de Vasconcelos: So what will the Third Industrial Revolution impact the most?
Brown: Eventually everything, but the early movers have been USA-led computing, IT, internet companies and social media sites, which have grown to global behemoths faster than ever in history. These in turn have driven biotechnology as the genome at last begins to impact. Both went through a hype phase in the 1990s, then a bust, then the real winners emerged. That is a typical pattern over the initial 15-20 years of a breakthrough technology. Solar power has been driven mainly by Germany and more recently China, though the USA is catching up fast. Current solar systems have only 10-20% efficiency in sunlight capture but new materials will take this into the 50-100% range very soon now. And battery storage technology is advancing rapidly. Additive manufacturing (aka 3D printing) will replace our old material and energy-wasteful methods. Robotics is beginning to spread out of factories with Japan, Germany and China leading the charge, though expect the USA to catch up and contribute to innovation. Nanotechnology will mature in the 2020s. The Internet-of-Things is a few years away, and it will probably drive the next phase of healthcare advances, but needs more stable internet, better security and cheaper components before it can take off. And machine learning /AI will be a game-changer for humanity, beginning to impact within the next decade. The new finance is now appearing through Africa-led mPesa, followed by Google GOOGL +0.55%-wallet and Apple-pay etc. The US internet giants are registering as banks, they have very cheap infrastructure and billion-size customer bases and are likely to challenge patriarchs of the current financial system. There is much innovation in finance in the UK too. We see positive deflation all over the world as a result of these lower-cost and more-efficient solutions to human needs.
de Vasconcelos: So where are we in the Third Industrial Revolution?
Brown: Industrial revolutions take decades to play out. We have barely started in this one. Remember that the first and second Industrial Revolutions involved only Western Europe and its off-shoots, whereas this one is truly global. And online education is available to everyone for the first time ever. OECD projections indicate the world will become about 10 times wealthier during this century, and these advances certainly support their case. Exciting times!
David Brown is assessing the current economic outlook in the context of two previous industrial revolutions. Moreover, the panoply above is certainly no less exciting or revolutionary than anything else that has occurred throughout human history, and it is occurring at a much more rapid pace.
If David Brown is right, and I believe most of the empirical evidence is on his side, then investors are standing in the foothills of what is likely to be the most economically productive period in human history. If you agree, it is important to keep this in mind because it is certainly not a consensus view. I would not worry about that.
More importantly, there are still more vociferous bears than bulls out there, alarming us about the short to medium-term prospects. From that we can at least conclude that they are underinvested rather than heavily long. Yes, there is plenty of leverage in markets but that may include a significant number of bear trades. This can produce volatility but it would be unusual to see a bear market on Wall Street or any other leading market against a background of generally accommodative monetary policies.
This too will change, and probably first in the USA among leading economies. That is a recipe for uncertainty and some choppy market action but not the crash that many fear, at least probably not in the next two or three years. An occasional crash or sharp cyclical bear market is inevitable over time. These usually occur in response to highly speculative environments which eventually invite monetary squeezes by central banks, to rein in highly speculative markets and curb inflation. We need to be aware of these occasional risks, but not at the cost of jumping at every shadow or alarmist forecast, embellished by media. I believe there are fortunes to be made by sensible long-term investors in stock markets over the next two to three decades.Back to top