A shift to a decluttered digital economy

Dec 02, 2015

Like so many English shoppers, I have been caught out several times in recent weeks by not having a spare cotton bag on me when I go to buy something. Big stores now have to charge 5p for each plastic carrier used. We should all get into the habit of carrying around a reusable bag just in case, rather as Soviet-era women used to have their avoska, or string bag — as indeed my mother and aunties did too in the 1970s. It turns out there are plenty of avoska bags on sale to meet the need.

The reduction in plastic bag use is an example of one of the forces reducing the amount of stuff in the economy. Environmental concerns have led to more recycling and reuse, and to reductions in packaging. Recession clearly played a part, as people had less income to spend on things. There is something cultural in the air, too, from a distaste for consumerist bling to the craze for Marie Kondo’s decluttering book, The Life-Changing Magic of Tidying.

But the main reason for the increasing lightness of being is that technology is dematerialising the economy. The UK economy has grown by about 60 per cent since 1990, but the physical mass required to generate that output has fallen by nearly 20 per cent. A similar trend has been seen in the past 15 years even in Germany, which is much more dependent on manufacturing.

There are several explanations. The share of services in the economy has increased steadily for decades, and a firm of accountants or a hospital require far less physical capital than a steel mill or car plant. Even in manufacturing, it is the most service-like elements that add most value, whether that is the initial research or the design embodied in a product, or the speed and accuracy of the logistics chain, or the character and quality of aftersales service.

One way technology has contributed is in slimming things down. We have flatscreen televisions in place of the old cathode-ray sets; laptops or tablets rather than a computer filling its own room; ever-smaller devices that combine a phone, camera, atlas, newspaper, wallet and more. The dematerialisation of the economy is perhaps moving up a gear. A recent post on the Bank of England staff blog noted the decreasing economic use of bricks and mortar as retailing moves online, one warehouse replacing many high street stores.

This phenomenon affects other consumer-facing business, too, such as banking, travel agency and insurance. Increasingly, contact with customers is via the web. Then there are a number of physical products — newspapers and magazines, books and music — that are no longer made from whole atoms, just electrons. Who knows how much further this could go? Thumbprints or face scans in place of keys? Clothing that can change colour? One factor could be the spread of ride-sharing platforms, especially if combined with driverless cars. There are about 1bn cars in the world, most driven for very few hours a day. Although there is a peak-loading problem (many people will want to drive at the same time), these expensive assets could clearly be used more intensively. That implies there could be far fewer of them in cities, especially if they become autonomous and quickly reach people who want a ride.

Economists have been focusing on lacklustre labour productivity figures . Some argue this disappointing performance suggests the economic impact of new technologies is overhyped. What the renewed momentum towards weightlessness suggests, though, is that it is worth looking at capital productivity. There are no reliable statistics on capital services, unfortunately; the systems we have for gathering data are not useful for measuring the intangible. Which is a problem, when the economy is shedding weight.

Source: Financial Times