The concept of creative destruction—out with the old and in with the new and innovative—sounds appealing, but no matter how promising change might appear to be, the process can be threatening. Change becomes even more problematic when the pace accelerates.
Many things we consider ordinary at one time were revolutionary. The steam engine, internal combustion engine, cotton gin, assembly line production, and hundreds of similar items all contributed to progress and helped to generate millions of jobs, but
their introduction threatened large segments of the population.
Today, the potential that robotics or another application of technology will displace millions of workers engenders the same angst felt by workers as the nation moved from an agrarian economy to an industrial society. If, however, robotics displacement follows the path of previous cycles, robotics would become a job blessing. The World Economic Forum three years ago suggested that in the following four years, more than 75 million jobs may be lost as companies shift to more automation, but 133 million new jobs will develop during that period, as businesses develop a new division of labor between people and machines. The pandemic, of course, probably altered this timeline, but another report estimated that 85% of the jobs in 2030 have not been invented yet.
Transformational change previously took significant amounts of time. For example, the agricultural
phase dominated for thousands of years before the industrial phase took over. People alive today might think the industrial phase has been around for a long time, but compared to the agricultural era, the industrial phase is an economic youngster.
The three major phases of global economic development experienced so far are not well defined. Instead, each one gradually moves toward the next phase. This is happening now as information technology’s incursion into our daily lives is unmistakable,
but the industrial economy still is a critical part of the global economy.
Through thousands of years, an agrarian economy dominated the globe until the middle of the 18th century when the industrial economy took hold. Driven by increased urbanization, new uses for iron and steel, new energy sources like coal, the steam engine, electricity, petroleum, and the internal-combustion engine, new machines, development of a factory system, and major transportation developments plus enhancement to all of these factors drove the world’s economic growth for more than 200 years.
The Information Economy
Establishing a starting date for the information economy is difficult. Some people cite the 1940s Electronic
Numerical Integrator and Calculator (ENIAC), a unit that filled a 20-foot by 40-foot room and had 18,000 vacuum tubes, as the grandfather of digital computers. Then came upstart Intel that developed the first Dynamic Random-Access Memory (DRAM) chip.
By the late 1970s and into the mid-1980s names like Acorn, the code name for IBM’s first computer, DOS , Lisa, Apple’s first personal computer with a graphic user interface (GUI), Macintosh, and the Commodore 64 dominated the computer conversation. It was not long before Moore's Law, which says that the number of transistors on a microchip doubles every two years as the cost of computers is cut in half, became a widely accepted principle that in time would make even a low-end personal computer exponentially more powerful than those that guided the Apollo moon missions.
Future Can Be Shocking
The key to all of this is not solely what has developed through these three economic phases,
but rather the time between them. The developed world has gone from an agricultural base lasting thousands of years to a dominant industrial phase lasting 200-plus years to today’s information economy that changes at comparatively breakneck
Fifty years ago, as one of the key points in his book, “Future Shock,” Alvin Toffler emphasized that the average person has a low tolerance for rapid change. During the vast majority of time when agriculture dominated the world, tolerating change was easy, as multiple generations would pass without noticing that anything changed. As the industrial economy developed, angst increased as job skills became antiquated far more rapidly than ever before. Today, of course, the fear of being automated out of existence is an ever-present threat in a growing number of fields.
Stock Market Also Subject to Rapid Change
The increased speed of change is not lost on the stock market. Cycles
that used to last many years are compressed into much shorter periods. The equity market’s pandemic reaction was a good example.
From its February 19, 2020, intraday high at 3,393.52, the S&P 500 fell to a 2,191.86 intraday low on March 23, 2020, and then 182 calendar days later, set a new all-time intraday peak. Only two of the previous 10 bear market recoveries to new highs occurred in a shorter period.
Traders embrace short-term volatility. Long-term investors typically do not. Volatility, however, can work to the advantage of long-term investors, as shortened periods between interim economic periods can decrease the temptation to exit the equity market, as remaining largely fully invested through numerous economic cycles typically is the best way for an average investor to achieve long-term success.
As Toffler suggested, succeeding in a rapidly changing environment is accomplished by embracing the changes. This, and making appropriate portfolio adjustments that reflect the new normal, can favorably affect you psychologically and fiscally.
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