GDP will no longer measure wealth
The GDP is a monetary measured value of what is produced in a country or region, which is calculated annually. It does not therefore consider the consumer's surplus. Never before in the history of mankind had it happened that the consumer surplus in any product or service could be 100% orf the price - that is, you no longer pay for things you used to pay for. That is something that is coming with the Internet Economy, but not only with the Internet Economy.
When you buy a smartphone today you get all that is anounced in this 1991 Radio Shack ad plus a lot of things which were not available in Radio Shack at that time - like a GPS - and things which were available but not in the Radio Shack Ad - such as video games, books from authors over a century old, ongoing education in the best Universities, newspapers, magazines, and a long list. Most of these products had to be manufactured bt different vendors. All were offered in a paying basis. Therefore, all of them were accounted for in the GDP. But when the iPhone was launched, they became digital, and many of them became free.
Was there a destruction of GDP? Are we poorer because we don´t have those products and services in a tangible way? Clearly not. We are better off than previously. Yet, all that is left in the GDP are the manufactured smartphone and the payment for the service by the telecom company. And this has happened in just 8 years! Most of the value which no longer is accounted for in the GDP is now consumer surplus, with better products and better quality of life. The amount of new products and services which will get digitized is amazing. It will affect corporations, governments, education, health, finances.
Where did all that value go? How is it posible that it is so less expensive yet it is profitable to produce and give away or sell for a very small price? The answer lies in digital tecnologies, which are able to produce the same goods and services at a fraction of what until now it cost. Products and services change their nature: they digitize, becoming intangible. New products and services give far better answer to consumer needs than their tangible versions did.
In another Mc Kinsey paper, dated 2010, (Internet matters: The Net's sweeping impact on growth, jobs, and prosperity) it shows how the Internet Economy is by far the most vigorous in the Planet, growing in two digits every year, already surpassing the size of the economy of Canada (in les than 20 years), and creating 2.6 jobs per each one it destroys. The measurable GDP is in the development of theses productos and services which paradoxically can give bigger wealth while at the same time cost a lot less, because digital technologies have allowed an exponential cost reduction and have created a huge market of over 3 billion people. Therefore, the GDP does not measure the quality of wealth, and it might happen that a country with a lower GDP per capita has access to better products and services than one with a bigger GDP per capita.
All twelve technologies have one thing in common: they are able to deliver far better and cheaper products and services than the previous existing ones. They are disruptive because of that feature: a lot more value at a lot less cost.
This means costs in education, health, energy, agricuture, mining, transportation, buiding, electronics, financial services, media, labs, and a long aditional list will come down - in many cases, substantially - thanks to technologies such as automatization of knowledge work (thanks to AI), Internet of Things (efficient use of water and energy, remote heath), advanced robotics (manufactiring costs reductions, mines without miners, surgery), autonomous and semi-autonomous vehicles (driverless transportation), next generation genomics (desease treatment, crop betterment), advanced materials (nanomedicine, energy storage, improved chemicals) or renewable alternative energy (distributed electricity). AI will replace high cost knowledge works as well as more rutinary work. Last year an investment firm from Hong Kong hired an algorythm as Member of the Board. Why? It makes better investment decisions than all the rest of the Board combined.
Dependent work is replaced by independent work, and rutinary tasks in every job are taken away from job profile
The Industrial Society created massive dependent work because the center of the activity was in the factory, and in order to make it work workers had to be there. In order to coordinate the work to be done, jobs were created with specific tasks to be done once and again, in the premises. Therefore the employee had to be in a physical space to follow orders from a boss.
As more tasks that have to be in person are automatized, employees are no longer needed in the premises. New technologies, on the other hand, are each time bringing more task specialization, which makes it uneconomic to hire somebody full time for a very concrete task. It becomes therefore more logical to hire specialists in a part time basis, or even in a per-task basis. Self employment has been increasing steadlily and will continue to do so, while traditional employment will decrease, as employers need more of the specific skills of a profesional than his or her time at premises.
The automatization of tasks will also mean the creation of new job profiles. The 6 jobs that most grew in 2010 did not exist in 2004. In yet another Mc Kinsey Paper ("Help wanted: The future of work in advanced economies") that is the conclusion: new technologies are changing the nature of dependent work. As new activities are
se concluye en los mismos términos: las tecnologías están cambiando la naturaleza del trabajo. To the extent that companies are redefining how and where different activities are held, they require new skills and new employer-employee relations.
Despite high unemployment rates, employers are finding it difficult to hire workers with the skills required today. Globalization is allowing these companies access to talent at lower costs, but also to a growing need for more skilled workers. The less skilled jobs are disappearing due to automation. The jobs created in the manufacturing sector for example, have more to do with research and development, product design, engineering, and marketing. They are "disaggregating" jobs, separating routine activities that do not require high qualifications, which are automated or reassigned to specialized workers (p. 3 "Help Wanted...").
There will be massive value transfers from traditional industries towards emerging industries, as well as towards consumer surplus
Kodak consumers decided they wanted pictures to share with friends and family, at any time, from anywhere, instantly. Therefore, they ran away from photo albums into instant sharing directly from their smartphone to their accounts in Instagram or Facebook. And Kodak went bakrupt. Skype owns already 33% or total international calls. True, it has not lead to any telecomunications company's bankrupt, and the total amount of international calls has grown for them as well. But the amount of money people have earned - or the services they have been able to acquire which were unaffordable not long ago - has been enormous. The amount of newspapers which have had to close worldwide due to withdrawal of advetising has been growing each year. In every case, the new product or service comes about faster, better, and much cheaper than the former one.
