Do you ever give much thought to the trends shaping our lives? Or do you just go with the flow?
Most of us are far too busy to notice, so we go with the flow.
Can you remember what communications were like before a mobiles or internet? Where did we go to meet up with friends in a world without a coffee shop on every corner?
These changes crept into our lives without consciously registering them and now we can’t imagine life without them.
What if you could have seen a trend coming?
For example our Prime Minster Malcolm Turnbull made a fortune from being an early investor in Ozemail…turning $500,000 into $60 million.
The world is constantly evolving — there are trends within trends.
If we look back we can identify four big trends in economic development — agricultural, manufacturing, services and technology.
Each trend overlaps the other, but eventually the earlier more dominant trend gives way to the new economy.
If we go back 100 years, rural Australia was booming — the sheep (mutton, lamb and wool), wheat, cattle and sugar cane industries all provided an abundance of employment opportunities. Towns thrived. In those days there were pubs on every corner.
These industries still exists today, but due to the advent of machinery and imports the rural towns are no longer the bustling centres of commerce they once were.
If a small business in a rural town had identified the impact machinery would have on the agricultural industries supporting their town, they could have sold before being forced to close their doors.
The industrial age ushered in machinery. With machinery, manufacturing — cars, white goods, clothing, electrical goods — could be churned out with a mechanical production line. Employment drifted away from rural and regional Australia and into the cities.
The western world prospered. America was the manufacturing hub of the world in the 1950s and ‘60s. The big ‘yank tanks’ couldn’t come out of the factory quick enough. Television sets. Washing machines. Fridges. Stereos. All the mod cons were being bought by eager western consumers — it is no coincidence this heightened level of manufacturing activity also saw the beginnings of the personal finance industry.
The tractor, mobile irrigator, cane harvester and wheat combine were also part of the manufacturing age — all these innovations made the agricultural industry less labour intensive.
The success of the manufacturing trend in the West sowed the seeds for its failure. Prosperity led to higher wages. Higher wages increased the cost of goods to the extent cheaper competitors (Asia) could supply lower cost alternatives. The long overdue closure of Holden and Ford in Australia is high profile recognition of this fact.
The prosperity created during the manufacturing trend heralded change in the service industry too. In finance it changed banking, stockbroking, fund management and consumer credit. In household chores it brought house cleaners, lawn mowers, pool cleaners and dog groomers. It did the same in medical, legal, accounting, restaurants and retail too.
Working in the paddocks and manning machines has gradually been replaced with working behind desks, counters and in kitchens.
Another area of change is the public service. Government — with all its attendant rules and regulations to oversee these industries — has been a major employer. There are nearly 2 million people (just under one in 10 Australian men, women and children) employed by local, state or federal government. A staggering level of regulatory overlay and cost on an economy.
Employment in the services sector is even more heavily concentrated in major cities. This in turn creates cost of living pressures. Higher costs of living translates into demands for higher wages.
As we have seen with the agricultural and manufacturing trends, when costs are no longer competitive, cheaper alternatives are found.
We are just starting to see the next trend emerging — technology. And I don’t mean the internet, latest mobile phone or Apple gizmo.
Cognitive computing power is going to transform the global economy.
Earlier this week I wrote about how robo-advisors are going to make the majority of financial planners redundant. The banks are already looking at how to implement a similar service to the ones being used very successfully in the US.
Here’s another example of smarter computing power — Momentum Machines have built a prototype to make hamburgers. The customer selects the burger they want from a screen and out comes the fresh burger. Making sure the supply of raw ingredients to the machine is kept topped up is the only human involvement in the process.
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Automated hamburgers are just the beginning — this technology will have other applications in the food industry.
How many people do McDonalds employ? How many people are employed in the cafe industry?
Once McDonalds start using this technology it will impact every other food related business. Businesses will be forced to compete against McDonalds lower cost structure.
The taxi industry will be forced to embrace the driverless car. Apple and Google are looking to get into banking. Blockchain technology (currently used in bitcoin transactions) is going to make transferring shares an instantaneous transaction.
US based Forrester Research recently published a report that estimates 1 million B2B (business to business) salespeople will lose their jobs by 2020.
According to Social Intelligence:
‘Triggering this sobering prediction is the rapidly growing B2B e-commerce sector, which allows customers to buy goods and services with less help from salespeople.
‘B2B compensation could be rising more slowly than the overall economy. Why? Quite simply, the meteoric rise of e-commerce. Gross e-commerce revenue is projected to grow nearly four times faster than B2B sales at large. Organizations have been quick to move their operations online to further their reach and cut costs.’
That last sentence sums it up — companies are moving quickly to embrace e-commerce to cut costs and improve their reach into other markets.
The next stage in our economic evolution is starting — the Jetsons are no longer the fantasy of some out-there cartoonist (if you don’t know who the Jetsons were, please Google it).
The timeframe of the trends is another factor to note.
Agricultural based economies were around for centuries. The manufacturing economy was with us for 60 or more years. The service economy has been in play since the 1980s.
The speed of transitioning from one to the other is gathering pace.
The technology trend is going to be upon us much faster than we realise. Within a decade you are going to wonder how we ever managed to get by without robotics, e-commerce facilities and other automated services.
The difference with this trend is the employment opportunities — if a farm hand lost his job he could be employed in a factory. When the whole factory lost jobs they could wait tables, mow lawns, work in retail or hit the jackpot with a government job (and all its perks).
Where do those who lose their jobs in the services sector go? The technology trend is all about cutting out human involvement and lowering labour costs.
Perhaps we’ll see a complete 180 degree reversal and people will move out of the cities and re-populate regional towns. They could search for a lower cost and better quality life — growing veggies, collecting their own water and harnessing solar power.
The technology trend is going to be a global deflationary force. This deflationary pressure could be compounded if there is a collective re-evaluation of ‘what’s really important in life’.
Deflation brings with it lower rates of return. Retirees will be burning capital to fund their lifestyles. Retirements will need to be re-evaluated.
What if, due to these deflationary pressures, society decides ‘there’s more to life than keeping up with the Jones’s’? The whole credit consumption economic growth model that evolved from the economy’s previous trends may be rendered obsolete.
What will that do for banking shares? What does that do for real estate values in cities? Will building smaller, more sustainable housing be a profitable trend?
There are far more questions than I have answers for.
The important thing is the big trend. Once you’ve found that, look for the trends within that trend.
Editor, Markets and Money