Disruptive technologies

A new report from McKinsey Global Institute talks about the potential impact of new, disruptive technologies which are already being developed. They identify 12 technologies that are most likely to have the strongest impact on the global economy, with respect to their benefits and challenges: 
Potential economic impacts of new technologies
Source: McKinsey Global Institute Report
"We estimate that, together, applications of the 12 technologies discussed in the report could have a potential economic impact between $14 trillion and $33 trillion a year in 2025. This estimate is neither predictive nor comprehensive. It is based on an in-depth analysis of key potential applications and the value they could create in a number of ways, including the consumer surplus that arises from better products, lower prices, a cleaner environment, and better health."
The crucial point is that all of these technologies are already known to us. They aren't fictional or unimaginable, they already exist in early stages of development, and by estimating their rates of progress, one can easily predict their impact over the next 10-12 years. 

The technologies are the following: 

1. Mobile Internet
2. Automation of knowledge work: intelligent software that can perform complex knowledge tasks (think of the impact on the labour market - both positive and negative)
3. Internet of Things: low cost sensors for data collection, monitoring and process optimization (think of the current US surveillance scandal
4. Cloud technology (iCloud; soon we'll be able to use advanced software and hardware (!) over the internet)
5. Advanced robotics: for performing delicate tasks - such as surgery for example
6. Autonomous vehicles (Google driverless car has already completed 500 000km accident-free)
7. Next generation genomics: low-cost gene sequencing; great potential in the health industry, in improving diagnostics and treatments, but also in agriculture and in the creation of high-value substances like ethanol or biodiesel from E.coli bacteria. 
8. Energy storage: new types of batteries that store substantive amounts of energy; can be used to power consumer electronics (cell phones, laptops, cooking appliances, TVs, etc.) or even electric vehicles (even by making them more affordable). This even has potential to make electricity more affordable in developing countries. 
9. 3D Printing: my personal favourite (creating objects by "printing" digital layers of material). Perhaps not in the next 10 years, but more likely 50 years is this technology going to reap its biggest rewards. I predict this to be the peak of the Third Industrial Revolution. 
10. Advanced materials: materials of higher strength, durability, conductivity; nanomaterials which are self-repairing or self-cleaning (think of our clothes as being self-cleaning - a clear example of a disruptive technology on the washing machine manufacturers and dry cleaning businesses)
11. Advanced oil and gas exploration and recovery: (fracking and shale gas - it could restore the US as the leading world oil exporter)
12. Renewable energy: the constant quest for endless source of power; a very popular and vastly misinterpreted issue; this one is suppose to surpass the previous one, however not very likely in the next 10 years, but in a much longer time span. The estimate is that the costs will decrease by 85% while capacity will increase by 19 times. 

Some of the economic estimates for these technologies are off the charts. For example the mobile internet technology is suppose to cut down 70% of global employment costs (in terms of transaction costs), which is estimated to be worth an astonishing $25 trillion. The effect on GDP related to mobile internet is estimated to be 1.7 trillion. Automation of work is likely to bring in around $9 trillion, internet of things in terms of operating costs in industries like mining or manufacturing is to bring $36 trillion, advanced robotics around $6 trillion, while next generation genomics is suppose to cut global health-care costs by $6.5 trillion. The autonomous vehicle is estimated to bring $4 trillion in revenue to automobile industries, energy storage around $2.5 trillion, cloud technology $3 trillion, fracking and renewables each around $3.5 trillion, while 3D printing is estimated to bring in $11 of global manufacturing GDP. The estimates are total sums across the next 12 years, and are all global.  

There were also a couple of technologies they didn't include but that almost made the list simply because they are unlikely to disrupt the global economy in the next decade. These are nuclear fission, fusion power (even more potential than fission and all the renewable energies we can think of), carbon sequestration (capturing and hence reducing CO2 in the atmosphere), advanced water purification, and quantum computing. Their time is yet to come. 

These technologies reminded me of an excellent book by a brilliant physicist Michio Kaku, "Physics of the Future", where he tries to paint the picture of how the world would look in 2100, based purely on which technologies we have already started developing and researching, thus predicting the speed of their development. The one that the McKinsey report doesn't mention and which I find particularly intriguing is magnetic technology (which is understandable since Kaku predicts that not until 2070 will we be able to use this technology commercially). To anyone interested in technology and popular physics I recommend this fascinating book. 

Don't be afraid of the light 

The report doesn't disregard the challenges however, it emphasizes that they are tremendous. They even stressed out several principles to help businesses and governments plan and adapt to the effects of disruptive technologies. The dramatic change in the current status quo can even lead to a change in the comparative advantages of some nations. This is both a challenge and an opportunity for some developing nations to take advantage of. In terms of job losses they will most certainly be significant in the industries which will experience the biggest direct impact (like manufacturing and automated work). But this is a clear signal that the society should adapt to the new era of human development; an era based on innovation and ideas, not old technologies of massive industrialization. Just like industrialization has changed the patterns of labour market specialization from agriculture to industry, so should the new industrial revolution change the pattern of specialization from industry to innovation and technology. 

The standard argument against it is: "not everyone is suitable to work in IT, finance or services, we need to have people working in production and industry - this is, after all, the main driver of exports and hence economic growth". So was agriculture in the pre-industrial revolution era. People at the time simply couldn't grasp all the potential benefits the future generations could achieve (and I'm not talking about the modern society either, I'm talking about a single generational change back in the 18th century). We have the same problem now. Most people aren't visionaries (neither am I). People base their anticipations on what they see around them (which is often very narrow). A natural response to massive job losses in manufacturing is to blame it all on "neoliberalism" or some other culprit they can think of. But all it takes is to look at the bigger picture. As industry slowly but steadily surpassed agriculture 200 years ago, a lot of people changed their line of work. Today in the West we have a very small amount of people employed in agriculture. And yet these 3% or 4% of the population are able to produce enough food to feed the rest of us. The same thing will happen to industry a few decades from now. A very small number of people will be able to produce enough goods to keep the demand of the society satisfied. The rest will be able to fulfill their potential in a variety of different lines of work; the change in their incentives and career paths will happen in their childhood. Unlike their parents they will have a much wider set of choices to choose from. And that's the technological progress I'm looking forward to. 


  1. Vuk, nothing to comment here – good stuff as usually on your blog. But, look at today's Martin Masse post at von Mises: Is “Austerity” Responsible for the Crisis in Europe?
    I think, that is a smoking gun to disapprove Keynesians on Europe's ”austerity”, as a cause of recession.

    1. Thanks!
      Great text, the crucial issue Keynesians can't seem to shake off is the initial cause of high deficits and ballooning debt. They persistently blame it on the crisis. The argument is that with more companies going under and more people loosing jobs, this has created downward pressure on revenues and upward pressure on expenditures - this is certainly true but it's only a fragment of the whole story. The biggest reason behind a huge and immediate increase of debts and deficits are bank bailouts and fiscal stimuli (I wrote about this for the ASI, and on the blog several times - as well as the paradox of austerity and the way it's being conducted in Europe). Thanks again for the text

  2. I am investing heavily in 3d printing companies. I don't see the horizon as far away as you do. They will be making a big global impact within 7-12 years.

    1. That's a very good investment decision. If anything the returns in the toy industry should come along quite soon

  3. I just found your site and wanted to say that I have really enjoyed browsing your posts.In any case I'll be subscribing to your blog and I hope you post again soon

  4. Thanks for taking the time to discuss this, I feel strongly that love and read more on this topic. If possible, such as gain knowledge, would you mind updating your blog with additional information? It is very useful for me.


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