Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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RISE OF THE MACHINES

The robots are coming, the robots are coming! The question is whether new smart technologies will make lots of humans unemployable or, as technological innovation has done before, lead to the creation of better, more rewarding jobs.

Pessimistic futurists are already chattering about ways to support all the human economic zombies. In the past, technology disrupted manual labour. It sped up activities that were too slow when done by horses like pulling a plough or stagecoach. It automated activities that needed lots of workers. Assembly lines required fewer workers, and increased their productivity. The focus was on brawn.

Today, a great disruption is underway, increasingly focussed on technology doing what the brain can do. Robots with artificial intelligence are coming. “Smart machines,” such as robots and self-driving cars, are computing systems that can make autonomous decisions. Several industries are on the verge of reaching, or have already reached, the point where it’s cheaper to employ robots than humans.

Robots ultimately may make better employees than humans, in a lot of ways: they don’t need to take loo breaks, eat lunch, go home to see their families or sleep. And you won’t find them making trips to the kitchen for another coffee, getting involved in office politics, or otherwise losing focus from assigned tasks. They can work anywhere and won’t hesitate to relocate. They can operate in dangerous environments without requiring employers to worry about government regulations and lawsuits. They won’t care, complain, or get frustrated unless they are programmed to do so – or learn on their own.

The current technological disruption will create job losses, but the offset could be an increase in knowledge-based businesses. Many knowledge workers are tasked with the job of eliminating the jobs of other workers, including well-educated ones. They are constantly looking for ways to use technology to increase productivity. Many of them have their heads in the Internet Cloud and other technologies, and are using them to produce more goods and services with less labour. They are doing so in manufacturing, services, and even in information technology.

Those who work in the technology industries live and breathe creative destruction. Change is what they do for a living. Disruption is generally a good thing. However, innovations can have adverse consequences including the use of the Internet by terrorists, hackers and social media bullies. Bricks-and-mortar retailers are being clobbered by online vendors, such as Amazon, eBay and TradeMe.

On the other hand, the resurgence in oil and gas production, particularly in the US, owes much to the IT revolution. The greatest disruptions are yet to come. Amazon continues to hit traditional retailing by offering the same prices at the high street shops or malls, but with free delivery. Uber may hurt car sales as more young and elderly people opt to use the remarkably efficient service rather than own a car. Tesla will soon be selling a mid-priced electric car. Service departments could also go out of business if the mechanic can come to your house to replace the defective electric motor or battery. Consider some other recent developments:

Amazon is coming to Australia and New Zealand. Amazon customers can use Dash Buttons, a small thumb-sized device to reorder paper towels, laundry detergent, and toilet paper by merely clicking a button. Dash is among Amazon’s fastest growing services since launching only two years ago. Orders using Dash Buttons are placed more than four times a minute in the US, compared to once a minute a year ago. Many brands – particularly for consumer items like coffee, produce and packaging – are seeing more than half of their Amazon.com orders placed via Dash Button devices. Amazon now has more than 300 Dash Buttons for products.

Apple is hiring former NASA and Tesla employees as part of a self-driving car initiative. While details remain scarce, its likely Apple will be working on technology that it can sell to car manufactures to install in self-driving cars.

Facebook has an ambitious 10-year plan where the entire world has access to the internet by 2026, with many people getting it through Facebook’s connectivity arm. The company is working on smart glasses, underpinned by artificial intelligence that will be good enough that we can talk to computers as easily as chatting with humans. The technology will also allow you to ‘type’ with your brain, meaning you would type, point, and click by thinking at your smart glasses. Of course any brain-machine interface raises the possibility of someone hacking into your brain and downloading it – the ultimate brain drain!

Tesla will start selling its Model 3 later this year. With a range of 350 km per change and a mid-priced starting point, the demand has already been huge. These cars will be powered by batteries from the company’s Gigafactory in the Nevada desert. If successful, other car companies will have to scramble to design their own similar company – but also source their own batteries.

Recently, Uber hosted its first “Elevate Summit”, a conference in Dallas on vertical take-off and landing (VTOL) aircraft, in other words, flying cars. The on-demand airborne ride-hailing service, if possible, would solve many congestion problems all around the world. Lightweight aircraft operating as a flying taxi service that take-off and land vertically from pre-existing urban heliports and skyscraper rooftops is still in the visionary phase (as it has been for 50 years), but some of the leading thinkers on VTOL aviation are now seriously considering the possibilities and pitfalls.

Kevin Stirrat
Head of Investment Strategy