Technology: Reshaping the global economy
The three C’s of rising computer power, increased connectivity and the zero cost of copying digital information are coming together to disrupt business models and bring profound economic change.
Rapid progress in artificial intelligence (AI), big data, mobile, cloud, the “Internet of things” (linking machines together), 3D printing and robotics heralds the third stage in the digital revolution, following the development of main-frame computers in the 1960s and personal computers combined with the internet in the 1990s. Mobile is changing business models and spreading rapidly as more people in emerging markets use smartphones.
Close behind are robots; likely to be the most visible of new technologies, as they emerge from their cages in factories and gradually become pervasive in the work environment, home and street. We highlight seven areas where robots are likely to make a big impact over the next 10 years: working alongside people on the assembly line; delivery; consumer robots including vacuums, mops, lawnmowers etc; drones (flying robots); elderly care; fast food restaurants; and vehicles (driverless cars).
China alone is reported to have over 400 robot makers and 30 industrial parks for robotics, an illustration of the increased pace of technological change and innovation creating better linkages between government, universities and businesses, and the increased number of researchers in emerging countries.
Whether technological change drives investment or investment drives technological change has long been debated. But the US, at least, appears poised for investment acceleration, with the global financial crisis fading, stock prices high, credit cheap and businesses both excited and nervous about the opportunities for new technology.
Faster productivity growth implies job losses as automation replaces people in certain tasks and roles. The jobs most at risk are repetitive jobs, both manual and cognitive. We reject the notion that new technologies will create mass unemployment, though these technologies could continue to widen the distribution of income, with the caveat that new AI systems could allow people with middle-level skills to take on more demanding roles; experts who rely only on knowledge, experience and logical thinking may find their roles in jeopardy.
Technology in developed countries
The US remains at the forefront of technology adoption and innovation, supported by its relatively flexible, large economy, entrepreneurial spirit and well-developed innovation clusters, led by San Francisco and Silicon Valley. The US dominates the list of top quoted IT companies. Technology allied with higher investment should deliver faster growth in coming years.
The Network Readiness Index (NRI) from the World Economic Forum finds Singapore and Sweden at the top, with the US, Hong Kong, the UK, Korea, Germany and Taiwan just behind. This index looks at 54 indicators to assess the overall innovation environment, readiness to adopt, actual usage and the impact.
Governments in Singapore, Korea and Taiwan actively promote innovation and have achieved good results. The challenge now is to maintain this lead, which will require a flexible and creative approach.
Technology in emerging markets
Emerging countries are still well behind on the adoption of old technologies and new technologies offer both challenges and opportunities. New technologies are being adopted faster in emerging markets than old technologies were, like the telephone, but the penetration rate beyond main cities is slower.
China, Nigeria, Russia, Saudi Arabia and the UAE have improved the most since 2000 on our technology achievement index (TAI), while India, Pakistan and Kenya have made little progress. However, a comparison with levels of GDP per capita suggests that Sub-Saharan African (SSA) countries are doing reasonably well, while Saudi Arabia, UAE and Nigeria lag in relation to GDP per capita, reflecting their oil wealth.
Technology is opening up services to rapid productivity growth and for export opportunities, especially in finance and business services. For emerging markets such as India and Vietnam, this is a promising new source of growth.
Robotics, 3D printing and smart AI will challenge the EM advantage in low cost manufacturing and services eventually. But mobile, the ‘Internet of things’, cheaper broadband and better video-conferencing including virtual reality will support the further expansion of global value chains for the next decade at least. Fast-growing EM economies can incorporate the latest technology in buildings and processes, giving them an advantage over older countries.
EM economies can sometimes leapfrog; mobile replacing branch networks, internet shopping replacing shops, or drones for delivery instead of better roads. Digital and other new technologies such as renewable energy and nanotechnology provide optimism that global resource constraints can be hurdled and that development will be sustainable in the long term.
John Calverley, Head of Economic Research, commented: “For both developed markets and especially for emerging markets the adoption of new technology is more important than new invention. Just because something is technically possible does not mean it will be widely adopted. Otherwise we might all have our own personal helicopter by now. Adoption is a function of usefulness, price and practicality and is often held back by labour and product-market inflexibility, which are more important than ever.
“For emerging markets we have emphasised the importance of adopting both old and new technologies. Without doubt the new technologies are raising awareness in emerging markets and making it easier to adopt technology. There is still no substitute for the broad development-oriented policies that have allowed successful countries to move from low to middle income and for some to go on and beat the middle-income trap. There is also no substitute for education, to tap into new technologies.”
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For further information please contact:
Shaun Gamble
Senior Manager, External Communications
Standard Chartered Bank
+44 20 7885 5934
shaun.gamble@sc.com
John Calverley
Head of Economic Research
Standard Chartered Bank
+1 905 534 0763
john.calverley@sc.com