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Kate Howitt  |  15 Mar 2016Text size  Decrease  Increase  |  

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Kate Howitt is the portfolio manager of the Fidelity Australian Opportunities Fund. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.

 

Disruption is the term that describes the battering that technological advances herald for many people. The side effects of tech gains today include the globalising of white-collar jobs, which makes educated, older workers as redundant as the blue-collar workers whose jobs vanished abroad not so long ago.

Wages are suppressed and as a consequence, consumption drops and economic growth slows while inequality rises. Angry voters can turn to populists, as is happening in Europe and the US.

Such disruption--or creative destruction, in the phrase made famous by Austrian-born economist Joseph Schumpeter--is great for the innovative companies, of course. They reduce their production costs and wages bills, as can be seen by the surge to a record in profits as a percentage of GDP across the developed world.

Disruption is a fruitful time for investors who pick the winners, from Google to Seek (SEK), and who avoid the dislocated companies.

Disruption, however, is only the first phase of any technological revolution. History shows that two other phases follow disruption, according to Venezuelan academic Carlota Perez, who wrote about the four previous technological revolutions in her book of 2002, Technological Revolutions and Financial Capital. She calls the last phase "deployment".

The term describes the phenomenon of how a cluster of technological changes sweep through an economy, not just a few industries. What's encouraging is that deployment is a phase when workers and consumers benefit along with the innovators. Investors thrive too.

To be sure, Perez's findings are not theoretically-based. They are observations of what happened. There is no guarantee that any deployment phase will follow the disruption caused by the advent of the internet (or cyber-physical) age since 2000. Such analysis proscribes no time limit to disruption, nor any damage ceiling. It can't suggest any minimum length or minimum benefits to be had from deployment.

Worrying too is that Perez found that an economy undergoes a crisis to pass from disruption to deployment. The state of the world today--the high debt, ageing populations and distorted policies such as quantitative easing--may herald a break from past trends uncovered by Perez.

Even with these qualifications, though, we have no better guide to what today's technological revolution has in store for workers, consumers, voters, businesses and investors than to study what happened in the past. Better still, Perez's analysis points to better times ahead.

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