A Clear Example Of The Coming Convergence Of Technologies

Much like the overall digital economy, the European data economy is growing many times faster than the overall European economy. This is an effort that other countries and regions would do well to replicate so that they can track the value and growth of their respective ‘data economies’. For those who are not directly engaged in the field of technology, these claims might seem just that, claims. 5G technology serves as a good case study to illustrate how data can actually drive economic growth. Let us examine a few examples. 5G networks will enable the faster expansion of services that require higher bandwidths, so we can expect the growth of sectors such as telemedicine and remote education. Already, we are seeing venture capital investments grow in these sectors. Home automation systems, better crop management systems and air pollution sensors will become much more common. Rolled up, these connected devices will facilitate the penetration of autonomous vehicles and make our cities into smart cities. Information, as they say, will be economic power. 5G rollout is expected to bring significant economic benefits across the world. Technology futurists like Peter Diamandis and Steven Kotler have pointed to the coming convergence of technologies as a key trend that could shape economic growth.

Bang Your Drum

So far, technologies such as the internet, robotics or quantum computing have mostly operated independently to remove growth constraints. A clear example of the coming convergence of technologies is the Hyperloop, a new form of mass transportation system made up of tubes through which pods can travel without much air resistance and therefore achieve airline speeds. The convergence of technologies, Kotler and Diamandis argue, will help the human brain move from operating in a local, linear environment to a global and exponential environment now. But really, technology is much more than that. The field of economics has lagged in its focus on exploring the complex linkages between technology and economic growth. But increasingly, the case is being made for technology to be measured separately. In fact, economists are beginning to argue that data is also becoming a factor of production. What does this mean for nations, businesses and individuals? Accumulation of technology and data will become an asset for companies and nations, just as accumulation of capital on the balance sheet. Put differently, technology should no longer be seen as just a standalone sector or a standalone factor of production. Rather, its contagion effect on the productivity of various sectors and the other factors of production must be better appreciated. For example, the use of IoT sensors in car manufacturing would lead to greater productivity within the auto sector, and also improve the returns to capital deployed in the auto industry. Technology must therefore be leveraged widely in productive economic activity across all sectors of the economy, whether it be the production of goods or services, or even trade.

Climbing Up The Walls

This ripple down, waterfall effect can boost the nation’s economy greatly. Economists led by Joseph Schumpeter and Robert Solow have long pointed to technology and innovation as key drivers of economic growth. And that increased productivity, in turn, came from new technology that enabled new, more productive techniques of production and distribution. In fact, the Solow–Swan model demonstrated that ‘only technological progress, and not capital deepening, can sustain the growth of output per worker over the long run, offsetting diminishing returns on capital’.19 Simply put, by the twentieth century, technological advancement had become the most important factor driving economic growth, at least for the developed economies.20 In fact, capital growth and technical progress were found to account for over 75 per cent of economic growth in countries like the United States. Capital and technical progress mutually reinforce each other. The benefits of technical progress are greater the bigger the capital stock of a country, all other things being equal.22 And the greater the technological progress, the higher the returns to capital. Put simply, the more capital you have, the greater the benefits of incremental technological progress. On the one hand, this implies that countries that want technological progress will need to attract capital. On the other hand, countries that have excess capital, in their quest for higher returns, will look to deploy it in countries that are experiencing technological innovation.

Major Minus

Technology and capitalism are the new tag team in the Great Tech Game. All of this is not to say that investments and improvements in labour or human capital are not important or significant. Ultimately, technology is being developed by humans, after all. To the extent that technology and capital can facilitate the generation and diffusion of new ideas, it will also lead to greater economic growth. Again, I have seen evidence of this in the last decade. The more capital that has entered the tech ecosystem in India, the more innovative ideas have gotten generated and improved upon by entrepreneurs. This, in turn, has attracted further capital. Erik Brynjolfsson and Andrew McAfee present a very simple yet powerful example of how technology is removing constraints to growth. At that point, this was ‘the most profound time of transformation our world [had] ever seen’. Now, in the second machine age, computers and digital technologies are doing for mental power what the steam engine did for our muscle power. Computers and other technologies such as Artificial Intelligence are pushing our mental limits outwards. Removing these mental constraints is deceptively transformative. This could be a great boost for humanity. Technology actually must be used by each country smartly to remove the particular constraints it is facing in its growth journey. The set of growth constraints facing an African nation will be very different from a European nation, and therefore, it follows that the kinds of technologies that need to be developed, adopted or leveraged by an African nation will be very different. Where costs have been constraints to growth, technological innovation is also lowering the cost of doing business, in the process increasing productivity gains and driving economic growth. Fewer technicians controlling robotic systems can operate entire manufacturing plants at much lower costs than earlier. Small businesses can now much more cheaply and quickly reach potential customers from across the world.