December 15, 2016

Sparking a high-tech economic revolution

Sparking a high-tech economic revolution

Rory Broomfield examines how the next big financial crisis could trigger a high-tech economic revolution.  

I remember when Lehman Brothers went down. I was working in the City of London at the time and, to put it mildly, there was a state of shock, disbelief and, in many cases, panic in workplaces throughout the sector. Although the work culture had changed since the collapse of the sub-prime mortgage market in Q3 of 2007, coupled with the collapse of Bear Stearns, the music still played. This, however, escalated the unease in the City.

Those who survived in the City had a niche; they didn’t just know information, they had knowledge and often political skills to navigate the new environment. They could use these assets to demonstrate added value and performance. This helped them survive the offshoring and outsourcing processes that were happening throughout the sector beforehand and, given the new financial environment, allow them to become nimble in the face of change. But times changed and, along with the nationalisation of RBS and Lloyds Bank, it became harder to sustain previous performances and as a result many lost their jobs.

This didn’t just go for the City of London. The wider economy was affected from the changing financial environment and unemployment went from 5.3 per cent in 2007 to 8.1 per cent in 2012 in the UK. However, the next financial crisis could go even further than the 2.8 per cent rise over that five-year period; it could lead to a revolution in the workplace not seen since the industrial revolution. The reason: the rise of technology.

Fundamentally, the rise in unemployment over the five-year period was down to changes in risk that led to changes in human behaviour. Banks sensed risk and reduced lending, government saw risks to the system and required more greater capital reserves. All this led to plummeting levels of business financing, consumer confidence and risks of deflation – all of which helped lead to QE and chronically low interest rates.  That said, despite the incremental adoption of new technology by firms, unemployment practices weren’t radically altered due to it.

That was then, this is now.

Since 2012 (and especially since 2007), technological practices and knowhow have increased dramatically. With a few well-known exceptions (automobile production, for example), where workers have been replaced largely by inventions that do the jobs more efficiently, previous technological changes were set to help increase efficiency of workplace practices. However, it has got to the stage where the workplace practices in many sectors can now replace entirely those of human beings.

Of course, different sectors are and will be influenced more by technological change than others. Indeed, some work environments are visibly changing more even now. This is especially seen in retail, where machines are taking over the checkouts at supermarkets, however, with what could come next, these sorts of changes to the workplace could intensify.

What’s coming next?

As detailed in CityAM recently by the economist and best-selling author, James Rickards, the cause of the next global financial crisis could be triggered by a host of reasons. In an excellent article that channels Nicholas Taleb’s Black Swan theory, the underlying causes could be multiple; however, Rickards’ assessment shows that the fallout could be dramatic.

What would the fallout be? Ultimately, as Rickards explains, a lack of liquidity. He believes that the IMF will be called to stump the bill. I’m doubtful. Nonetheless, what will businesses, faced with overheads and potentially rapid inflation, do to survive? The answer: adopt (a lot more readily) new technology. In this scenario, the consequence would lead to widespread creative destruction as businesses who adopt low costs and overheads will come out in better shape to take over others that fall behind.

Nonetheless, the initial stage will be wholesale technological adoption and, although it won’t directly have a wholesale effect on every economic sector and job initially, people will lose their jobs throughout the real economy.

How can we address this? Is there a solution? My answer is that there is a solution: change.

In an economy where the lowest overheads win, make sure you are either on the side of the implementer of change or are a benefactor of it. In short: you want to be an Audrey Hepburn – who excelled in advent of films with sound – rather than a Mary Pickford – a silent film star who faded away in the advent of cinematic sound.

With the rise of the high-tech economy – not as the cause of the next big financial crisis but one of its consequences – retraining and the ability to innovate, as an individual, is crucial. Also, with the rise of the “gig economy” – and other areas of the sharing economy (developing and not yet realised) – the owning and use of assets like cars (Uber) or homes (Airbnb) is likely to be helpful.

But above all, the development of this new economy would (if legislators permit) be faster than previous economic revolutions. In being able to keep up with this, people that possess the asset of knowledge and the skills that can be adapted to this new ‘Uber economy’ will succeed.

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Rory Broomfield
Rory Broomfield is Director of The Freedom Association and the Better Off Out campaign. He is an authority on the EU and has written a number of books including his latest, co-authored with Iain Murray, Cutting the Gordian Knot: A Roadmap for British Exit from the European Union. He has previously worked in the City of London and in Westminster for a number of Members of Parliament, including the current Prime Minister, Theresa May; the current Chairman of the 1922 Committee, Graham Brady; and Sir Richard Shepherd.
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