today the big economic trends are in demographics and technology.

Let’s start with demographics because it is not as rosy a picture as technology, and we can dispense with it in short order. There is only one number you need to know, and that number is 2.1.

In order for a nation to maintain its population, it requires a birthrate of 2.1 children per woman. The current birthrate in the United States is 1.9, but our population of 320 million will remain stable because we get a boost from immigration.

Seven countries in the industrialized world, however, have simply stopped breeding. If this trend continues, it will lead to an economic death spiral over the next 30 years. The seven countries ironically include the Catholic states of Italy, Spain and Portugal, at 1.4, 1.3 and 1.2 births per woman respectively. Germany, Austria and Japan are at 1.4, and Switzerland is at 1.5.

Germany has the lowest, sustained birthrate in the industrialized world, having fallen below 2.1 in 1969. Japan is second, having fallen below 2.1 in 1971.

The critical difference is that Germany embraces immigration, while Japan does not. That country is 98.5 percent ethnically “pure.”

Both countries are close to the threshold of non-renewal, in which the people dying are not replaced by newborns. That means each is a dying country.

After 20 years, all seven countries will have more people drawing out of their equivalents of social security and Medicare than people paying into them. That is, as we know, unsustainable.

Since Japan rejects immigration, let’s see how this trend plays out for them in our lifetime. In 1960, only 6 percent of the Japanese were 65 or older. Today 26 percent of the Japanese are at least 65 years old. In the U.S. today, one of every 15 of us are over 65.

In Japan, they literally sell more “Depends” than they do baby diapers.

Today Japan’s population stands at 127 million. The Japanese government estimates that, in 2060, the population will be only 87 million.

Worse, nearly half of those 87 million Japanese will be over 65.

The country is simply shutting down. Last year, their population shrank by one million people. That was a first for the modern world.

They are closing 300 schools every year in Japan. With a birthrate of 1.4, Japan will go from 65 million workers to 45 million workers in the next 20 years. That is a problem.

Consider the negative impact on the U.S. when Japan starts selling the $1 trillion in U.S. debt they hold. It’s possible that could cause interest rates to soar.

Consider the fact that Japan is our fourth largest trading partner.

You only need to look at the low birthrate to understand why Japan’s GDP is almost the same as it was in the 1990s.

Japan is now experiencing negative interest rates, which means that when you give a Japanese bank 100 yen, three years later the bank gives you back 97 yen. Such a deal. Negative rates punish depositors but benefit borrowers, which is the very definition of deflation. Prices haven’t gone up in Japan in 20 years.

Adding to their misery, there is more downward pressure on wages than prices, so even their buying power has declined.

One proposed solution is that Japan mimic Australia, which is adding almost 1 percent each year to its population by promoting immigration. One of every four Aussies is an immigrant.

There are only two ways to grow an economy: Increase the number of workers or increase their productivity, which is output for the number of hours worked.

Immigration helps explain why Australia hasn’t had a recession for 25 straight years, although their enviable streak could be broken this year.

A recession is defined as two consecutive quarters of economic contraction. A declining workforce and an aging society explain why Japan can never seem to escape a recession. They have had five recessions in the last seven years.

For our economy to grow, we need immigration, our president notwithstanding. Our birthrate is below 2.1 and productivity growth is an anemic 1 percent.

Fortunately, people still want to come to America, and as long as our population grows, we will continue to dominate the world’s economy.

From Population to Technology

Now let’s turn our attention to technology and how it is impacting our economy.

Uber is the world’s largest taxi company, yet it owns no vehicles.

Facebook is the world’s most popular media company, yet it creates none of its own content.

Alibaba is the world’s second most valuable retailer, but it has no inventory. Airbnb, the world’s largest hotel company, owns no real estate. You can see the trend here. Our new economy produces extremely valuable companies but they employ very few people.

Uber’s market value is $70 billion. It has only 11,000 actual employees, but has 600,000 independent contractors.

Facebook’s capitalization is $400 billion, almost six times as big as Uber, yet it employs only 14,000 people. Wal-Mart’s capitalization value is less than Alibaba’s, yet they employ more than 2 million people.

