Thursday, June 14, 2012

The End of Stuff

Ever since the industrial revolution, the world economy has grown by producing more, better, and cheaper goods and services. Because we produce more efficiently, we spend fewer resources on need-to-haves and are able to buy more nice-to-haves. The current recession, or depression, interrupted the increase in material prosperity for many, but the long-term trend of increasing efficiency continued and, perhaps, accelerated.

The major driver of efficiency in the industrial and service economy was information technology. In the last fifty years, we streamlined production, warehouses, transportation, logistics, retailing, marketing, accounting, and management. Travel agents were replaced by web sites. Telephone operators all but disappeared. Even financial management, tax preparation, and legal advice were partially automated. Lately, this efficiency evolution has shifted into hyperdrive with a new phenomenon: information technology replacing physical goods. Instead of producing goods more efficiently, we are not producing them at all and replacing them with lines of code.

It started with music, where bit streams replaced CDs. Photography, video, and books followed. Smartphone apps have replaced or may replace alarm clocks, watches, timers, cameras, voice recorders, road maps, agendas, planners, handheld game devices, etc. Before long, apps will replace keys to our houses and cars. They will replace ID cards, driver licenses, credit cards, and membership cards. As our smart phones replace everything in our wallet and the wallet itself, they will also replace ATMs. Tablet computers are replacing the briefcase and its contents. Soon, Google Glass may improve upon phone and tablet functionality and replace both. If not Google Glass, another product will. Desk phones and the analog phone network are on their unavoidable decline into oblivion.

The paperless office has been imminent since the seventies, always just out of reach. But technology and people's attitudes have now converged to a point where the paperless office is practical and feasible, even desirable. We may never eliminate print entirely, but the number of printers will eventually start declining. As printers go, so will copiers. Electronic receipts will, eventually, kill the small thermal printers deployed in stores and restaurants everywhere. Inexplicably, faxes still exist, but their days are numbered.

New generations of managers will be more comfortable with the distributed office and telecommuting. Video conferencing is steadily growing. Distance teaching is poised to explode with Massive Open Online Courses. All of these trends will reduce our need for transportation, particularly mass transportation used for daily commuting, and for offices and classrooms.

Self-driving cars are about to hit the market in a few years. Initially, self-driving will be a nice-to-have add-on option to a traditional car. The far more interesting prospect is the development of a new form of mass transit. Order a car from your smartphone, and it shows up wherever and whenever you need it. Suddenly, car sharing is easy. It may even be more convenient than a personal car: never look for (and pay for) a parking space again.

When this technology kicks in, it will reduce our need for personal cars. Imagine the multiplier effect of two- and three-car households reducing their number of cars by one: fewer car dealerships, car mechanics, gas stations, parking garages, etc. With fewer accidents, we need fewer body shops. Self-driving cars do not need traffic signs, perhaps not even traffic lights.

Brick-and-mortar stores already find it difficult to compete with online retailers. How will they fare when door-to-door mail and package delivery is fully automated without a driver? (The thought of self-driving trucks barreling down the highway scares me, but they may turn out to be the safer alternative.) With fewer stores and malls, how will the construction industry and building-maintenance services sector fare?

Cloud computing makes it easy and convenient to share computers. Xbox consoles will not be replaced by another must-have box, but by multiplayer games that run in the cloud. When companies move their enterprise systems to the cloud, they immediately reduce the number of servers through sharing. Over time, cloud computing will drastically reduce the number of company-owned desktop, notebook, and tablet computers. Instead, employees will use their personal access devices to access corporate information stored and protected in the cloud.

Perhaps, a new class of physical products that will change the manufacturing equation is about to be discovered. Perhaps, we will hang on to obsolete technology like faxes longer than expected. But right now, the overall trend seems inescapable: we are getting rid of a lot of products, and we are dis-intermediating a lot of services.

For the skeptical, it is easy to dismiss these examples are mere speculative anecdotes that will not amount to anything substantial. Yet, these new technologies are not pie-in-the-sky. They already exist now and will be operational soon. Moreover, the affected industries represent large segments of the economy and have a significant multiplier effect on the rest of the economy.

From an environmental point of view, this is all good news. Economically, we may become poorer in a material sense, yet improve our standard of living. Disruption like this always produces collateral damage. To reduce the severity of the transition problems, our best course of action may be to help others. Developing nations desperately need to grow their material wealth. They need more goods and services. Investing in these nations now and expanding their prosperity could be our best strategy to survive the transition.