ICangles Investment Article

“Assembling Economic Growth” viewpoint by Stephen Brennan posted in EE Times on the technology drivers of the next era of economic growth. Please click on link to read viewpoint.

To read the viewpoint with charts in EE Times you can click on the above link. Below is the viewpoint text that ran in EE Times with hyperlinks that were omitted now included….

Assembling Economic Growth

At the end of the nineties policy makers, such as the head of the Federal Reserve, foresaw a high growth, low unemployment economy for the foreseeable future. Before the real estate bust and credit crisis in 2007, not only did most economists fail to foresee the crisis, but some of their risk models helped cause it. Then the government’s subsequent stimulus plan promised to keep unemployment below eight percent. Wrong, wrong and wrong. If it wasn’t clear before it should be by now that most of the “smart” people influencing policies to grow the economy don’t have a clue. A big reason is that they fail to understand the role technology plays in determining the growth potential of the economy. Fortunately, a multi-decade period of strong growth, due to a new technology driver, is closer at hand than the so-called experts realize.

To create sustainable growth requires improving productivity levels. This often involves what is termed ‘creative destruction’ and may initially involve job losses. Automobiles are certainly more efficient than horses and buggies, but they weren’t good for the buggy industry. On the same note mechanization in agriculture has eliminated a lot of farm jobs, but due to higher productivity rates people spend less on food and have more wealth to spend on other items. Economists recognize that over time businesses figure out how to be more productive. What isn’t fully appreciated is the immense role economically disruptive technologies play in creating productivity. The past centuries haven’t witnessed steady progress. Instead progress has come in big waves around disruptive technologies with prolonged periods of economic stagnation occurring between those waves.

The Economic Technology Cycle

There have been many paradigm shifting technologies in human history from agriculture and metallurgy to steam power and electricity. Economic spinoff effects from such technologies are responsible for the lion’s share of economic growth. The last one hundred years have been characterized by two such technologies that profoundly impacted society —the internal combustion engine and microprocessor. Like all technologies they went through the equivalent of the product life cycle with introduction, growth and maturity stages. From mechanized warfare and reorganization of society around jet travel, highways and suburbs the internal combustion engine had an immense impact. A strong argument can be made that a significant cause of the Great Depression running from 1929 to 1942 was electricity technology exiting its growth phase, and that the economy did not return to healthy growth until internal combustion engine technology entered its own growth stage in the forties.

In fact from 1942 until 1965 the U.S. economy realized strong growth and the Dow Jones Industrial Average rose nearly 1,000 percent. Then the stock market and economy went essentially nowhere, until 1982 when IBM introduced the first personal computer and the microprocessor entered its growth stage. The economic pattern has been amazingly consistent. The Great Depression was just under a decade and a half, then the internal combustion economy experienced more than two decades of strong growth. Afterwards the economy stalled out for over a decade and a half, before the microprocessor economy drove almost two decades of strong growth and a gain in the Dow Jones Industrial Average of over 1,000 percent. Starting in 2000 with the dotcom crash the current period of economic difficulty is now approaching a decade and a half… almost time for a new technology wave.

Interchangeable Parts for the Information Age

Due to power and control issues processor performance gains slowed in the 21^st century, but the technology industry nevertheless realized important milestones around new assembly technologies. Gains in MEMS fabrication mean sensors among other devices have become increasingly effective and cheap. Moore’s Law kept putting more transistors on chips, and the processor-centric world is giving way to a SoC world, with even Intel focusing on related software and process innovations to assemble complete systems on a chip. EDA companies are pursuing system solutions leveraging higher levels of abstractions and offering increasingly complete IP blocks. The software world has been revolutionized with Agile, higher abstraction languages, as well as software libraries that serve an assembly role similar to those emerging silicon IP blocks. All together it is the next transformative technology wave.

The introduction of interchangeable parts led to greater levels of productivity with new types of products possible, during the Industrial Revolution. Today in the Information Age, we are on the threshold of a similar breakthrough, tied together by software, which will enable the creation of a diverse range of electronic, electromechanical systems and other products. The new easier-to-assemble software paradigm has already given birth to web 2.0, social networking, cloud computing and an apps world. In the silicon world new assembly technologies are leading to more comprehensive SoCs—some featuring programmable logic or systems boasting multiple SoCs on the same die. An era of affordable, accessible assembly processes creating a wide diversity of new products is likely to also involve the materials world in the form of molecular self-assembly and 3D printing, which manufactures physical items in customized manners, as well as the assembly of new materials, such as metamaterials or OLEDs.

The convergence of software, silicon and MEMS assembly trends is likely to also lead to robotic systems being one of the next big things. Already, we are seeing a profitable Japanese restaurant chain leveraging robots and the recent fielding of robotic transports in Afghanistan. Although smart phones, pill bottles that can call the doctor for a refill, the onset of personalized medicine or a new Ford car platform that is app friendly are all signs that promises around ubiquitous computing will be fulfilled, none of these are big job creators yet. But a new generation of robots can unleash the creative destruction necessary for sustainable growth by lowering the costs and improving the quality of work currently performed by humans.

However, even accepting that societal disruptive technologies are the greatest force in the multi-decade economic prosperity and stagnation cycle, it would be an overstatement to claim other factors do not matter. Government policies and regulations do matter. For this one need only consider the first big job creator of the new Assembly Era of the Information Age—fracking. By combining sensors, electromechancial systems and materials/chemistry and tying them together with software in hydrofracking technology, energy companies are tapping previously unrecoverable natural gas and oil deposits. This new technology has already driven the price of natural gas down. It has also contributed to a more positive economic environment in Canada, while its benefits to the U.S. have been less impactful, partially due to a more hostile regulatory environment.

For America’s economy to really get going history suggests it will require a more pro-business climate similar to the Reagan administration in the eighties or the Roosevelt administration’s drastic shift after Pearl Harbor of prioritizing wartime manufacturing of tanks, trucks and planes above all other considerations, which kick started internal combustion engine-centric growth. Both the most celebrated Republican and Democratic presidents of the 20^th century enjoyed economic success when pro-business policies combined with paradigm-shifting technologies. New government policies that encourage creative destruction and capital formation combined with today’s converging assembly technologies, will generate a wave of economic growth the experts don’t see coming. With much of the Information Age’s assembly technology still in its introduction phase the next few years will likely be bumpy, but the next decades will ultimately be better than expected.

NOTE: On January 30, 2012, the Wall Street Journal ran the editorial “The Coming Tech-led Boom” echoing some of the points made in this earlier published viewpoint.