The twin forces of scarcity & abundance part 3
Cutting each other’s hair
… continued from part 2
I distinctly remember a time when people started talking about the transition to a service economy. An Aussie friend of mine exploded in expletives as he told me how he felt: “This country is fucked. We don’t make things any more. This service economy is bullshit. What are we gonna do, cut each other’s hair?”.
I can understand where he is coming from. There’s some truth to what he was saying. But just like what news channels are incented to do, he was oversimplifying the issue.
For example, have a look at this UK Parliamentary briefing. Back in 2013, the US and China had the highest total manufacturing output at around $1.8 trillion each. China would have overtaken the US by now in terms of the value of total output produced. Sound bite: the US is fucked, China’s gonna rule the world.
But wait a minute. Looking more closely shows the US and China may have large outputs but they also have large populations. So in terms of output per head, theirs is much lower than countries like Switzerland and Germany.
China produced $1,300 worth of manufactured goods per person; for the US, it was $5,600; Germany, $8,000; and Switzerland a whopping $11,300. Roughly speaking, one could say that on the average, an American produced five times and a Swiss produced 11 times more value in manufactured goods than a mainland Chinese.
While the US and China each respectively accounted for 19% and 18% of world manufacturing: manufacturing only accounted for 12% of the US economy while it was 30% that of China’s. So one could say there is a lot more to the US economy other than manufacturing compared to that of China’s.
So there’s abundance in how manufacturing output figures can be interpreted or any statistical measure for that matter, beyond the scarcity of only thinking in nominal total values.
A new hope: bits making atoms smarter
What the figures don’t show is the elephant in the room: manufacturing is increasingly being automated. There are more and more factories with more and more machines doing the manufacturing and less and less people. I heard that there are dark factories out there that are completely dark because robots don’t need light to perform their tasks.
These dark factories can be operated 24 x 7, no sick leave, no vacation, non-stop except when there’s software glitches of course. Apparently even China is looking at replacing its army of factory workers with robots — feeling the pressure of competition amidst rising wages of workers.
Looping back to part 1 in this series: rival goods where scarcity of the good itself creates value lives in the world of atoms. For example, luxury goods like a Birkin Croco bag.
Non-rival goods where the abundance of nodes in a network creates value live in the world of 1’s and 0’s, binary digits, bits in short. For example, games sold and delivered on Steam.
The cool thing that’s happening now is that the world of bits is starting to permeate the world of atoms making them smarter and connected. In doing this, we are able to extract more value out of using less atoms.
I’m writing this in LA where I’ll be staying at an Airbnb apartment in Venice Beach. What Airbnb has done is to have bits of software in the host’s device permeate the bricks and mortar of the room she is letting out so that it could smartly connect to the bits in my device.
I can then decide if the space is right for my needs and within my budget based on my sussing out of her rental page. She can do the same to feel if I’m a desirable guest using my profile page. Even better we can both be matched on the length of time I could stay and not be locked into inflexible long term arrangements. Pretty handy in this brave new world where rapidly changing realities is fast becoming the new normal.
Even more amazing is that by making bits of software available for download from the cloud, Airbnb has significantly increased the capacity of LA to accommodate guests without moving lots of atoms in building new hotels. It allowed people with spare spaces in their houses to earn additional income and get more closely connected with their fellow humans in the process.
Airbnb created a whole new market ecosystem that wasn’t there before by simply unlocking the matching up of latent supply and demand and making it more human and personal.
I’ll probably be getting to that Airbnb by calling an Uber or a Lyft. The same principle as that of Airbnb’s only applied to transport.
These new companies are bringing the intelligence of bits to smoothen the dealings of humans between themselves and the atoms of stuff they create.
As what Marc Andressen has said: ‘software is eating the world’.
The Luddite strikes back
Yes, these advances in information technology and robotics are indeed destroying a lot of low and mid-level manufacturing jobs out there. I do feel for those whose source of livelihood stands to be obliterated by this creative destruction.
(to be continued…)
