Economic optimism on the horizon: Why we are in fact heading into a new golden age.

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The news has been full of impending economic Armageddon. Should we tighten our belts and batten down the hatches or is there anything in the economic ‘tealeaves’ to suggest that the future financial outlook may be brighter than we think?

If we look back over the last two decades, we have to admit that we have lived through a pretty miserable time.

Slow growth and recession have dominated the economic landscape. We were barely crawling out of ten years of austerity following the 2008 recession, when we were hit with Covid and just as we seem to be getting back to where we were before Covid, the economic storm clouds are gathering again.

Writing in the New York Times, Neil Irwin explains that this malaise has been brought about because of a lack of innovation by companies. This was caused by a number of factors including a glut of cheap labour, which meant companies could reduce their costs and improve their productivity without having to innovate.

One of the reasons the industrial revolution began in Great Britain, rather than other countries which were also well positioned, was because labour costs here were high due to international trade. This forced companies to invest in new technology in order to improve their productivity.

Irwin explains that the factors which brought two decades of cheap labour, are coming to an end.

Globalisation and the integration of economies the world over, were a major factor. A call centre worker in Leeds or Croydon suddenly found themselves in competition with hundreds of millions of people around the world as companies began to ‘offshore’.

The influx of eastern European workers into the UK had a similar effect here. Consequently, workers’ bargaining power was reduced, giving companies an easy way of reducing their costs and improving their productivity.

These were largely one-off events and as the economies of countries like China, the Philippines, India mature, their workforce is demanding higher wages. Other shifts in the global economy, demographics and political forces, suggest that during the coming decades, workers will become scarce again, improving their bargaining power and forcing companies to innovate to improve their profitability.

Irwin goes on to say that technology can be a driver of innovation. New technologies take time to get going and to have a beneficial economic impact.

Early development can take years, even decades and it is only once companies have realised that a new technology can offer long-term benefits, that they will buy into it.

Even then, they have to work out ways to incorporate it into their existing business model, sometimes employing teams of developers and initially this phase is often at a loss. However, once a technology gets embedded, improvements can happen at dizzying speed across whole economies.

There are a number of developing technologies which are reaching a point where they could really take off and in the past, technologies have often combined in ways which were unpredictable and which gave greater benefits than had been foreseen.

For example, in the early twentieth century, technologies allowing running water and electricity to be installed in domestic houses were in their infancy. Together they combined to completely change and improve our quality of life and health and they also brought about innovations like washing machines and kettles, which revolutionised mass productions, distribution and retail.

There are some obvious technologies which could come together in this way. Lithium-ion batteries, which have fallen in price by 90% since 2010 and solar panels which have followed a similar path.

Combined these two technologies could revolutionise the creation and use of clean energy having a massive impact on how we run our homes (responsible for around 25% of carbon emissions).

This will also revolutionise the roofing industry as people and businesses start to see their roofs as commodities to be exploited and not as liabilities.

AI is another technology which is yet to be fully adopted by industry, as are driverless cars, lorries and drones. Billions have been spent on developing these technologies and millions of miles have been driven and flown by driverless vehicles. Most cars now have some ‘driverless’ features and it can only be a short time before this becomes mainstream. Think how driverless electrical vehicles will revolutionise distribution and other areas of our society.

Another driver of innovation is crisis. The Second World War led to massive improvements in productivity and numerous innovations, like synthetic rubber and mass production of airplanes.  The development of rocket engines by Germany culminated in the moon landings which lead to the miniaturisation of electronics and computers, mobile phones and the proliferation of satellites.

We have also seen how the Covid-19 crisis accelerated the idea of remote working by a decade or more. If only 10% of the workforce remain working at home this will have a transformational effect on businesses who will need less office space, thus reducing their costs  and will be able to recruit from a much large pool of potential workers spread over a greater geographical area, which could benefit companies and individuals. It will also reduce workers commuting time, reduce CO2 emissions, reduce employees’ costs and improve their quality of life.

Another innovation from the Covid crisis was the accelerated use of technology to produce vaccines, which is likely to have very significant benefits in the long term battle against disease.

Will the Ukraine crisis accelerate progress in the adoption of clean energy as countries become more conscious of energy security and move away from existing sources?

And of course, global warming which is forcing a number of the changes we have already mentioned.

Finally Irwin points out that the baby boomer generation are reaching retirement age, freeing up a large block of jobs, creating opportunities and increasing the bargaining power of workers, forcing employers to invest in technology and innovation to survive.

The baby boomers are well provided for in terms of pensions and savings and will continue to contribute to the economy with their spending.

This group is being replaced by the millennial generation, a larger demographic group who are now aged between their mid-twenties to late thirties, which is just the age when people spend the most, giving another boost to the economy.

The next twelve months may be a tricky period for us all to navigate but the parallels drawn from earlier economic events make a compelling argument to suggest we have good economic times ahead.

This article, as with all other articles we produce, is for guidance purposes only. It does not constitute formal advice and should not be relied upon as such. For bespoke, unbiased advice relating to your commercial roofing project please contact us and we would be pleased to assist.

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