OMG! Where Is The Confusion?

In the last 45 days, I have been travelling and has been meeting people across sections of the society. Some people opined that they needed more clarity.  Hence this clarification.

Prof. Tony Seba of Stanford University (I had given the link to his Youtube video in my previous post), laments that whenever a major disruption happens the experts, insiders and mainstream analysts always miss it. Jack Ma answers this when he says that experts are for the past. He says there are no experts for the future. He advices not to call experts to understand the future, but to trust common sense. Being what I am, I did think about why experts fail.  There are two types of experts. One is earned expertise. The other is ascribed expertise. Scientists are earned experts. But economists, management gurus, psychologists, etc, are ascribed experts. Glib talkers are identified, media is used and they are ascribed as experts by powerful vested interests. Normally in all abstract/vague subjects you have only ascribed experts. We find in all these abstract subjects, proof for any assertion by any expert is the quotation from another expert. These subjects are such everyone will have a view on. Lest, one should be seen as ignorant. The emperor’s clothes. This pervading attitude makes ascribing expertise easier. The ascribed experts as they keep dishing out gibberish as expert knowledge, over time start to believe in the gibberish themselves. The self-fulfilling prophesy takes over. 75% of the population do not understand what they say. Of the balance 24.5% venerate these experts because, the super-rich 0.5% are endorsing them. While for earned expertise, common sense is essential, for ascribed ones, common sense is a hinderance. Now, it would be appropriate to ask me as to where do I fit in. Am I behaving like those experts? By god’s grace `No’. I am just raising questions which are common sense. Every prediction of mine the last 24 months have come true. Because they are answers to common sensical questions. In fact, on 4th April 2018 I wrote a blog post titled `Wake Up! The Crisis Has Landed!’. Someone known to me has published several articles in newspapers and debated in the TV news channels during these 24 months. Every time, he used to prescribe a new remedy to economic woes of the country. When the government actually implemented his prescription, he would say that the demand would pick up, growth will happen and so on. The truth is that economy, demand and growth are on a southward journey with one-way tickets. Yet, the ascribed expert is never questioned about his consistent wrong predictions over such a long period. The experts prescribe steps to revive growth. But, they never say which industry will see the growth. I repeatedly said, if the costs keep falling, no industry can see growth? Long live the expert!

Now to explain my views, let me start with IT. The evolution of computers started in the 40s and progressed at the usual pace as it happened with other industries like air-conditioners, refrigerators, furniture, home appliances and so on. Therefore, for a long time, Computers/IT were not considered as disruptive innovation. During the late 90’s and early 2000, in the capital market, there was a sudden burst in activities. There were many mergers and acquisitions taking place. During each acquisition the share prices of the acquired companies went up high. The rich people saw an opportunity to exploit. As a consequence, the management of companies directed all their efforts on market value of the shares of their respective companies. Balance sheet dressing became full time activity. The stated objective of production of products and services got ignored. Money earned instantly through capital market was far in excess of anything that could be achieved even over a long period. IT companies, grabbed the opportunity this situation provided. They created a narrative that investment in IT was the way to improve productivity and profitability. The capital market played in tandem with this narrative. A simple press release claiming that a company has signed up with SAP or Oracle for ERP solution was adequate to take the share price up. IT products and services were bought relentlessly. No management ever bothered to study if those purchases were really needed. They just kept buying. IT companies operated in a clever manner. They kept introducing new jargons for the same activity so that the customers could never get wise to understand that they were wasting money. Latest jargon is digital transformation. When people used computers for the first time to do any calculation, I thought the digital transformation started. When they implemented SAP and Oracle, what were they doing? So what is new now? Yet another example is that these days all applications are called `Bots’. Every organization claims that it is investing heavily on artificial intelligence. WOW.

As early as 2003, Nicholas Carr wrote in Harward Business Press, an article titled `IT does not matter’ where he cautioned against mindless investment in IT. Since the article appeared in HBP, Bill Gates realized the potential harm this article could cause to IT business. He, then took it on himself to go to various fora and destroyed Carr’s claims by calling them as irresponsible statements. With the clout he carried then, the task was not big enough for him. This is the reason I hold Bill Gates responsible for the current situation.

