Wednesday, January 25, 2017 / Perth Australia / By Niekie Jooste
In this edition of "The WelderDestiny Compass":
One of the main attractions of reading science fiction books is to see how authors predict that technological advances will influence society. Some authors predict a dystopian future society. This is seen in books and movies such as the “hunger games” series by Suzanne Collins. Other authors predict a somewhat utopian future society. This is seen in the “culture” series from Iain M Banks.
Seeing as we are in the future gazing business here at WelderDestiny, we need to also pass our mind to those areas that would push society into either one of these states, and decide which outcome is the most probable. One of the main factors that would be a predictor of whether we are heading to a utopian or dystopian future is rooted in economics. We therefore need to understand how economics work, and how wealth is generated and distributed within society.
We can certainly not expect to get to a final answer regarding this outcome within a single newsletter, but at least we can start with our analysis. The best place is to consider the nature of money.
If you would like to add your ideas to this week’s discussion, then please send me an e-mail with your ideas, (Send your e-mails to: firstname.lastname@example.org) or complete the comment form on the page below.
Now let's get stuck into this week’s topics...
When money was “invented”, the fundamentals of the world economy changed in a subtle but important way. Suddenly a “currency” was introduced that was a representation of value, rather than having inherent value itself. As such, money is actually a “score keeping” mechanism to show who plays the financial game the best. The value of money is that it is the representation of a claim on goods or services. Money gave rise to banking, which has become the cornerstone of modern economies.
There are obvious differences between gold, paper money and electronic money, but from an economic perspective they largely act in a similar fashion, as long as the paper or electronic money is controlled to act in a way similar to gold. The main difference is a natural limit on the amount of gold available, while the limit on the amount of the other currencies needs to be artificial in nature.
Currencies within a banking system are mostly created through credit. Some of it by central banks, but most of it by the commercial banks. This system is called the fractional reserve banking system.
It is instructional to note that when money is spent, it is not “used up”. It merely moves from one bank account to another. Over time, money “builds up” in the banking system, much like the score builds up on a score board in a football match.
It is also interesting to note that money and value are not the same thing, although values are usually expressed in terms of money. For instance, when the value of assets such as shares on the stock market increases, there is no additional money created to reflect this value. Value is attributed, based on the ruling sentiment at the time. When the market sentiment changes, the values will also change, although no money was necessarily created or destroyed in the process.
In the interest of brevity, I have not gone into details regarding the economic principles discussed, but if you are interested in a more detailed description, please click here…
This discussion on the nature of money and value
brings us to our next topic, which is how certain on-line technologies and
businesses can create such high values in such a short period.
We often hear the term “the sharing economy” used to describe businesses such as AirBnB. The reference seems obvious. People are able to share their home with others for mutual benefit. The home owner gets some income while the person renting the room on a short-term basis gets a cost-effective accommodation solution.
These types of businesses really are just a more popular incarnation of what is traditionally known as “arbitrage businesses”. An arbitrage business looks for an inefficiently used or priced good or service, and “captures” the costs associated with the inefficiency, by increasing the efficiency.
If we look at privately held assets, then we often see the greatest inefficiencies. Many households have 3, 4 or 5 bedroom homes, but only use 1 or two of those rooms on a regular basis. This means that there is at least a 50% inefficiency in accommodation utilization in most Western style cities or towns. By establishing a mechanism (or platform) to overcome the barriers that have prevented people from better utilizing the additional space in their homes, AirBnB could arbitrage away some of this inefficiency.
What value was created by the arbitrage platform called AirBnB? The Hilton hotel group is valued at $23.33 billion. It was established in 1919. The Hyatt hotel group is valued at $6.87 billion. It was established in 1957. AirBnB is valued at $30 billion. AirBnB was established in 2008. In the space of under 9 years, the value available through the arbitrage of efficiency of private homes is as great as the combined market valuations of two of the world’s greatest hotel groups that have been in operation for 50 and almost 100 years respectively.
The internet is essentially a communication mechanism. Any inefficiency that has been created by an inability to communicate on a very intimate level, can technically be eliminated by using the internet. If we start thinking about things that we often have to do repeatedly, purely because the necessary communication platform is not in place, we can immediately see huge potential for many more businesses based on this arbitrage model.
Especially in the welding industry there are big money wasters due to information being “quarantined” within organizations. With the correct platforms, huge amounts of value can be unlocked. As there are some of the stakeholders that benefit from the inefficiencies, there will always be resistance to the removal of the inefficiencies. It is however important to note that the more efficient human labour becomes, the lower the economic incentive to replace this labour by machines.
One arbitrage area that is currently growing tremendously, relates to platforms for bringing together people who want short term jobs, with people or organizations that have short term positions to fill. This has resulted in a marketplace where more and more people are relying on this “casual” labour model. The official labour statistics show that a much greater proportion of work is presently being done on a casual basis than was the case in the past.
It is important to note that it is not only menial labour going down this path. Anything from computer programmers, writers, accountants and Welders are going down this road.
There are many drivers that encourage people to move to the casual employment model. Some of these drivers are associated with legislative barriers, such as labour laws, that make it more advantageous for companies to hire people on a casual basis than on a permanent basis. Some of the drivers are associated with the need for companies to be very responsive and able to “right size” at very short notice due to the rapidly changing economic landscape. Some of the drivers are associated with personal preference issues. Some people just like to have the flexibility to “do their own thing” when needed.
Once this trend runs as far as it can, the situation will arise where most employment is out-sourced and employment relationships become casual. The main function of the traditional employers will be to manage their “one-man contractors", not their employees.
Welders are not new to temporary or contract based employment. In fact, it has been around for a relatively long time. One of the reasons that welding is well suited to this working model is that it is a skill based job. A skilled welder can very quickly become productive when moving between employers. The ways of working are relatively standard between different employers, and the processes and equipment are also relatively standard.
Having said this, there are major concerns and opportunities within the welding industry to streamline this process. These are opportunities for adding value and ensuring quality outcomes by matching the Welder with a specific set of skills and experience with the right welding jobs.
Let us imagine a world where we integrate the ideas regarding the commoditisation of engineering, the use of artificial intelligence and the “privatisation” of employment. In such a world, we start seeing that every Welder is in effect a one-man business. What opportunities are presented by a need for Welders to manage all their own systems?
In this future reality, you as a Welder may need to have the tools, systems and the ability to not only perform the welding, but also the control functions such as quality assurance and quality control (QA/QC) around the welding operation. The Welder of the future will in all probability be a one-man welding solutions provider to companies that want to only worry about the project management functions, not the technical details.
Can you see the steps that you need to start
taking to prepare yourself for this future? We will certainly expand on these
ideas in future editions of The WelderDestiny Compass.
Yours in welding
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What are your thoughts on the sharing economy. Do you see opportunities where this business model can be used in the welding industry? / How do you see the future unfolding? - Utopian or Dystopian / Please share your stories, insights and even fears or wishes regarding today's topics.