Music, Movies, tourism, retail, editorials, or banking are also experiencing a big impact in their activities and their incomes. Next in line are education, health, mining, biology, chemistry, construction, energy, transportation, insurance, government services, and a long list. Everywhere the same pattern will repeat: activities which were done inside the organization are automatized or outsourced. Goods which used to be tangible become intangible or transform their nature. Work becomes liquid and can be accessed globally.
New technologies are creating a new Society with a new role for the State, the Academy and the people
To manage this new "techno-economy" will require very talented, and very specialized people. It is not clear that the current system of higher education makes sense in that context. On the one hand, it will require people trained with new skills and competencies which might change continuously and very quickly. The system of accreditation of skills in the current model, aimed at certifying certain skills and knowledge by a monopoly (University) and attesting that someone is "physician", "engineer" or "architect" should give way to an accreditation per each competence, which may or may not be done by a University. People may therefore create a customized education that fits their particular talents and affinities, taking a huge leap in return on talent, which will enhance the productivity improvement discussed above.
The very notion of nation-state was generated for a world whose social cohesion laid and was strongly tied around territoriality. Internet is destroying borders, not only in relation to economic activities, but also socially. It is emerging awareness of global belonging, although it appears virtually. An increasing number of activities are outside the borders of the nation and the state, and therefore outside the "social contract" by which people transferred sovereignty to the state. This poses an enormous challenge to the true role of the state in the 21st century. It may be behind the riots that have exploded in well developed countries around the world.
The Society is "flattening" strongly. Equal access to information of all kinds allows ordinary people to question everything, with good arguments. New technologies have moved closer the rulers to the ruled, but paradoxically this has taken away power to the rulers, and they are subject to greater public scrutiny. It will require real leaders politically in the future. People who are able to inspire and move toward shared goals for all, many of which the governed do not even know they need. Otherwise the social fabric, to the extent that the governed have more power, can crack and fall in anarchy.
Public policies should take over the new challenges. Just as in the 20th century the priority was the industrial development of nations, in the 21st century it will be the development and efficient allocation of talents of the nation.
Politics itself will undergo a change. The traditional right/left axle as it has existed throughout the 20th century becomes meaningless. Internet, for example, works with many of the values traditionally defended by the right (personal effort, enterprise, private enterprise value) but also realizes many aspirations of the left (especially the equality: within the network are all equal ). And the state, almost does not exist ... except for errands and taxing Online
Economists - and employers - will have to learn how to measure what today is not measured
Economics and business administration has evolved a lot since the industrial revolution began. But this development has stagnated for some time. We have been able to measure most tangible resources that interven in the value creation. But what is happening with the emergence of knowledge as a factor of production and productivity is that our measurable variables no longer fully explain the macro and microeconomic phenomena. The massive incorporation of new technologies will make it more apparent that there are not measured factors that are key to the management - whether of the economy or a business.
"Ceteris paribus" as economists say, between two nations with the same infrastructure and capital stock the one with bigger creativity will be more competitive. And how do we measure creativity? How do we measure talent?
It has been a while since Balance sheets do not take account of he real value of the companies, specially those who are more innovative. Inside a sector, there might be two companies with very similar Balance Sheet, and yet one of them has a far bigger market capitalization. That intelectual or creative capital is not in the Balance Sheet, yet it is by far the biggest assest of the company.
There are emerging countries whose economies have grown more than countries with bigger natural resources, due to their investment in human capital. As talent becomes "the" relevant factor for economic development and value creation, it will be necessary to measure it in economic numbers, both in corporations as in economies. Not doing so will lead to bad decisions, taken with insufficient information, that does not explain value creation.
Challenges to Countries of Latin America
Latin American society is strongly hierarchical, so the "flattening" described above will affect it much. Its economy is based primarily on tangible goods, while the value creation will come from the side of the intangibles - destroying many jobs that are today mainly linked to tangible goods and services. There is no culture of development or talent retention. In short, they are poorly prepared for the challenges of the 21st century. What is worse, there is no awareness at all of the challenges of the 21st century. It still lives in the 20th century, searching to become developed under the paradigms of the old industrial society. Faced with the phenomena of the digital economy, it thinks it's just a minor change in the rules of gthe game, and what is changing is the game itself.
There is also a historical fact: all the countries in the region were created in the early 19th century, in the wing of the French revolution and the industrial revolution. The whole region was late to the Industrial Revolution, and no country was able to or could become a developed country. Asian countries that were outside the industrial revolution, like South Korea, succeeded. No public policy or economic policy allowed to enter any country in Latin America to the group of developed countries.
There is another historical fact: never in the republican history of Latin American has any country been in a change of era, as happened with European countries or the ancient Asian countries. This is the first time. Now there is a second chance to achieve development. The Latin American people has historically been very clever, and that is an asset of the 21st century. But if that ingenuity is not channeled towards the development of talent, it will miss the train of progress, as has happened in the last 200 years.
Alfredo Barriga
Digital Strategist
