Productivity: Information and a Frictionless Economy
At the height of the financial crisis in 2008/09, it appeared that the best reference book for the months and years ahead was The Grapes of Wrath by John Steinbeck. On the verge of global economic collapse, and perhaps even a depression, it seemed essential reading. But upon consideration, its value as a handbook diminished as the story reflects an economy long past. The world still has problems, but they do not include those faced by the Joad family in the US Depression era.
The great majority of conflicts in The Grapes of Wrath arise from a lack of information. Tom Joad arrives home from prison to find his family gone. They have travelled to California on hearsay, and as they search in vain to find work, they are exploited. Today, it is unlikely that these kinds of scenarios would arise.
However, the economic problem faced by the Joads does remain. As capital becomes relatively scarce, it leads to a surplus of labour that essentially becomes unemployed. The solution is the same: labour must move to where capital is relatively plentiful. The best current example of this is the migrations from Europe’s periphery as a result of the euro-zone’s debt crisis.
The difference today is in the way this re-allocation can be resolved. Tom Joad would be able to call his family to find them. They could, via their smartphone, locate an orchard looking for labour and would probably secure a job. They could also locate accommodation and purchase an airline ticket for around half a week’s minimum wage. This could all be done from Oklahoma and work could begin within a day or two. Simply, the ability of the economy to transition is made easier by information.
Smartphones as the driver of a new economy
Lewis Mumford¹ argues that it is not the steam engine, but the clock, that provided the impetus for the machine age. The clock was the first piece of machinery that could co-ordinate work and leisure. It saved time, our most scarce resource. It allowed activity to be more streamlined and so more diverse. It led to increased production but also innovation. The information provided by a town clock improved economic exchanges in the town; and since then, information has continued to drive better functioning markets. The falling cost of information re-shapes markets, whether for goods, services, or financial assets, and the value we get from them. It also changes the way we approach and deal with problems. As the clock set off the machine age, the smartphone is the true start of the information age. The smartphone has two essential characteristics, first of which is its capability. It is estimated that the equivalent computing power of an iPhone 5 might have cost as much as US$3.56 million in 1991 according to analyst Bret Swanson². Second is its connectivity. A smartphone connected to a mobile network in New York City or in Africa, has access to more information than conceivable just 10 years ago. But more important is the connectivity to others, and the data that is created every minute of every day. It is this networked information that fundamentally changes the structure of the global economy. The World Bank collects data outlining the growth in mobile phone and broadband internet penetration. Most recent data show there are 92 mobile phone subscriptions per 100 people³ and 10 fixed line broadband internet connections per 100 people, globally. Growth in mobile subscriptions has been most rapid in the emerging world. Compound annual growth in the emerging world was 22% in the 10 years to 2013, compared to 5% for the developed world. Clearly, for emerging economies, the mobile network has allowed them to jump a stage in development by avoiding fixed line infrastructure. Fixed line connections in the emerging world peaked at 14 per 100 people and are now just 12.
To continue reading and find out more about the impacts of the growth information download the four page report below.
Download the entire article here.
1. Mumford, Lewis “Technics and Civilization” 1934, Harcourt, Brace and Company, London.
2. http://www.techpolicydaily.com/communications/much-iphone-cost-1991/. This includes $1.44 million for memory, $620,000 for the processor and $1.5 million for its communication capacity.
3. This number is somewhat distorted by multiple subscriptions per person. For instance, in Hong Kong there are 238 subscriptions per 100 people.