Global Economy: An economist explains what the heck is happening to the global economy - by Manuel Hinds

The dawn of the twenty-first century has proved unsettling. It was not what we expected. Only a few years ago, the world was full with apparently justified optimism.  

As the new century settled in, however, worrying facts are deflating all these optimistic expectations. Each and every one of the reasons for optimism has failed to deliver what it promised and many problems that we thought we had left well behind have come back to haunt us. Negative turns in the distribution of income and wealth, financial crises, terrorism, fundamentalist terrorist states trying to spring out of the Middle East and Africa, a visible turning away from democracy in many countries that had just become capitalistic or democratic.

What we have in common with the people of one hundred years ago is that we, like they did, are going under the sway of a technological revolution that will change our lives as deeply as the Industrial Revolution changed theirs.

Profound technological advances, while opening the road for a better future in the long run, are terribly disruptive in the short term. They render obsolete the capital accumulated in physical assets, in human knowledge and skills, and, even more fundamentally, in the shape of the institutions linking together the fabric of society. 

People who thought they had their future assured suddenly find that their skills have been turned obsolete by the new technologies or by the new styles of life derived from them. Activities that had been for decades the mainstay of an economy suddenly become unprofitable, either because their product disappeared or because, to be profitable, they have to be relocated to another part of the world.

This brings about all kinds of economic and social disruptions, including unemployment, negative turns in the distribution of income, bankruptcies, frequent financial crises, and depression. Life becomes unstable, the future unbearably uncertain.

This is what was happening a hundred years ago under the influence of the last stage of the Industrial Revolution, that which introduced electricity, the telephone, the internal combustion engine, the car, and the airplane.

This is what is starting to happen in our times as well under the influence of the new revolution that was set in motion by connectivity, the power to manage complex tasks from afar in real time, an ability that the combination of computers, telecommunications, and fast means of transportation has made possible. As much as the Industrial Revolution multiplied the power of the muscle, the new revolution is multiplying the power of the mind. It promises to improve dramatically the way we live.

In the short run, however, the transition to this new connected world implies the disruption, even the destruction, of what we have today in terms of skills, investments, ways of life, and basic institutions for our social order.
Read more: An economist explains what the heck is happening to the global economy - Quartz