The innovation age

As we’ve noted for some time there are some big forces in play that are increasingly changing the way our economies work. None more so than the rise of technology and in particular, robots and artificial intelligence. The threat is not necessarily the technology itself, but how we handle the implications and the speed of disruption on our traditional economic systems.

Technology led deflation is not often discussed yet it’s everywhere around us. On the surface (the stuff you actually see) is renewable energy, powerful batteries, electric cars, driverless cars, smart phones, gigabit speed internet, the sharing economy, UBER, peer-to-peer lending, online shopping and delivery drones. In September, UBER launched its first driverless car trail in Pittsburgh. Google is launching self-driving mini-vans this month. How long before you can rent your driverless electric car through UBER in the same vein as Air B&B? The number of our clients talking about putting their holiday rentals (or even their city apartments) on Air B&B is staggering. The iPhone is only 10 years old (this year) and already carries up to 256 GB of storage. The thought of video conferencing on a small handheld device was a pipe-dream only 10 years ago.

Technology will lift the third world out of poverty. Within the next decade there will be near-free internet for the whole planet. Elon Musk (SpaceX), Google, and Facebook all have plans to put up global satellite or solar drone networks. People will be able to use artificial intelligence and diagnose a number of illness over their smart phone. Education is increasingly delivered globally via the internet. Imagine the power of 6 billion people connected and able to leverage our collective knowledge. What does that mean for political systems, particularly those that try to repress and control their populations? What does it mean for governments generally?

Technology is also about materials. Graphene for example is a carbon material that is one atom thick and 10 times stronger than steel. It holds a range of properties that might be applied to LED’s, solar cells, phones, energy storage, nano-computing, 3D printing and engineered composites to replace steel. Also, it’s the sixth most common element in the universe so no supply shortages. Then there is the cross-over between nano-robotics, organic engineering, genetic research and artificial intelligence that collectively will transform medicine. Within the next decade it is becoming a distinct possibility that we will see artificial intelligence predicting/detecting cancer very early, and nano-technology capable of reprogramming cancer cells. Innovation is occurring at a mind blowing rate, but most of it now flies under the mainstream radar. Our news is preoccupied with attention grabbing sound bites. What are the economic implications and how do these play out? Technology will help us keep medical inflation under control especially amongst an older population. The relationship between the age of a population and productivity should decrease and take pressure off immigration. The future requires less people. Arguably, breeding won’t drive economic prosperity. People will live longer and better. It’s scary to think what human life-expectancy could look like once we can control our bodies at a molecular level. What does that mean for superannuation?

We won’t need to own cars so will need less of them. How many cars sit dormant during the day? The cost of owning a car and driving to work each day is between $22-$32 ignoring the productivity lost from sitting in traffic. The amount of capital freed up by the sharing economy and moving away from fossil fuels is mind-boggling. Call centres won’t exist and will be replaced by artificial intelligence concierge systems. Medial tasks will be undertaken by computers and robots.

The whole way cities operate could potentially change. How many more of us partially work from home and does the normal 9-5 job exist outside of corporates? In an increasingly online world, what is the value of malls and the high street?

Economies of scale will drive down prices in an increasingly borderless world. Think online shopping and how much of our media including TV and music is consumed online. When is the last time you bought a CD or rented a video? Lower fuel costs, lighter planes, improved technology and better utilisation means it costs the same to travel to London now as it did 20 years ago, yet inflation over the same period is close to 50%. It also makes global logistics faster and cheaper, and that’s without talking about drones. Incidentally, Amazon is currently scouting Australia to put its first warehouse into our part of the world. Technology is driving lower barriers to entry. You could argue this one with online shopping and especially as artificial intelligence systems make it easier to scan the web to find the right product at the right price.

What we are doing at Squirrel Money is naturally my favourite example. Banks make $5 billion in profits in NZ, and for the most part have been untouchable. At Squirrel Money we have built an entire lending and deposit platform from scratch on the Microsoft cloud network (Azure) for less than $500,000 with four developers in 12 months. Any large corporate would spend that simply writing the business case. Sure, Squirrel Money is still in its infancy but what are the implications of this low cost innovation over the next decade for the big banks?

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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