The Great Acceleration Ahead

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The Great Acceleration Ahead

Here at Trends, we rely on economic models to make sense of the flood of seemingly contradictory evidence we see all around us.  Perhaps our most useful long-term tool is an understanding of the successive techno-economic revolutions, which disrupt business-as-usual and generate quantum leaps in affluence. 

Put simply, these revolutions are the consequence of transformational waves of technology, such as the steam engine, the railroad, the assembly line, and most recently, the microprocessor. 

In the first stage of such a revolution, opportunities arise from financial speculation around the core technology; examples include the PC boom and the dot-com boom.  Inevitably, this phase ends in the kind of crashes we saw in 1929 and 2000. 

This is followed by a transition in which economic institutions are transformed to meet the needs of the new paradigm rather than the previous one.  As the economic institutions are transformed and capital is reallocated through creative destruction, a second phase emerges in which the core technology is used to transform every aspect of the broader economy. 

The first phase is referred to as “Installation” and the second, much more lucrative phase is referred to as “Deployment.”

The last time a techno-economic revolution shifted from the Installation phase to the Deployment phase, it took eighteen years and we called the transition “the Great Depression and World War Two.”  That cataclysmic period marked the crucial turning point when economic institutions were reshaped and optimized to support the full flowering of the Mass Production Paradigm.  These institutions range from finance to labor to regulation.

Thus began the great post-war economic boom and the associated secular bull market in stocks.   Productivity soared and Americans saw the greatest rise in living standards ever. 

However, most failed to see the opportunity at the time.  Consider the two great retailers of the time, Montgomery Ward and Sears Roebuck.  Because they saw things differently, they took opposite positions.  Sears saw the opportunity and expanded, becoming the world’s largest retailer for the next three decades.  Ward’s expected a return to recession; it retrenched and became a marginal competitor.  

American executives and investors face the same uncertainty in 2016 that they faced in 1947.  The question is, “Are we stuck is a no-growth ‘new normal,’ or are we entering a new era of greater opportunity and prosperity?”

The so-called experts are divided.  Northwestern’s Robert Gordon is one of the strongest defenders of the new normal...

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