When we talk about technology, frequently we’re focused on how it makes our lives easier—but we often look past the way it can completely reshape the economy. When I was in China last month, I spoke to a group of business students about these ideas. As I explored in my last post, we discussed how the drop in oil prices will act as a massive tax cut—today, I want to talk about how new technologies can reshape spending.
According to the International Energy Agency, daily demand for oil has increased by about 600,000 barrels over the past year. But thanks in part to new technologies like hydraulic fracturing, we’ve seen an increase in supply of over 2 million barrels a day. We’re now in the midst of price discovery, and while it’s hard to say where oil will settle, I think it’s likely to be around $75 to $85 a barrel.
The oligopoly is confused. And one reason why is that they did not anticipate the rapid growth in new oil extraction technologies. Fracking represents just a fraction of the 90 million barrels of oil produced each day, but it has a profound impact on the industry as a whole.
It’s a good example of how quickly new technology can destabilize an industry—even one as entrenched and established as oil—and even be missed by many of those within the business.
These changes took place over a number of years, and are happening at the margins. But you can also see technology precipitate incredibly rapid changes, like what we’ve seen with the rise of the “sharing economy.” Best exemplified by home-rental services such as Airbnb or taxi services like Uber (and a Chinese equivalent called Kuadi), they represent a completely different mindset for the use of capital, especially among young people.
We tend to think of these services in terms of the way they affect convenience—how they change behaviors. But as we saw with oil, new technologies can have a profound effect on prices, markets, and the way we spend our money.
For generations, young people all around the world have focused on acquiring two key pieces of property: a home and a car. These purchases are partly status-driven, partly practical. And they’re not identical, of course: Cars tend to depreciate, while homes are seen as an investment. But both purchases require large amounts of capital or credit—money that could be used elsewhere.
With the advent of technologies like Uber and Airbnb, these long-accepted financial decisions may start to change. Why bother with the big upfront investment, the hassles of maintenance and parking, or the liability of owning a car, if you can have one available within minutes with one tap of your phone.
As more and more people use sharing services for transportation, for example, personal vehicles will become less important, both financially and in terms of status. People may decide—and I think this would be the right decision for many —to take the cash they would spend on a vehicle and direct it instead towards smart investments.
Think about the scale of this change—Uber was founded just five years ago. In another five years, car-sharing technologies could be replacing car ownership at a meaningful scale. That has significant implications for the global economy, simply by changing the way capital flows through it.
New technology can also have some unpleasant effects. For example, increasing automation is putting significant downward pressure on employment. Take driverless cars, for example: While it’s true that they will eliminate congestion and accidents, over time, they will also eliminate jobs for people like taxi and truck drivers.
The countries that will get ahead will be the ones that train enough workers to do the skilled jobs—designing and maintaining sophisticated machines, or writing the code that helps them run.
This article is published in collaboration with Linkedin. Publication does not imply endorsement of views by the World Economic Forum.
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Author: Larry Fink is the Chairman and CEO at BlackRock.