There are more than 150 million jobs in America today, which is an all-time high. But meanwhile, the top 10 technology companies in the U.S. employ just over 1 million people, less than 1 percent of our nation’s workforce. To quote Buffalo Springfield, “Something’s happening here. What it is, ain’t exactly clear.”

What is clear is that we live in an era of disruptive technology. The world incessantly beeps at us. Look at what technology has forced upon us in the past 10 years or so: Facebook, the iPhone, Twitter, IBM’s Watson, YouTube, Android, Kindle, 1 billion Internet users, sequencing the human genome, the Cloud, Uber, Airbnb and soon, autonomous cars.

The dominant trend in technology impacting our economy is Moore’s Law, named after Gordon Moore, the co-founder of Intel Corporation, who postulated that the number of transistors in an integrated circuit doubles every two years. Your new computer is twice as fast as your two-year-old computer and it costs half as much.

In 1993 Intel CEO Andy Grove asked his engineers to apply Moore’s Law to a 1971 VW. Their conclusion: Improving at the same rate as Intel’s 4004 chip, the Bug would go 300,000 mph, would get 2 million mpg and would cost 4 cents.

Moore’s Law was around long before Gordon Moore, we just didn’t know it.

At the start of the 20th century, agriculture provided half our jobs; today it is 2 percent. The cellphone went from the size of a briefcase to the size of your hand. That is Moore’s Law.

Steve Jobs introduced the iPhone 10 years ago, and smart phones have grown from 100 million to 6 billion today. Between 2002 and 2008, the cellphone industry predicted growth to average 13 percent year over year. In fact, it went up 50 percent year over year.

Look at what happened when we sequenced the human genome. The first project started in 1990 and was completed 13 years later at a cost of $2.7 billion. Last year it cost $1,000 to sequence your personal genome. This year it will cost you $100.

Moore’s Law took this project from 13 years to 13 days; from $2.7 billion to $100. Which means we will soon be able to tailor medications to fit the genetics of the individual, revolutionizing how we fight disease.

In the last decade, green energy has doubled every 5.5 years. If this doubling continues at this pace, fossil fuels will exit the energy sector in my lifetime. That is Moore’s Law.

This is our future: Mind-boggling changes at a mind-boggling pace, and the San Francisco Bay Area (encompassing Silicon Valley) is ground zero for the technological revolution. What Florence was to the Renaissance, San Francisco is to technology.

While the economic future of the U.S. has never looked better, the bad news is our productivity growth is slowing. Slow productivity growth means your children may not be richer than you. Remember, there are only two ways to grow an economy: Increase the number of workers or increase worker productivity.

Which brings us to robots.

Here’s a story that explains the trade off between robotics and productivity.

A Ford plant manager gave a UAW steward a tour of a new assembly plant and said, “How are you going to get these robots to pay union dues?” The steward responded, “How are you going to get these robots to buy your cars?”

By 2050 there will be more robots on the face of the earth than humans. And those robots will be building other robots. Half of our jobs will be telling the computer what to do. The other half of our jobs will doing what the computer tells us to do.

But the dystopian prediction that software and robots are killing our jobs is incorrect. I anticipate just the opposite. Anyone who wants a job will have one in the future.

The “robots will take our jobs” nonsense started in 2013 when two guys from Oxford predicted we would lose 47 percent of our jobs to robots over the next 20 years. If you do the math, that means we will lose more than 3 million jobs each year in the U.S. So far, the Oxford professors have been spectacularly wrong. Instead of losing 8 percent of our jobs since 2013, we have actually gained 3 percent and now have almost full employment.

The reality is, much of any economy is physical. By physical, I mean maids and nannies, plumbers and electricians, hair stylists and manicurists. These jobs will not only continue to exist, their numbers will increase. Doesn’t the world need another social media manager? How about a life coach? How about a Pilates or yoga instructor? Drones will never replace the pizza delivery boy in Manhattan.

Thirty years from now, 90 percent of our jobs will be providing services to people who provide services to other people.

