John Straw, author of iDisrupted and serial entrepreneur, sets the scene for his session at Housing Finance 2018 in March – how the sector can make the most of rapid social and technological change.
Welcome to 2018 and all that it holds. My theme for the year is 'technomics' – the Venn diagram between economics and technology. I want to explore how technology will have a profound effect on economic structure in the very short-term future, looking at a specific case study where technology disruption will lead to a profound economic/political change.
I want to first state a principle I hold dear: profit comes from friction, ie, an organisation that makes something easy from something difficult extracts profit by creating efficiency.
So let's take a look at bananas. The UK throws away 1.5m bananas every day because we can't accurately measure demand at the right place, in the right quantity, at the right price. As a result, there is an array of intermediaries in the value chain that try to make things smoother and increase efficiency in return for revenue.
We have producers, wholesalers, shippers, retailers and of course, the consumer. However, communication between players, except at the base level of "how many do you want? where? when?” is minimal.
Now let's introduce the Internet of Things. Using an edible sensor embedded in a banana we can get real-time consumption data transmitted to a smart fridge that connects via an API to a supermarket, which in turn connects to the supply chain and finally the producer. All of a sudden we have a complete, end to end, view of banana consumption, which allows us to put the right numbers of bananas in the right place at the right time. Excellent – we've created huge efficiency in the system and avoided massive wastage.
However, to go back to that principle I stated early on – if friction all but disappears, so does the profit. Suddenly, the new super efficiency creates an opportunity for those companies most efficient in the supply chain to drive down price in order to increase market share. This starts to tread into an area of economics called the "economics of abundance" where there is hardly enough profit to create even the opportunity to ship bananas from the producer. What profit remains in the chain goes to the new intermediaries – in this case the technology company providing the technology Internet of Things platform.
You might be asking at this point, where does that lead us economically? Firstly, there is little profit in the banana business and what there is, is transferred to the technology companies who have "efficient methods for moving profit around into tax havens" (not my words). From a political perspective, jobs go and so, as a direct result, do tax receipts from the employers in the chain and their employees. That's technomics for you.
Economically and politically, we're not even close to equipped to deal with this strategic and structural disruption and it needs an urgent, deep debate to come up with appropriate solutions. I’m looking forward to delving into this with you all at the conference.