We regularly read or hear from renowned economists how the digital revolution to come will destroy jobs and keep GDP growth depleted. Among those economists are the 3 French Thomas Piketty, Daniel Cohen and Patrick Artus. All 3 have described in recent books a world that is becoming unfair, difficult, and according to them, the future is not rosy.
Fifteen years ago, we used to buy films to take pictures. Sharing with our relatives was the result of a long and expensive process of developing pictures, having the few good ones copied by a professional and going to the post office to send them. Many people working in silver mines, laboratories, paper production and logistic were involved in the process. Now, we can take as many as we want and share with a click and it is free. What a progress! We have more for less.
Likewise, I used to call my children who were 10 000 km away spending short time on the phone for a lot of money. Now, using services such as Skype, I share good and long moments with friends and relatives around the world, seeing them as if they were next to me. It is of an incredible value for free.
Earlier this year, I studied classical music thanks to Coursera. The remarkable professor of Yale University, Craig Wright who is 70 years old, had more students in one MOOC session than in his entire career.
E-books, online music and movies, Airbnb, car sharing among others, are progresses that reshape our lives, bringing more well-being for less money. All those examples have in common that they do not contribute to GDP growth. Yet, from an individual point of view, they are of paramount value. The relevant indicator for users is the value brought per unit of cost.
Thanks to the digital and collaborative revolution that has already started, all areas of economy will be impacted in a similar way. Smart watches and so called “IOT” will anticipate and as a result prevent most diseases without expensive medical equipment or treatments. Still thanks to IOT, food waste will be reduced dramatically and, as drones will indicate what exact quantity of water and fertilizer should be used on each parcel, yields will increase with less damage to environment. As a result, food will be healthier and cheaper. As explained in a previous post, thanks to automated and shared vehicles, the world will benefit of safe, clean and convenient individual mobility for a fraction of the cost of today’s private cars ownership. The decrease of the cost of solar panels and batteries will accelerate the development of smart grids. Together with more efficient housing and appliances, the electricity bill of most households will be dramatically reduced. Life time online education will cost a small fraction of university fees. IOT, big data, 3D printings, neuroscience, biotechnologies and drones are not only buzz words. They will have in the next 30 years an unprecedented impact on our lives and economies. The progresses they will bring are not always positively correlated with GDP anymore.
A flat GDP does not mean that well-being and wealth are not progressing.
19th and 20th centuries improvements were linear and development was unidirectional. People would first get enough food, housing, medical care, education, mobility and then leisure. People would go by foot, buy a bicycle, a moped and then a car. Each step contributed to GDP growth. Each need was met one after the other. A famous example is the S curve that shows that correlation between number of cars for 1000 people and GDP per person was almost perfect for most countries. Improvements of quality of life, GDP, but also CO2 emissions and impact on environment were almost fully correlated.
As for pictures and communication, progress is not correlated with GDP growth anymore. When disruption will bring better service for 30, 40% or even 80% less GDP, what is the point of measuring 1 or 2% annual GDP growth?
Emerging countries might still need to catch up and will continue to temporally experience GDP growth; their people’s consumption’s patterns will sometime leapfrog our mature economies’.
In 20 or 30 years from now, the world population can have access to cheaper food, energy, mobility, education and medical care in a collaborative and optimized manner thanks to the digital revolution. Yet GDP might not be significantly bigger than today. If growth happens, it will be of a much lower order of magnitude than what developed countries did need to produce in the past. And the result will be far superior qualitatively.
Traditional indicators like GDP, per hour productivity are not adequate to measure what really counts: quality of life. It is urgent that economists change their thermometer. If they do not do it, our governments and central banks might end up continuing conducting the wrong policies.