That brings us to self-driving cars, which will come to market before the end of this decade. The 2.5 million long-haul truck drivers will lose their jobs by 2035 to self-driving trucks. That sounds catastrophic, until you learn that our economy adds and loses about 2 million jobs every month and can absorb the loss of truck drivers easily over a 15-year period. Seen any stagecoach drivers lately?

But that’s only the start of the disruption. With self-driving cars, we won’t really need to own one anymore. After all, we don’t own a taxi. We will summon a car on our phone, Siri will announce, “Hey, your car is outside,” and we will work on our devices as it chauffeurs us to our destinations. Your productivity just improved with the autonomous car.

Meanwhile, the cost of batteries in electric vehicles has fallen 80 percent since 2008. You can thank Moore’s Law for that. The cost will fall another 80 percent before the middle of the next decade, and another 50 percent before 2030.

The economic impact will be the death of the combustion engine, and with autonomous cars, we may only need half the cars we have now.

Parking garages will be turned into city parks or high-rise housing because many of us won’t need to own cars anymore. Homes built after 2030 won’t have garages.

How about automobile insurance? Today there is one automobile accident for every 100,000 miles. With self-driving cars that number will drop to one for every million miles, or two. We won’t be killing 30,000 people each year in traffic accidents. Which means the cost of automobile insurance will plummet and Allstate, Geico and Progressive will all go out of business in about 15 years.

Speaking of fleet operators: Avis can try hard as it wants but it will be out of business in less than 10 years because all the auto manufacturers will be fleet operators.

General Motors already has Maven for by-the-hour rentals. BMW has ReachNow which can put you in a Bimmer for 41 cents a minute. Mercedes Benz has a fleet service called Car2Go. This sharing community is doing to car ownership what Netflix did to DVDs.

Uber is losing money on every ride—$2 billion dollars a year. They have less than three years of cash left. There is no way the market will award Uber their $70 billion valuation.

Here is the foundational reality. Any company designed for success in the last century is doomed to failure in this century. If you aren’t disrupting your business or industry, your competitor will be. Disruptive technological changes will impact 100 percent of the S&P’s 500 within the next five years. A career used to have a half-life of 30 years. Today it is about five.

Think about this: In 1998 Kodak had more than 150,000 employees, but were beaten into bankruptcy by the digital camera in less than a decade. Here’s the kicker: Kodak actually created and patented the first digital camera in 1977. But they were making their money on film so they let the new technology collect dust.

If you’re a technologist today, you have your sights set on the greater Bay Area, Seattle, Boston, New York and Austin.

What do these cities have in common? They all have an accepting community, a thriving entrepreneurial culture, a world-class university or two and a legacy technology behemoth like Microsoft, Amazon, Apple or Dell.

Here is a trend: When Georgia Tech tracked their Ph.Ds. in computer engineering, they found almost 60 percent were in the Bay Area. Less than 10 percent stayed in Georgia.

What else can we predict? Medicine will be revolutionized in the coming decade and medical costs will decline 50 percent over the next 20 years, primarily because we sequenced the human genome. Within the next couple of years, diseases like cancer, multiple sclerosis and HIV could be treated by engineering the immune system.

Remember the Tricorder on Star Trek? It could instantly diagnose all of a patient’s ailments. Now Qualcomm’s $10 million Tricorder XPrize is about to go to one of two remaining entrants in a contest to create a handheld device capable of diagnosing your medical problem faster and more accurately than 10 doctors.

How can this not revolutionize medicine throughout the world? Think of places in Africa where there is only one doctor per million people.

The future has never looked so good.

 

One Comment

  1. As a fellow futurist, I concur that there’s “Something’s happening here.” I would ask you to consider that the very concept of an industrialized society and jobs to produce products for consumption may be unnatural to the human spirit. I honor you and your perspective, however you have not consider human advances in consciousness (self-awareness), the actual impetus for systems rooted in the illusion of our separation to collapse. Most human social systems have been designed and operate on the premise that we are separate from each other, the planet and our common Creator. Yet, as our consciousness expands, we begin to understand that everything is interconnected. I’m asking, What would our world be like if all human social and physical life support systems were redesigned to be in alignment with the unity of all things? Albert C. Moore, architect and urban systems designer, retired.

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