Much has been written about the disruptive shifts in many industrial sectors, from retailing, publishing, manufacturing, entertainment, medicine, law, architecture, transport and public services caused by computers, automation and the digital revolution. Since the robotization of automobile production in the 1960s, debates have raged over the social impacts on employment, cities, education, technological obsolescence, socio-economic policies and globalization. Now the two pillars of all economies are falling: energy and finance.
Conventional economic theories assured us that these technological and global changes would lead to creation of as many or more new jobs as older ones were lost – with whole new industries created and growing our economies. Futurists like me saw the possibilities of growing leisure societies, with new opportunities for personal development, wider education, travel, knowledge industries, along with global tourism, arts and entertainment. Some of these visions materialized: tourism and entertainment are major global industries; worldwide trade and supply chains created new jobs, albeit with lower wages, and brought millions into the middle class, especially in China. We futurists saw redesigned economies where basic guaranteed minimum incomes would augment shrinking wages and jobs, to maintain purchasing power and aggregate demand to buy all the cornucopia of new goods and services from those automated factories.
Today, digitization is advancing to restructure energy sectors and white-collar professions in finance and banking once thought immune, beyond the inroads into medicine, law and higher education. As electronic diploma mills and MOOCs take over from over-priced bricks-and-mortar universities, faith is failing in the conventional bromides: education, job creation and innovation. Even economists are cautiously examining the options of guaranteed minimum incomes and the direct cash transfers to poor families now bringing these into the middle class in Brazil and Mexico. In The Second Machine Age, Brynjolfsson and McAfee explore this fundamental restructuring of industrial societies as advancing digitization destroys jobs even faster. Jaron Lanier addresses these issues in Who Owns the Future? (2013), challenging the Silicon Valley giants Amazon (AMZN), Google (GOOG), Facebook (FB), LinkedIn (LNKD) and Twitter (TWTR) to pay their users for all their personal information – which is sold on to advertisers. Economist/entrepreneur Peter Barnes addresses this need for new sources of income beyond shrinking jobs and wages in With Liberty and Dividends for All, as regular dividends from all commonly owned assets: air, water, the electromagnetic spectrum, etc., reimbursed to all citizen-owners.
We see today how the two bedrocks of all economies: energy and finance, are also being disintermediated. The growing use of distributed solar energy on millions of rooftops and businesses is bypassing central electric utilities and their transmission grids. Just as AirBnB has bypassed the hotel industry, RMI sees the future of electricity trading on similar electronic platforms so that all renewable energy sources from homes and businesses can be traded, bypassing the big power station grids. In my “The Entropy State” (1974), I predicted that the only need to connect to the grid would be to sell one’s surplus electricity. Today it can be stored onsite in your EV (Ethical Markets TV “Renewable Energy”).
The disintermediation of finance began even before the debacles of 2008 and the bailouts of too-big-to-fail banks and finance. Internet-based local currencies and microcredit have flourished worldwide for decades, as I have described, wherever mainstream economic policies and finance failed to serve real local economies. After 2008, electronic lending and barter platforms took off, such as Prosper, Zopa, Lending Club, Craigslist and many others. After the US JOBS Act was passed in 2012, crowdfunding sites exploded, as we report daily. They rapidly morphed from the early non-profit Indiegogo and Kickstarter models to others offering local investors stock in local enterprises. Crowdfunding has matured into financing multi-million deals in real estate and solar energy, such as MOSAIC, as described in the books Crowdfund Investing For Dummies and Equity Crowdfunding.
Wall Street and London financiers, after discounting the growth of these financing upstarts, began to take notice – even as they tried to hang on to their turf with even more exotic derivatives and high frequency trading and algorithms. This kind of ersatz innovation proved ever more risky, in flash crashes such as that in May 2010, electronic front running and manipulation. This led to widespread distrust and the withdrawal of multi-billions by retail investors. However, few mainstream financiers were ready for the next stage of electronic disintermediation beyond all the new electronic platforms used by HFT players. This distrust gap was addressed in October 2013 by the emergence of an investor-focused, transparent, electronic platform, IEX, which simplified orders and is engineered to slow down trading to exclude HFT players. Today, IEX, which provides a trustworthy exchange, surpasses the volume of the AMEX, has raised $75 million of capital from its smartest client firms and has applied to the SEC for full public exchange status.
The bottom line for financial markets as for traditional electricity providers is that, in our digital age, these two fundamental services to advanced economies are now seen as essential public utilities. To restore its proper role in fostering prosperity, finance must democratize services to all enterprises, savers, borrowers and citizens operating in the real economy. What will those in finance do now as much of their unnecessary trading and intermediation becomes obsolete? Electric utilities must restructure to integrate all the distributed local electricity from solar and other renewables since 191 countries pledged in 2012 to shift into the knowledge-rich, democratized, greener economies of the Solar Age.