Making the world smaller

November 15, 2017

Technological advances have dramatically reduced the cost of moving people, goods and information around the globe, creating one of the most fundamental economic shifts that will take place in our lifetime.

This cost of distance, known as “spatial economics”, has become a critical calculation for businesses and individuals.

Technology such as delivery drones has driven down the cost of moving goods and information

So-called “space-time patterns” used to be a key factor in understanding the economics of social and infrastructure development. A factory might be built in a certain place and, over time, economic activity would cluster around it as other businesses and workers sought to be close to it.

According to a 2016 Bain Consulting report, authored by Karen Harris, Andrew Schwedel and Austin Kimson, this shift will prompt businesses and investors all over the globe to rethink their strategies and investments. It will also create an array of opportunities, as well as some unexpected risks.

The Bain report suggests the change has already begun in more advanced economies and is gathering momentum. Behind the shift in spatial economics is an array of new “platform technologies” that have recently come online.

“Multibillion-dollar investments in robotics, 3-D printing, delivery drones, logistics technology, autonomous vehicles and low-Earth-orbit (LEO) satellites sharply erode the cost of moving people, goods and information,” the authors say. “As these technologies converge, the cost of distance will decline sharply, altering the way we live and work.”

And, they say, the change will take place faster than most people expect and “more broadly than many imagine”.

 

 

Mercer’s Andrew Kirton explains how advances to AI and robotics have the potential to affect large sections of today’s workforce

 

 

Professor Johannes Moenius, director of the Institute for Spatial Economic Analysis at Redlands University in the US, uses a simple example to explain how changing spatial economics might see vast numbers of textile workers and supply chain roles disappear, including drivers, packers, logistics experts and even retail staff.

“Imagine a boutique where a body scanner takes your measurements, software projects the optimally stitched-together dress you’ve chosen onto a 3D virtual image of you,” he says, “You suggest small changes and are served coffee while the robot in the back of the store stitches it together. A few minutes later you try on your tailor-made dress and take it home.”

Moenius says everything from self-driving trucks to sensor-automated vacuum cleaners could have a dramatic effect on our view of traditional economics.

It’s an exciting vision of the future for consumers looking for convenience and bargain pricing on goods and services, but Moenius warns of significant flow-on effects within society.

“The biggest risk I see is the huge income inequality rolling up on us and, during the time of transition, huge unemployment – bigger than the global financial crisis,” he says. “Other implications are far reaching, such as concerns over privacy and data collection as well as high crime rates that are correlated with high unemployment.”

Accentuate the positive

“I’m an optimist and every technological change in history has ultimately been beneficial for human living standards.” 
-Oliver Jones

Oliver Jones, advisory partner at Ernst & Young, says there’s work to be done to “head off” short term negative consequences, but he’s optimistic about the longer-term impacts of technological transformation.

“Low-skilled workers will hurt in the short and medium term. So we need to figure out how we plug gaps in skills and in geography, and how we spread economic growth,” Jones says. “Government can’t hold these transformations back, but both they and business have an important role to play in the tech transition, to help people adapt, and to invest in skills and infrastructure.

“I’m an optimist and every technological change in history has ultimately been beneficial for human living standards.”

You might also like:
Previous Article
Protect your KiwiSaver contributions with Mercer Protect
Protect your KiwiSaver contributions with Mercer Protect

Even though Jason Douglas spent more than 17 weeks recuperating from a heart attack, his KiwiSaver contribu...

Next Article
Investment report and insights - November 2017
Investment report and insights - November 2017

The effect of technological disruption on investments is a hot topic of the moment.

Not a member yet? Sign up to Mercer FlexiSaver

Join online