The Future: Labor, Land, and Capital

The future is uncertain. There is nothing original in that statement; however, if you ask simple questions of the present, you may get a peek at the future. What was the realm of science fiction only a few decades ago became ubiquitous today. Much as Palm Pilot led to iPhone and Myspace to Facebook, there is always hints at what is to come. Without the ability of Carnac the Magnificent, divining the future is easier done by posing basic questions: where, why, how, when, who, and what. The simple answers are demographics, closer, little data, personalization, and now. These forces are requiring less labor and resources to deliver a product, which is a great outcome for capital, but seems a poor one for labor. Capital, however, may be sowing its own demise through commoditization, while the uniqueness of labor will provide the sole means to differentiation.

Free land. Free labor. Whether it informational technology, science, politics, trade, or some other form, the world seems to be overflowing with revolutions. The reality is that the social and economic structures of the world are always evolving. While civilization has yet to stop demanding change by looking down a barrel, over the last two centuries change was driven by a fundamental shift in how the world produces.

Before the world focused on how to produce, they first needed to answer the question on where they were in the world. This exploration (and conquering) began with the Americas and gave two material jumps to the global economy. First, exploitation of the Americas added a prodigious amount of natural resources to the world economy. Second, the migration of people from Europe to the America liberated those poor souls who braved the arduous journey. The reward was land and the formation of personal capital that the world had never seen before.

Revolution Revival. While political revolutions were the dominant features of the last few centuries, there were three sequential productive revolutions that ignited world growth over the same period. While democratic government helped enable these productive revolutions; it was not a precondition for change as Copernicus to Newton to Einstein showed. The previous productive revolutions relied on three innovations: the harnessing of energy, manufacturing processes, and transportation.

It would be difficult to challenge the supremacy of harnessing energy as the most critical driver without conceding that they are all interlinked to some degree. Harnessing energy changed time wherever it was applied, from powering ships for trade, lighting up houses, or moving bits and bytes around the world. The innovations created more horsepower, sped up processes, and moved information around the world. Without harnessing energy, the world is probably still tilting at windmills.

Harnessing power enabled the industrial revolution to occur. With energy providing the muscle rather than the wind, animals, or people, the focus moved to designing an efficient process. People, of course, were still essential to production; however, they were developing skills to enable the capital investment in production, rather than pushing the rocks.

Efficiently producing more products is great, but not of much value if they cannot reach the market. Steamers and their offspring, container ships, enabled goods to move across oceans to reach global markets. Railroads moved freight around a country, while automobiles delivered goods to local markets. They all relied on the standardization of intermodal transport to increase shipping efficiency. As the Romans roads long ago showed, transportation is essential to maintain a global empire or economy.

Dismal Science. Everywhere we look, the Information Revolution is transforming the who, what, where why, when, and how. There is just one problem: the gains are not appearing in the economic data. Measured productivity is not as high as it was in the past. Economists continue to develop formulations of growth economics to explain the data. They measure inputs and outputs to determine productivity; however, the measurement may be missing something.

Google maps is provided freely and has unquestionably made people more efficient by saving time. This outcome is not captured in the data since it’s free and does not have a measurable output. The amount of time saved in uncertain. The service is valuable; however, economics is struggling how to capture the impact on the economic data. If the data is not complete, then neither is the measurement.

What happens when you have one product for one person? Indeed, the traditional microeconomic view of supply and demand is gone. In a world with a flat demand curve, business is a price taker. When the total supply of a product is one, the supply curve is vertical, and the individual customer determines the price and business deliver the required good at the requested time. While the consumer is immeasurably better off, there is a reduction in the necessary amount of labor and land in this world. With land and labor losing ground, the return on capital is higher.

Strategy Risk. These changes in production are not the end of labor, just the beginning of a transformation. Standardized products will be delivered to everyone, while non-standardized will involve people providing a service and this will come at a cost. A replicator will produce your food, or you can pay extra to have it grown naturally, have someone make it, and someone to serve it to you. The holodeck will take you on a fantastic voyage or for a price you can experience the real thing. The vision of an artist or designer will deliver a unique view. Labor’s value will come from time, not its output.

For those astute business school graduates, they will recognize the competitive framework for this world: cost leadership or differentiation. The commoditized product, however, will include everything that is deliverable and addressable through technology. Differentiation will require the application of a person’s time. You will have personalized recommendations for dinner and customized shoes, but these are commoditized products. The relentless pursuit of efficiency by business through technology will deliver all these commoditized products and use less land; however, labor will reign through differentiation.

The transformation of the balance between labor, land, and capital is what the future will deliver. There are signs today of these changes. In the coming posts, the discussion will focus on the proximity of production, the insight from little data, the delivery of personalization, the immediacy of services, and the impact on whom. These will help frame the future implications for labor, land, and capital.

This is part two in a series on the Future: Labor, Land, and Capital.