While AI (artificial intelligence) garners the headlines, the next wave of disruptive technologies extend far beyond AI: as the chart of technologies rapidly being adopted shows, this wave includes new materials and processes as well as the “usual suspects” of machine learning, natural language processing, data mining and so on.
While many voices seek to assure us these technologies won’t displace human workers, the reality is cutting labor inputs is the core driver. What few pundits seem to understand (perhaps because they’ve never experienced a truly competitive market?) is that the rush to incorporate these technologies into existing enterprises is deflationary not just to prices but to profits.
Reducing labor inputs and improving productivity of capital and the remaining labor force is not going to generate profits if competitors can access the same tools and processes. The race isn’t to maximize profits, it’s to survive the inevitable deflationary spiral in prices as competitors are forced to pass along cost savings to customers to retain market share.
Pundits glorying in tech profits only consider monopolies or quasi-monopolies like Apple, Facebook and Google or monopolies / cartels enforced by government regulations and policies. Markets open to competition do not enable pricing power beyond a temporary advantage for one or two product cycles. (Please see Two Intertwined Dynamics Are Transforming the Economy: Technology and Financialization)
As the race to improve technologies speeds up, “good enough” open source software and cheap previous-generation hardware is good enough for most applications. (We can surmise that the Pareto Distribution is active: technology that is 20% of the cost of the newest product can do 80% of what the new product can do, and tech that costs a mere 4% of the latest tech can do 64% of what the latest product can do.)
Everyone counting on trillions in tech profits is overlooking the inconvenient reality of the S-Curve for cheap credit, cheap energy and cheap labor–the three drivers of global expansion. Once credit dries up or becomes more expensive, once cheap energy is only a memory (or future fantasy) and once employment sags under the pressure to reduce labor inputs, the ranks of those with the earnings or credit to buy, buy, buy will be thinned.