Can the Internet of Things save the world economy?

Technology holds the answer to the developed world’s struggle with low economic growth believes Marco Annunziata, chief economist of US industrial giant GE.

Speaking to Network Globe in San Francisco mid-November, Annunziata discussed how he believes the next wave of internet driven productivity will change business, however the private sector and governments have to make essential infrastructure and education investments.

“When you look at advanced economies, an improvement in productivity almost indispensible, it’s the one thing that we need.” Annunziata says.

“You see economies like the US and Europe are still struggling with low growth and unemployment which is too high and a situation where governments cannot really do that much more; public debt is already high and interest rates are at zero.”

“The push has to come from the real economy, the private economy and it has to come from stronger productivity.”

“Stronger productivity has to come from innovation. If you look at countries like the US, companies have become almost as efficient as they can possibly be with the current technology.”

The next wave of internet disruption

Annunziata sees the internet of machines – the technologies connecting smart devices in homes and industries – as being the driver for the next wave of business productivity growth and innovation.

Most of the case studies of the internet of machines revolve around consumer applications; two days earlier at the Dreamforce conference, Salesforce CEO Marc Benioff discussed the possibilities of the connected toothbrush and GE itself recently invested $30 million in Quirky – a company best known for its smart refrigerator egg rack.

Annunziata though sees the real benefits of the internet of things being beyond consumer products, “you’re applying Big Data into the industrial sectors which are the real drivers for economic growth.”

This enthusiasm about the industrial possibilities of the internet of things is shared by Cisco CEO John Chambers who, at the Internet of Things World Forum in Barcelona last October, described the technologies as “the greatest opportunity of my career.”

Like most vendors GE has its own term for these technologies, preferring the phrase ‘industrial internet’ to describe how they see wind turbines, locomotives and jet engines being connected.

“If you look at US productivity growth, it pretty much doubled in the early 1990s,” says Annunziata. “After about ten years productivity slowed down again.”

Much of those productivity improvements is attributed to personal computers and the internet being adopted by businesses in that decade and Annunziata sees the industrial internet as being the next wave of technology lead growth.

Driving global productivity

Those 1990s productivity gains were not evenly distributed across all economies as the US benefiting the most while Europe lagged, Annunziata sees that as being due the flexibility of economies and labour markets on the two continents.

“If you’re in a situation where you can’t move workers around or you can’t create new companies that process is going to be slowed down and benefits will accrue at a slower pace.

Low labour rates though are not what Annunziata sees as being the main driver for increased productivity, something he emphasises in his comments about China’s adoption of these technologies.

“They are very focused on the objective of moving up the value added ladder, because they want to stimulate domestic consumption to have a balanced economy and they understand that stronger domestic consumption requires higher wages which can only be justified by higher productivity.”

Annunziata also sees Latin American countries as being other strong adopters of the industrial internet, particularly those like Mexico and Brazil where the oil and gas sector is heavily investing in these technologies meaning there’s an important role for governments in making infrastructure available to industry.

The role of governments

“You do need to have a physical infrastructure of power and data for the industrial internet to deploy it’s full benefits.” Annunziata states

Governments also have a role in dealing with the effects of a changed industrial landscape. “There’s no doubt whenever you have innovation, it is disruptive,” Annunziata says. “It changes the workplace and will eliminate some jobs.

In Annunziata’s view, both government and private enterprise has a role of retraining and supporting unemployed workers. “It has to be addressed both at the level of the company and public policy. You need to have a safety net that helps people through retraining and unemployment benefits.”

“It’s still true that the more you move into advanced areas of manufacturing, the more you need to have an educated and skilled workforce. So you need to make sure your education system gives you a strong pipeline.”

Jobs of the future

Annunziata points out that at the beginning at last century nearly half the workforce in almost every country was employed in agriculture – today it’s less than 2% in developed nations.

“One of the concerns that comes up often with this new wave of innovation focused on big data, is the idea that we’re moving towards an economy where there will be room only for engineers, data scientists and highly specialised individuals.”

“The industrial internet will also give rise to new categories of workers, we have of course the data scientist but we’ll also have a whole range of what we’ve labelled

‘mechanical-digital engineers’ who understand both how the actual machines work but also understand the data and the software.”

An example of how those ‘mechanical-digital engineers’ might work was shown at the Dreamforce conference where Salesforce CEO Marc Benioff’s keynote demonstrated how a Google Glass equipped technician could diagnose a faulty medical device.

Managing big data

‘Information is power’ is a truism that Annunziata subscribes to, seeing the availability of data as an opportunity for business leaders to re-imagine their markets and operations.

“At the managerial levels managers will have to understand both the data and the analytics and their own industries so that they can change the way their business are organised to take advantage of the new technology.”

“That will require the skills of individual managers but it will also require the flexibility of the market and the economic system to implement the changes.”

“I think this is going to be a significant challenge for two reasons; if you’re a manager you’re going to be confronted with a lot more data, a lot more information and therefore many more possibilities.”

“Some of the applications for the industrial internet will be designed to make it easier for you as a manager to understand and absorb the data.”

“Even in that situation you will be confronted with many different possibilities to reorganise the business. Some of the potential areas for gains will be in areas you haven’t thought of before.”

“The second challenge in this wave of innovation will be disruptive in the competitive landscape.”

The internet of things legacy

“When we look back in twenty, thirty years from now we’ll be shocked at how little we knew and used the data so far.”

“As an economist, the value of information is intuitive,” says Annunziata. “What excites me personally is that we’re going to change industry through the use of more information.”

About the author

Paul Wallbank is the founding editor of Networked Globe and has nearly twenty years experience of working in and reporting on computers, the internet and the future of our connected society.