In the century gone by the world saw tremendous economic growth... infact the kind of economic growth the world saw in the last century was never ever seen in the history of civilized mankind.... There are 2 main reasons for such an occurrence...
1) More areas joined the economic growth
2) But the most important reason why this happened is because of 'technology'.
The economic growth of the world can be expressed as Y= C + I + G-T+X-M, Now keeping every parameter as constant suppose we change investment I from I to I' then the economic growth of the world is (I'-I)/(1-i), where i is the 'marginal propensity to invest', similar marginal propensities could be defined for the rest of the variables.
What technology does really is change this variable of marginal propensity by bringing about a structural change and let's see how. Earlier man used communicate through letters sent through post...a long drawn affair.... Let's say I post a letter from India to US for the signature of the CEO of my company for some contract the whole process would have taken around 10 days... now such a think happens within flip of a finger!!!, OK for calculations sake I put it at 1 day... but still its 10 times more efficient....I would not be discussing the mathematics of marginal propensity in this part but in part 2, however still let me put some ballpark numbers, let's say a 100 rupees were invested in the world before this invention of email and now the marginal propensity was .2 so the GDP of the world would be 125 rupees. Now with the email as things have become much faster so the marginal propensity changes to .5 and with the same 100 rupees invested the GDP goes to 200 rupees!!!, so without spending an extra penny the world sees a higher growth....So with technology this saying is apt... ' You can have your cake and eat it too' or 'there can indeed be free lunches in the economy'. Such structural changes can be observed in locomotion with the coming of planes, markets with online shopping and trading, better roads and highways, improved productivity in agriculture and industries.
Take for example an ERP software in companies. First with a central storage and access system time is saved thus improving productivity and using them now the companies can better manage their inventories and sales thus improving their inventory turnover...so if the inventory earlier was kept in warehouse for 60 days, this period because of the use of these systems have come down to 30 days...a 50% improvement in productivity transcending into similar amount of growth....
Also now the more improvement one would find in the marginal propensity(Mp), higher would be the economic growth due to the base effect... For e.g. when Mp was .5 a 20% increase would have taken it to .6 so the GDP growth would have increased by 25%....Next with an Mp of .75 a 20% increase would take it to .9 and the GDP growth would shoot up by a whopping 150%!!!, the flip side though is that this would require a very big technology shift....
So now every big technology shift could take the economic growth of this world to a much higher orbit and so I say that we are likely to see growth rates never ever seen in the past....Based upon this let's contemplate on the technologies one can see in the future, this would also help in betting on the companies in the market.....
- The first technology that comes to mind is that of teleportation method of transport (transport at the speed of light... seems like a Star Trek fantasy!!!, I don't think so...I think this technology is quite realistic)
- Banking would totally shift from credit cards to mobile banking
- Nuclear Fusion reactors.....
- Faster computers with microprocessers not based on transistors but some other components at its core
- New agri and mining technologies that can help us cultivate in artificial environment and mine from asteroids and other planet surfaces
- Electric Storage cylinders
These are some that I can think of.... One thing is for sure though that we are in the most sweet spot of 'Wealth Creation'
1 comment:
A very insightful article ...
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