THIS TIME REALLY IS DIFFERENT
investment management are just a few of the sectors now vulnerable to technological disruption – and that is before one even considers the potential long-term benefits of “distributed ledger” or blockchain technologies. Unlike the automation of tasks once performed by humans, which will likely play out over many years and across multiple economic cycles, the upending of longstanding business models can happen almost instantly. Just ask Blockbuster Video. Business cycles wouldn’t be cycles if there weren’t fundamental similarities in how firms capture profits, manage competition and rising interest costs, and then oust weaker players over the course of time. There will always be shrewd investors who can pick out the ripest fruit at each stage of the cycle. And yet the task ahead looks more complicated than usual. As the current cycle nears its end, investors must account for the uncertainties associated with lower liquidity, rising populism, and revolutionary new technologies. This time really is different, and not
friction will remain. That means careful investors will have to price in the possible costs of additional tariffs and redesigned supplier networks – perhaps indefinitely. Likewise, as the clock ticks down to Brexit Day on March 29, firms that have planned on goods and services still being able to move freely between Britain and the European Union now find themselves in a state of deep uncertainty. To be sure, world trade is not shutting down. But in the next cycle, investors will have to account for the potential costs of new tariffs, border checks, and other effects of resurgent populism and nationalism in the world’s major economies. There will always be shrewd investors who can pick out the ripest fruit. And yet the Finally, around the world, revolutionary new technologies and disruptive business models are increasingly threatening incumbents’ profit margins. During the last cycle, the cheap connectivity of the Internet drove commercial innovation and integration. But looking ahead, businesses will need to grapple with mobile networks, cheap digital storage, and increasingly sophisticated algorithms in order to make sense of vast streams of data. It is not just shopping malls and taxi fleets that are falling to the likes of Amazon and Uber. Almost all businesses are facing challenges from leaner, tech-driven business models. Manufacturing, health care, and (gasp) task ahead looks more complicated than usual.
necessarily in a good way. © Project Syndicate
Christopher Smart is Head of Macroeconomic and Geopolitical Research at Barings and Non- Resident Senior Fellow at the Carnegie Endowment for International Peace. He was a special assistant to the U.S. president for International Economics, Trade, and Investment (2013-2015) and Deputy Assistant Secretary of the Treasury for Europe and Eurasia (2009-13).
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