By Simon Bond

At the commencement of 2016 the global economy is poised at a set of historical, technological, economic, political, and social inflection points.

The current debate among economists, business leaders, and public officials on what appears to be a new type of long-term economic stagnation emerging around the world is an indicator of the great transformation taking place as the economy shifts from exchange value in the marketplace to sharable value.

Global GDP has been growing at a declining rate in the aftermath of the Great Recession.

While economists point to the high cost of energy, demographics, slower growth in the labour force, consumer and government debt, an increase in the share of global income going to the very wealthy, and consumer risk aversion to spending, among other causes, there may be a more far-reaching underlying factor, although still nascent, that might explain at least some of the slowing of GDP.

As the marginal cost of producing goods and services moves toward near zero in sector after sector, profits are narrowing and GDP is beginning to wane. And, with more goods and services becoming nearly free, fewer purchases are being made in the marketplace, again reducing GDP.

Even those items still being purchased in the exchange economy are becoming fewer in number as more people redistribute and recycle previously purchased goods in the sharable economy, which of course helps to extend their usable lifecycle, with a concomitant loss of GDP. A growing legion of consumers are also opting for access over ownership of goods, preferring to pay only for the limited time they use a car, bicycle, toy, tool, or other item, which translates (again) to less GDP.

Meanwhile as automation, robotics, and Artificial Intelligence (AI) replace tens of millions of workers, consumer purchasing power in the marketplace continues to contract, (further) reducing GDP. Concurrently, as the number of prosumers (consumers and producers of media) proliferates, more economic activity is migrating from the exchange economy in the marketplace to the sharable economy. 

In fact, the Industrial Revolution pales in comparison to today’s convulsions, because the shifts we see today are happening much faster and on a much bigger scale. Because they are so intertwined—urbanisation and consumption, technology and competition, aging and labour—and because they amplify one another, the changes are harder to anticipate and more powerful in their impact.

I cannot emphasise this point anywhere near enough, and each day it accelerates. Like having to run faster and faster simply to remain in the same spot. We humans can only do that for a limited amount of time before we just fall over.

In the United States, between 1982 and 2002, steel production rose from 75 million tons to 120 million tons, while the number of steel workers declined from 289,000 to 74,000. American and European politicians, and the general public, blame blue collar job losses on the relocation of manufacturing to cheap labor markets like China. The fact is that something more consequential has taken place.

Between 1995 and 2002, 22 million manufacturing jobs were eliminated in the global economy while global production increased by more than 30% worldwide. The United States lost 11% of its manufacturing jobs to automation. Even China shed 16 million factory workers while increasing its productivity with IT and robotics, allowing it to produce more output, more cheaply, with fewer workers.

Risk and volatility have also increased enormously over the past few years as the chart below illustrates. I actually believe that many investors should exit the stock market completely if they are unable to comprehend the fact that as time goes forward risk actually amplifies. They are better off investing in less risky vehicles such as bank deposits and treasuries.

Whilst growth may be subdued the risk of a loss of capital is substantially lessened. When events of significance happen losses can be manifestly increased as we saw in 2015 with companies such as Slater and Gordon and Vocation to name two.

The Internet of Things is already boosting productivity to the point where the marginal cost of producing many goods and services is nearly zero, making them practically free. The result is corporate profits are beginning to dry up and an economy based on scarcity is slowly giving way to an economy of abundance, in many cases things are actually free.

But if consumers pay only for the marginal cost and those costs continue to race toward zero, businesses would not be able to ensure a return on their investment and sufficient profit to satisfy their shareholders. Consider how much information you are now getting for nothing, you only need to log in to your Facebook page to get free news, directories, maps and music and video. Things that you used to pay for you now scoff at unless it's gratis. 

The Internet of Things will connect everything with everyone in an integrated global network.

People, machines, natural resources, production lines, logistics networks, consumption habits, recycling flows, and virtually every other aspect of economic and social life will be linked via sensors and software to the IoT platform, continually feeding Big Data to every node—businesses, homes, vehicles—moment to moment, in real time. Big Data, in turn, will be processed with advanced analytics, transformed into predictive algorithms, and programmed into automated systems to improve thermodynamic efficiencies, dramatically increase productivity, and reduce the marginal cost of producing and delivering a full range of goods and services to near zero across the entire economy.

And it's only just begun.