The future global economy
BREAKTHROUGH - Elfren S. Cruz (The Philippine Star) - November 29, 2018 - 12:00am

In many ways, the world is changing faster than ever before. The internet and the digital revolution has allowed billions of people around the world to interconnect with each other. For example, viber groups have allowed people to communicate around the world in real time with just one click. E-mails and yahoo groups are rapidly being discarded and replaced by this new phenomenon. Added to this are instagram and twitter. This hyperconnectivity has allowed what has often been described as “...an almost instantaneous and frictionless spread of new ideas and innovations.”

Technology revolution

The new business phenomenon that is radically changing the world is the so-called “tech invasion.” While this is just beginning in countries like the Philippines, this technological revolution is already in full force in the more developed countries like the United States, Japan and Western Europe. It is only a matter of time before this revolution engulfs the whole world including the Philippines. 

In what way is this tech invasion changing the world? Until just a few years ago, the world’s leading companies have been industrial companies. This type of companies invested massive amounts of capital to build physical factories, malls, and shopping centers. In the United States, blue chip companies were built this way like IBM, General Electric, Walmart and Ford. Similar type of companies dominated business in other parts of the world. 

Today, the world has become dominated by “bytes”; and, for the first time data has become more valuable than physical tangible assets. The most graphic illustration of this is to look at market value of the big businesses. Five years ago, the top five publicly traded companies measured by market capitalization were the following: Apple ($416 B); Exxon ($404 B); Berkshire Hathaway ($257 B); Petro China ($255 B); Walmart ($246 B).

As of end of 1st Quarter 2018 (only five years later), the top five publicly traded companies measured by market cap were: Apple ($851 B); Alphabet ($717 B); Microsoft ($703B); Amazon ($701B); Tencent ($508 B).

According to Jeff Desjardins: “The tech invasion is leveraging connectivity, network effects, artificial intelligence, and unprecedented scale to create global platforms that are almost impossible to compete with. The tech invasion has already taken over retail and advertising – and now invading forces have their eyes set on health care, finance, manufacturing and education.

What about the future? The rate of technological change is actually becoming faster and faster. Here is what Desjardins says: “Each year brings more technological advancements than the last, and once ‘ exponential hockey stick’ kicks into overdrive, innovations could happen at blinsiding pace... Interestingly there is another offshoot of accelerating change that applies more to the  business and economic world. Not only is the speed of change getting faster, but for various reasons, markets are able to adapt to new technologies faster.

New products can achieve millions of users in just months, and the game Pokemon Go serves as an interesting case study of this potential. The game amassed 50 million users in just 19 days, which is the blink of an eye in comparison to automobile (62 years), the telephone (50 years) or credit cards (28 years). 

As new technologies are created at a faster and faster pace – and as they are adapted at record speeds by markets – it’s fair to say that the future could be coming at a breakneck speed.”

Money is evolving

For the past 3,000 years of human history, money has played a critical role. At the beginning, bartering was used to buy goods and services. As man began  to domesticate animals, cattle, sheep and grain were used as a form of money. The first known currency was created by King Alyattes in Lydia (now Turkey) in 600 BC. Coins then evolved into bank notes around 1661 AD. The first credit card was introduced in 1946.

Today, the definition of money is again undergoing change. For example, central banks all over the world have created trillions of dollars of currency out of thin air since the financial CRISIS. This is radically different from the earliest days when the value of the currency – cattle, sheep, grain. etc – was tangible. 

Governments and people are borrowing record amounts of money. The world has now amassed an estimated $247 trillion in debt, including $63 trillion borrowed by central governments. The United States has the biggest share (31.8%) of global debt. Central banks in some countries (Swede, Japan, Switzerland) are lending out money at negative interest rates.

Perhaps the biggest revolution in money is the use of blockchain technology to create personal competing cryptocurrency in just a few clicks. These cryptocurrencies like Bitcoin are estimated to be collectively worth over $200 billion. The perception of money, in whatever new form takes will be a major factor in shaping the future.

Demographic shifts

The shift in global demographics will reshape the global economy. There will be two major changes in population patterns. First, in Western countries, Japan and China, populations will stabilize due to fertility rates. Any increase in population will come from immigration. Africa and parts of Asia, like the Philippines, will continue to experience booming population increase and rapid urbanization which will translate into growth of megacities, with up to 50 million people.  

Metro Manila is expected to be one of the 20 largest global cities in terms of population. It will retain this position for the next five decades.

I have discussed, very  briefly, three of the major forces that will affect the global economy in the near future. If the Philippines is not prepared for these changes, this country will remain as a poor, underdeveloped nation for the next five decades. 

Creative writing classes for kids and teens

Young Writers’ Hangout on December 1 and 8 (1:30pm-3pm; stand-alone sessions) at Fully Booked BGC. For details and registration,  email writethingsph@gmail.com.

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Email: elfrencruz@gmail.com

FUTURE GLOBAL ECONOMY
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