Companies ignored Carr’s caution and kept investing in IT, useful or not. This madness resulted in landing big money with IT companies. Obviously with such big money on hand they tried to develop newer products so that they can continue to increase their earnings. This resulted in the development of Artificial Intelligence, Machine Learning, 3D printing, Augmented reality, Internet of things and so on at a pace never experienced before for any innovation. The unintended consequence (Cobra effect) of these developments is that manufacturing of products has become simpler, more efficient, less wastages and above all the size of the manufacturing facilities got shrunk. Economy of scale got obviated. Similar effects have taken place in the way services were rendered. Most processes got automated. Hence cost of service has shrunk drastically. These developments are so ubiquitous that in a very short time the developments got adopted across the globe.

1.      The rate of development of new products and services is growing at an exponential pace. Please observe that I am saying that the rate itself is growing at exponential pace.

2.      All these developments continuously keep disrupting more industries. Both manufacturing and services. The pace of disruptions are so high, that the product/service life cycle is getting smaller and smaller.

3.      The developments get absorbed globally almost instantaneously as they are developed.

Now, a. the story of automobiles is over

         b. the story of fossil fuel-based energy is over.

         c. the story of real estate is over

         d. the story of Hospitals for medical care is over.

         e. the story of luxury hotels along with high-end restaurants is over.

         f. the story o0f fashion industry and luxury goods is over.

While the impact of disruptive technology is all pervasive, on these industries the effect is very conspicuous. When costs keep falling, it is not possible to earn profit. Borrowers will default in their servicing the borrowings. Financial systems will fold up. In a capitalistic economy, this condition is called high recession. The most vital point to note here is that the condition is irreversible. It is very simple to understand. So long as disruptive innovations keep happening, that too simultaneously in many fields and at exponential rates, this can’t be reversed. Common sense. No rocket science.

Can these innovations be stopped? No! Through regulations, can be delayed slightly but can’t be stopped.

I get the feeling somewhere people are realizing that it is not the same anymore. At the same time they also give the impression that they are hoping that one day all these will get reversed. The Hero motors announced that in the next 5 years the company would invest in R&D on mobility. They said mobility not Automobile. First symptom of this realization. FED is expected to announce the arrival 0% interest. The much expected signing of trade agreement between India and America did not happen during Trump’s visit to India. It was touted that nearly 1000 American companies will be closing their operations in China and moving them to India. Close they will. But moving to another country? I am not sure. Is this realization that made the two sides to appreciate the need for recalibrating the contents of the agreement? I read that China has dropped the Belt and Road project. In fact, I get a strong suspicion that the whole Carona virus drama is manufactured economic collapse to buy breather from criticisms? The response to the epidemic seems disproportionately harsh. 10 months ago, there was a pandemic of soar throat and fever. Virtually every human being from every country got affected. No attention was paid to it. But, this time 65% of the population 0f China was quarantined for 3 months. During November 2019, I saw a video in Youtube that banks in China that, about 40 trillion dollars worth debt facing economic collapse.

That video seems to have been removed now. Perhaps that has happened. With China, you never know.

Amidst all these, there is another cobra effect of technological development is taking place. The millennials are turning out to be very humane. Thanks largely to social media. They do not like an economy based on enticements and temptations. They do not have aspirations and ambitions in their dictionaries. They do not believe in profits. They believe in sharing and serving the society. They believe that capitalism is certainly not a sustainable model. 0.1% of the people controlling the rest. By the way, did we notice that all these 0.1% of people earned all their wealth through share markets, not through any productive business? If capitalism survived so long, it is through brutal exploitation of the poor by the 0.1% rich people. The technology and social media have exposed the 0.1% and have made it difficult for them to continue the exploitation. The millennials believe that equal prosperity is the sustainable model. Remember, Keynes said that we may have to accept Foul as Fair and Fair is not useful for at least next 100 years? And that 100 years is coming to an end. Was he a visionary?

In fact, on 4th April 2018 when I wrote the blog post `Wake Up! The Crisis Has Landed!’, at that moment, I thought the economic change was a crisis. Now I am convinced that this is the path to a new and beautiful economic order.

OM SHANTHI!.