Deep Thinking about Deep Recession III: Digitalization

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In my discussion of the factors making this recession different from past recessions, I’m speculating that Digitalization is changing the nature of consumption and, through it, the marketplace.

Increasingly sophisticated information and communication technology, its mass production and mass diffusion means that we’re moving from a thing-and-place economy to a screen-and-energy economy. Across the globe. Sitting at home on our screens and keyboards changes and often reduces all sorts of consumption.

Anything that involves “the real world” such as restaurants and dining, or travel and tourism, can be expected to suffer. Newspapers die. With them, pulp and paper demand decrease. The music business gets eaten. The demand for plastics and papers that supply it decrease. To paraphrase Karl Marx, everything that was solid, in the digital world, melts into bits. It’s not a case of buggy whips being replaced by cars this time around. In our millennium, it’s things that were paid for and material being replaced by things that are free, digitally transmitted, and immaterial. That’s a big difference from the economic transformations of the past, that often increased “standard of living” by adding industrial complexity, increasing material use, and creating jobs.

Digitalization doesn’t happen to everything. We still need houses to live in and food to eat (but if we’re sitting Matrix-like at our computers living our Second Life, maybe we only need little bachelor pads, bottles of Pepsi, Doritos, and vitamins). But it does happen to media content. Big-time, as we’ve seen. Not just music and motion pictures, but watch what is going to happen with TV networks and YouTube, or Kindle and books. Will the folding of newspapers, and the increasingly tough times for book publishers have an impact on the production of pulp and paper? Wait and see. Or ask someone from Kodak how their sales of 35mm film are holding up.

And there’s another point. Related but different. That is that the increased information flows and organizational abilities of information technology allow consumers to get better deals and to push on retailers and wholesalers in ways that are unprecedented.

All of this translates into decreasing demand for, and increasing downward pressure on prices for, a number of items and services (although certainly not all).

And although technology decreases these different kinds of consumption, it’s also important to note that increasing technology doesn’t lessen our dependence on energy, it hides it. When we drive our cars, we are at least aware of the exhaust fumes pouring out the back. When we use our computers however, we don’t see the huge server farms, the coal-fired or nuclear backed power plants that are cranking out the energy to service them.

Which leads (sort of) to my third point of difference: Greenification.

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