The new extractive industry - Mining ambition

The earth is a vast storehouse of wealth; precious metals glimmer in meandering seams deep below the ground, and oil accumulates over millennia under scorching deserts or vast oceans. Locating, extracting, refining, and transporting these resources to market involves huge engineering challenges, hard labour in dangerous conditions, and immense sums of capital put at risk for an uncertain return. Throughout history those willing to push the limits of human ingenuity, fortitude, and patience have been richly rewarded, or else experienced utter failure. Such prospective ventures were originally underwritten by consortiums of wealthy merchants, later begetting the first listed corporations, and the companies thus formed are now consolidated, along with their expertise and mineral reserves, within global mining giants such as BHP Billiton and Rio Tinto.

Despite the oligopoly of producers, the market for their varied output remains competitive, and volatile prices move to balance varying supply and demand. Notably, any increases in extractive efficiency have been competed away to the benefit of consumers (the real cost of the steel in your car, the silicon in your phone or the gold in your wedding ring has rarely been lower) and shareholders have been by turns enriched or infuriated by their changing fortunes. Host governments are largely content to receive production royalty revenues and their share of corporate profits, and very thankful for the employment such industries have brought. Great global cities now stand in once barren areas - Johannesburg, Houston, Perth.

The rise of digital technology, sometimes referred to as 'the 3rd industrial revolution',  means we are witnessing a new form of extractive industry, exploiting financial rather than mineral reserves. Once marginal capital market activities, such as high-risk early-stage investment, have expanded markedly in both scale and influence. This growth has been aided by western governments; too shocked by under-employment, sub-par growth rates, and ballooning long-term deficits to question the destabilising effects of their current policies. Artificially low interest rates and successive financial bailouts have sewn moral hazard and myopic self-interest into the fabric of the financial markets.

The digital giants (Facebook, Google, Amazon etc) have gained global dominance in a relatively short period, generating massive wealth for their stakeholders. Such remarkable growth and huge margins (hardly surprising when the marginal cost of production approaches zero) have not gone unnoticed by the Venture Capital community. Tech has become the only game in town. Those regretting their passing on early fundraising rounds at Slack, Uber and other high-profile disrupters, are looking desperately for winners in less obvious fields - laundry on demand, outsourced dog walking, the quantified self etc etc.

Dominance is paramount in such a 'winner takes all' marketplace; and gaining dominance is expensive. Venture Capital support for even profitless growth has meant early start-ups can have huge marketing budgets (almost certainly responsible for the explosion in revenues at Facebook & Google) and compete aggressively for hot developer talent. These young workers, catapulted from bedroom coding to high profile start-up, are the pick-wielding prospectors of new gold-rush. With the limited patience of youth and money in their pockets, they are the prime agents of the emergent convenience economy. This means the VC funding not spent directly by the business washes indirectly through the employees into services like; Uber, Netflix, Amazon Prime, Deliveroo and perhaps even laundry on-demand. But, like the majority of millenials, the greatest portion of their earnings is spent on rent; spending that is maintained almost irrespective of the success (or otherwise) of the business.

Property in 'Tech Hub' cities has become the ultimate scarce asset. Constrained supply, minimal price sensitivity, and low rate creates the perfect environment for a monster asset bubble - the effects of which are clearly seen in San Francisco, New York, London, and even Dublin. The ultimate beneficiaries of the new economy are, once again, the landlords of the old.