Technological advancements and the fortunes of mankind have been intertwined since our distant ancestors worked out how to harness the power of fire or use a sharpened stick to hunt for food. The future will be no different so it makes sense as investors to try and have some understanding of how some technologies may develop over the next decade or so.
Often when I read articles about investing I can tell straight away that many authors have little or no knowledge of the technologies that impact our lives or the economy as a whole. This leads them to make predictions that appear to assume that our current technological level will not develop much in the years ahead and thus they overlook many important technology based trends.
Most of us would appreciate that all of the various technologies that surround us from agriculture to the internet are in a constant state of ongoing development. So it puzzles me when economists and market commentators often simply extrapolate our current world into the future and come up with alarming scenarios like global shortages of food, water and energy. Rarely do they contemplate that these problems could be mitigated by technological advancements just as they have been for thousands of years.
An economics degree does not make a person a technologist and in the 21st century I would suggest that anyone who tries to outline how the global economy may look more than a few years out without a good appreciation of how technology may evolve is simply not taking into account some pretty major factors.
In 1903 the Wright Brothers made the first powered flights that only lasted seconds and reached a maximum altitude of around 120 feet. Around 40 years later a B-29 Superfortress could fly at 33,600 feet and cover distances of around 9000km and in just a few decades after that man travelled to the moon and back. So why is it economists and other assorted experts seem to discount the impact future technology will have on the economy and on humankind in the coming years?
I am not suggesting that I (or anyone) can map out with any certainty how technology will develop, but at least we can look at some areas where we can be pretty sure improvements will be made. I am not attempting to cover the areas I mention below in great detail, my aim is to merely toss up some ideas and concepts just to highlight how technology may change the world around us and why this is something investors should be interested in.
So let’s have a look at some areas where technology is likely to deliver some big changes in the years ahead.
Electrical Power Generation
Electrical power generating technologies such as solar, geothermal, wind and tidal will develop at a much quicker pace over the next few decades due to the extra focus (and funds) they are receiving while at the same time existing mainstream methods of generating electricity (i.e. coal, oil and nuclear power plants) will be improved.
Perhaps one (or some) of these technologies may fall out of favour due to high cost and/or poor efficiency but I have no doubt that over the next few decades we will see significant breakthroughs in the area of electrical power generation. There are also many other ways of generating electricity that are simply not reported very often but are being worked on in research centres and institutes across the globe.
In addition many of the problems associated with nuclear power will be solved and more efficient reactors will make this a much more attractive (and safer) option for many power hungry countries.
New electricity transmission technology may also result in less power being lost between the point of generation and the point of consumption thus increasing the overall efficiency of electrical power grids. This may also allow power generation facilities to be located long distances from major cities.
Of course our homes and offices need more electricity than they did twenty years ago due to computers, air-conditioners and large flat screen televisions etc., but these devices are also becoming more energy efficient and as a result we will probably see a decline in per household electricity consumption in most developed nations in the years ahead.
In Tokyo for example around 50% of the electricity consumed in an office building is due to the use of air-conditioning and yet existing technology can cut this consumption by up to 50% in a large percentage of these buildings. Clearly there are many areas where we can more effectively use electricity so the potential to reduce consumption in these areas is enormous.
I am not suggesting the overall demand for electricity will decrease, but simply highlighting that there are plenty of areas where it can be used much more efficiently.
Therefore I believe that the world will not only be able to generate enough electricity to meet demand in the foreseeable future, but also that this electricity will be generated increasingly from non-fossil fuel sources, distributed far more efficiently and used more effectively. (no matter how hard Australian pushes “clean” coal)
Food Production and Supply
As strange as it may sound there is no food shortage problem on planet earth at present. We quite simply and immorally have a food distribution problem where in developed nations we waste vast amounts of food, while in dozens of developing countries people starve to death. Yes there are serious localised food production problems, but on a global scale there are plenty of calories available and in some countries over eating is actually making people obese.
The major problem that has confronted mankind for thousands of years has not been that mother earth cannot produce enough food, but rather how can various sources of food be harvested, stored and distributed. As the world’s population has grown humankind has found better ways to grow crops, fish oceans or manage livestock. But no matter how much food is available there have always been places where people have been starving.
I know of no point in human history where starvation has occurred because the world’s food supply was exhausted, and we would only face a serious food shortage on a global scale if we totally mismanaged things for a very long time. (of course that is always a possibility!)
Therefore the key challenges we face in the years ahead will be to use the food resources we have better and to make sure food is distributed more evenly.
Technological developments in agriculture will continue to improve crop yields and reduce the losses caused by pests and droughts etc. Hopefully improved farming practices will also spread to developing nations thereby increasing their ability to produce more food. There will be plenty of acreage to support both food production and growing crops for biofuels.
Even in developed countries there is scope for increased food production. In Japan for example food production could be increased by simply utilising the considerable amount of farmland that remains idle due to an aging rural population and regulations that inhibit large scale farming practices or basically encourage farmers to grow unsuitable crops.
A few less nutcase dictators and civil wars would also do a lot to help feed more people. Here the solution has less to do with technology and more with politics. For some strange reason the nations of the world seem to be able unite for the Olympic games but unable to get together and toss out rulers who essentially starve their own people. Sad but true.
In most major cities it is pretty clear that there could be major improvements made in terms of getting people and goods around. In most cases more advanced transportation systems could not only enhance the quality of life for people by reducing pollution and commuting times, but also increase productivity.
So it is probably not unreasonable to expect that governments around the world will turn to public transport as one way to reduce traffic gridlock and generally make their cities more liveable.
But even if people can travel around a city easily by car the fact is that most vehicles of today are a very inefficient form of transport. We simply do not need a four cylinder internal combustion engine to move a human between points A & B in a city, which is quite often what happens when people use their cars to commute to and from work.
In some years time I suspect OPEC will rue the day it allowed oil to creep up to around $150 USD a barrel as this may turn out to be the oil shock that finally woke the world up. Slowly but surely there is a shift away from large petrol guzzling cars to smaller hybrid vehicles. I just read an article in a business newspaper in Japan for example that reported that hybrid cars are now one of the most popular products on the market and that Toyota, even in the midst of the current economic downturn, had to restart some production shifts to meet the domestic demand for these vehicles.
The aviation and shipping industries are also working to reduce their dependence on oil. A number of airlines have undertaken trials using aircraft operating biofuel jet engines and this combined with more efficient engines should lead to an air transportation sector less dependant on oil.
On the shipping front both wind and solar power are being tested as supplementary ways to propel vessels, although it does seem a long way off before we will see many large sized commercial vessels covered in solar panels or utilising sails in some form…but then again who can say for sure?
The general theme I guess in transportation is that technology is helping the overall sector move away from a dependence on fossil fuels and should also aid a move towards expanded public transportation systems. But you never know..we could just end up with more roads!
Of course there are many other areas of technology which I have not discussed covering healthcare and communications for example, and so I would welcome any views on these or other areas I have omitted. Or perhaps you feel the problems we face cannot be solved by technology…all views are welcome.
In Part Two of this article I will try and outline how technological advancements in the areas I have mentioned may have some bearing on the long term investment outlook. In addition I will even dare to suggest which areas investors may want to focus on in order to tap into the future opportunities that these technological advancements may present.