Tag Archives: digitalization

Economic Backdrop Technology for 2017

Backpedaling of Globalization (Part 1)

OrionX provides research into IT market sectors with a focus on AI, Big Data, HPC, Data Center, and IoT sectors. We see these as highly inter-related. We also seek to understand the economic environment that affects investment into IT sectors, and how these key IT sectors affect our economy and our world more generally in our current Information Age. This article is the first of two on the economic backdrop facing IT vendors and consumers.

Fundamentally, the main backdrop to global economies is digitization and the acceleration of the Information Age. While this naturally bodes well for the IT industry, it requires visionary and effective policies, investments, and regulations. Digitization promotes globalization. It also promotes automation. To understand how this will truly impact IT we need to take a deeper look at the interplay of digitization and global economic forces.

The last great era of globalization, during the Industrial Age, was powered by fast transportation with steamships and railroads at the end of the 19th century. And instantaneous communication was enabled with the invention of the telegraph and telephone. These technologies were key to the Industrial Age.

Scheduled Airline Traffic 2009, Credit: Jpatakol, CC BY-SA 3.0

Now, thanks to the rapid advances of semiconductor technology — doubling in power every two years in accordance with Moore’s law — we are in the Information Age. Fast networks, rapid data processing, and vast pools of storage are the foundational technologies supporting global supply chains, offshoring, and collaborative business across international boundaries. Information Age technologies have not only led us to the Internet, but to Smartphones, Social Media, Big Data, Artificial Intelligence and the Internet of Things.

The power of digitization has done more than give birth to new technologies — these technologies have caused realignment in politics, in economics, and in the world order. The Information Age has also given us the Euro, arguably hastened the demise of the Soviet Union, allowed India to regain historical prominence and enabled China to become an economic powerhouse — lifting hundreds of millions out of poverty. And on the other side of the coin, technology is also being used by governments to limit freedom of expression and was critical to the creation of the massive deregulated debt that led to the Great Recession at the end of the last decade.

These changes during this Information Age and the bulk of this globalization wave have all happened primarily within the space of a single generation, during just the last three decades. The pace has been accelerating with data and information doubling every couple of years. OrionX believes that there was more technological progress in the first part of this century than in the entire 20th century. Disruption and dislocations have been part of the game, with the old industrial models of large national enterprises, lifetime employment, and secure pensions collapsing during the last twenty years. And the pace continues to accelerate.

The postwar world order was not designed around the Information Age. Indeed, the concept of the nation-state that has predominated over the last few centuries was not designed with the Information Age in mind. This new era of globalization has decreased dependency on individual nations’ infrastructure, enabling worldwide sourcing. Many adventurous people from overseas have travelled to the US and other Western nations to study and then have gone on to create new enterprises in their host countries. World class teams can be quickly assembled across national boundaries. Although globalization has brought many of us together across these boundaries (and this is especially true in our IT community), it has also sharpened cultural differences and led to new and renewed conflicts, most notably between radical Islamists and the West, but also within Western institutions and nations as well.

Artificial Intelligence as the premier technology

AI is the killer application domain going forward. While it has been around as a research activity for over half a century it is now coming into widespread ‘industrial scale’ use due to advances in machine learning capabilities that are in turn enabled by fast hardware and Big Data. It is key to robotics and to drones. It is not only displacing workers in manufacturing but is beginning to upend knowledge work in many fields. It will be disruptive — both positively and negatively — in ways we cannot yet imagine.

Credit decisions, employment screening, health monitoring and diagnosis, matchmaking, advertising choices and copywriting, movie scripts, assisted shopping and travel planning are just a few examples of consumer oriented applications that are happening today. And we have not yet mentioned the “auto-automobile” or self-driving cars. As this technology rolls out it will drastically change our lifestyles, including commuting, and it will overturn the automotive insurance and parking industries. Many lives will be saved, most traffic jams eliminated, and insurance losses will drop by an order of magnitude.

Warfare is headed toward increasing utilization of drones and robotics. While today these systems have humans in the loop, fully autonomous systems are being researched by many nations. “There is absolutely an arms race in autonomous systems underway” says John Arquilla, professor at the U.S. Naval Postgraduate School. The substitution of robots for soldiers on the battlefield has the potential to save many lives, for both combatants and civilians. Conversely, it also presents the possibility for terrorizing civilian populations, as has already been imagined in many films.

Cyberwarfare is taking off and presents many challenges, with nations attempting to reach some sort of accommodation regarding what types of peacetime cyber snooping are ‘acceptable’. In a real war, the cyber battlefield will be the first locus of engagement in the effort to take down the opponents’ information-gathering capability and elements of their military and civilian infrastructure. Notably, cyberwarfare techniques are now actively being used to interfere in elections.


World Bank protest, Jakarta, Credit: Jonathon McIntosh, CC BY 2.0

Every business function can be disintermediated, resulting in significant dislocation. Now we are experiencing a clear backlash against aspects of globalization in the developed world, primarily in Europe and North America. Those who found security in the industrial world have lost jobs and pensions. Good manufacturing jobs in the U.S. moved to China, or Mexico, or in the case of Southern Europe, were lost to German efficiency (including their openness to immigration), and the loss of some national sovereignty due to the Euro and common European Union regulation.

Nationalism is on the rise. The trend toward freer trade has halted and is headed in reverse. In the UK, which had stayed out of the Euro, the decision to fully depart the European Union was made by the voters, shocking the political establishment. Nationalist and populist candidates are polling strongly in Italy and France. Europe is still experiencing a banking crisis, exacerbated by the contradictions of the Eurozone. Austere policies and debt overhang have intensified the dislocations from the Information Age.

And in the US, a populist real estate mogul has conquered the Republican party and won the Presidency. He appealed to displaced workers with his nationalistic policies on trade and immigration, which are now being rolled out. Isolationism and the trend towards made in America are increasing, or at least there is an impetus toward more tariffs and more restricted trade deals.

President Trump is on a mission to bring manufacturing back from China, Mexico and other locales. Most of this is permanently lost, much more of it to automation (80% say two economists from Ball State University) than to offshoring, but what happens at the margins matters.

The trend with globalization had been toward larger trading blocs and deals, with the Eurozone as a single market as the exemplar and with proposals such as the presumably dead-on-arrival Trans-Pacific Partnership. Now the direction in the US and the UK is toward one-on-one negotiations with individual nations.

In the next article of this two-part series we will explore the outlook for 2017 in the different major global economic regions: North America, Europe, and Asia.