Monday, 3 June 2013

Industrial Convergence is the key concept of future economics

A nice quick intro to the concept of industrial convergence from

3D printing is quickly demonstrating a key factor in understanding the urban life to come.  Two factors are working to transform industry from the silos of today, dependent on cheap labor living in distant places, and a sustainable future.

I explain why the pace of innovation is creating less high tech factory

Firstly the issue is energy, and the massive dependency on cheap energy that the current economics uses.  The other factor is growing ability to create substances and objects from data that can be shared via open standards on the Interent.

3D printing is showing the possibility of downloading almost anything anywhere and creating it via recycled material near the point of consumption.  Very soon it will be possible to create clothing and most other consumer goods a the point of use using recycled material.

But just because something is technically possible does not mean it will be done.  In fact local production is possible now, its just not economical for the most part.

What will drive convergence uptake will be the cost of energy.  If we do run out of cheap oil and no alternative is found the cost of moving a pair of shoes or jeans from China will become so high it will become better to produce them locally, using 3D printers or other machines of the future.

But there is a possibility that solar, wind or nuclear will provide a new age of cheap energy.  If there is a new age of cheap energy it is possible that not local convergent industry will be able to compete with the low costs of China.

Let me explain.  Why are so many of the things you own made in China?  We all know the answer is cheap quality labor.  But given the amazing possibility of modern technology why do plants in the United States and EU not just put in machines that would so expand human capacity as to make the cheap labor of China meaningless?  Its is a good question.  If you have ever seen how things are done in China you will notice a great deal of inefficiency and wasted human effort.  With modern computers and machines a factory in the United States could easily be so much more efficient than one in China that the difference in wages would become almost nothing.

But that is the issue, the fact that putting machinery in place costs money, in what is called fixed capital.  You need to operate a plant for some time to get the benefit of fixed capital investment and there is always a chance you will never get the benefit if you lose your market or the technology does not work.

Innovation in consumer demand is actually making this worse.  

If you put machinery in a plant you need to run the machines for a certain amount of time to get return on the investment.  If you don't use machines you need to use more people.  Since the items being created change so rapidly it is better not to have fixed capital in machinery and to have capital invested in labor.

Okay, I know this sounds Marxist.  My defence on that kind of lame point is that Marx simply assumed classical economics of the 18th and 19th Century to be true, so this is just Classic economics.

So where is the invisible hand that makes everything right in the market?  Well the only way to argue for that is to say service jobs in the west make up for lost production jobs.  Personally I see that as the case.  When I was 21 I got a job in a chemical plant over the summer.  I was able to get another job for the same wages working with retarded adults.  I found the job working with retarded adults far more rewarding and was happy to leave the old economy and enter a lifetime of service economy work.  Since that time I have, for 25 years, not work one day outside of the service sector.  I think my story is kind of typical.

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