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Tuesday, January 23, 2007

What 'disruptive technologies' really are

by Marcelo Rinesi: Buenos Aires

a tip: It's not iPhones.

Demography might indeed be fate - and the same can be said about ecology - but, as was the case for the Oracle's often elusive pronouncements, it's not always clear how demographic trends should be interpreted. It's not just the hard problem of figuring out what might happen; there's also the often overlooked problem of what it will mean. This isn't always as straightforward as it might seem.

Consider, for example, the case of Japan. It's clearly an ageing society, and a fast-ageing one at that. This is logically expected to lead to lower productivity and consumption levels - in fact, our own Edward Hugh has long promoted the idea that the current state of the Japanese economy can be ascribed in part to demographic factors. There is a good deal of evidence that suggests this indeed is true in the present and, given the trends in Japanese population and the social and practical barriers to migration into the country, it's only natural to expect that these problems will worsen in the future.

One key assumption in this analysis, of course, is that net productivity falls with age. In other words that, all things considered, a more aged Japanese society will be less productive and less willing to consume. This isn't an unfounded assumption. For example, Skirbekk's 2003 literature survey of age an individual productivity found that worker productivity starts falling rather quickly after the age of 50, with skills specially important in our contemporary economy - reasoning and learning - decaying the most. For any economy strongly dependent of human cognitive capital this can be a very bad blow.

But if demography is fate, biology need not be constant. Just as basic natal care and sanitation drastically changed demographic tendencies in the past, current medical research could very well reduce or even eliminate the cognitive decline involved with age. This isn't an isolated discovery. Prompted partly by fast-growing, affluent markets in Europe, the United States and other countries, and partly by our rapidly increasing knowledge about the human nervous system from the molecular to the cognitive scale, there's no doubt that neuromedicine has the potential not only to improve the lives of tens of millions of people, but also of changing some of the biological dynamics that mediate between demography and economics.

While such a development wouldn't turn Japan -or Europe, for that matter- into a young, booming economy, it would drastically change the future path of productivity levels. Fiscal realities would change, too. Suddenly, a bigger population of elderly people need not be a burden on healthcare systems, but rather a boost to the economy.

This isn't to say that this is actually a prediction. It's but an scenario, but it's a possible scenario and, most importantly, an example of how technological change -and not necessarily out-of-the-blue, unexpected technological change- can drastically modify the underlying dynamics, sometimes even the underlying biological facts, that drive the economic interpretation of current trends. There was a time, after all, when oil had no economic significance (and there will be a time, probably in the lifetime of people already living, when it again won't - how's that for a technologically mediated geopolitical change?).