The modern era has witnessed two great periods of transformation that radically changed the global economy and the very nature of human existence. The Industrial Revolution of the 18th and 19thcenturies and the shift to a postindustrial economy over the past fifty years are old news. Today, the Global Economy is undergoing a third period of transformation into a new Digital Age that promises to be even more dramatic in its impact. In this article, we will address some of the forces driving this change and provide our predictions as to which industries and economic sectors will be affected first.
Manufacturing dominated the American economy for almost 100 years commencing in the late 1860s, but, beginning in the 1960s, manufacturing was rapidly eclipsed by a new services and trade based economy. A quick look at the chart below demonstrates how overwhelming that trend has been. From 1850 to 2010, primary and secondary manufacturing in the United States dropped from approximately 80% of the US economic output to its current level closer to 20%. Tertiary industries, Clark's name for what we would today call services, finance, retail, and distribution grew from approximately 17% of the economy in 1852, to 70% today, with the most important portion of this transition occurring since the 1960s. While the Industrial Revolution took almost 150 years to fully play out, the shift to a services and trade based economy happened in less than half that time.
Source: Wikipedia
We have now entered a new era that will impact most sectors of the global economy. This new transition promises even more radical change. We are only in the early innings, but this game will play out far more rapidly than its predecessors. Driving this change are the maturing of digital intelligence and the global expansion of the internet.
John Mauldin recently published an excellent article entitled “The Age of Transformation“, introducing the subject of transformation as a major driver in the global economy. The ongoing transition to a digital, white-collar economy promises to create both opportunities for those companies and industries that are able and willing to adapt and great danger for those that cannot. Mauldin says in part:
“I believe there are multiple and rapidly accelerating changes happening simultaneously (if you can think of 10 years as simultaneously) that are going to transform our social structures, our investment portfolios, and our personal futures. We have had such transformations in the past. The rise of the nation state, the steam engine, electricity, the advent of the social safety net, the personal computer, the internet, and the collapse of communism are just a few of the dozens of profound changes that have transformed the world in which we live.
Therefore, in one sense, these periods of transformation are nothing new. I think the difference today, however, is going to be the simultaneous nature of multiple transformational trends playing out within a very short period of time (relatively speaking) and at an accelerating rate.
It is self-evident that failure to adapt to transformational trends will consign a business or a society to the ash can of history. Our history and business books are littered with thousands of such failures. I think we are entering one of those periods when failing to pay close attention to the changes going on around you could prove decidedly problematical for your portfolio and fatal to your business.”
The exponential advance of digital technology promises to supplement or replace humans in many, if not most, routine white-collar tasks. Contract documentation, regulatory compliance, and the myriad of mind-numbing government forms and processes will increasingly be handled by intelligent systems. These capabilities will free many workers from numerous monotonous and time-consuming tasks, but the resulting efficiencies will inevitably result in a significant dislocation in white-collar labor markets. Millions (perhaps tens or hundreds of millions) of white-collar employees in the United States and other major world economies depend on their role in fulfilling these tasks to support themselves and their families. The ongoing Digital Transformation threatens to wipe out many of these jobs, which have been vital to prosperity in middle class America.
