(Pictured: Ashley Porter)
by Patrick Liddy
Welcome to the Third Industrial Revolution, it will change the nature of superannuation and, in particular, challenge the current choice of platforms for many, if not all, super fund members.
The great economic revolutions in history were infrastructure revolutions. What made those revolutions transformational were technological breakthroughs which lead to new energy regimes for transportation and communications. We are seeing developments now with 3D printing, renewable energy, free swapping of information across the net, cloud computing, free telephone, free software to name a few.
Deflation and quantitative easing are effects and responses. Put simply, we are in the midst of the Third Industrial Revolution and the future by definition is ‘true uncertainty’. So hold onto to your pants, as the economic model of today will be very different from what is needed tomorrow. Established players have the most to lose.
The First Industrial Revolution was the transition to new manufacturing processes in the period from about 1760 to 1809. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, improved efficiency of water power, the increasing use of steam power (transportation and energy), and the invention of telegraph (communication). It also included the change from wood and other bio-fuels to coal.
The Second Industrial Revolution, also known as the Technological Revolution. It started in the latter half of the 19th century. It is considered to have begun in the 1860s and culminated in early factory electrification, mass production and who can forget the Ford model T production line.
The Second Industrial Revolution had all the hallmarks of a great infrastructure revolution. It was characterized by the build out of railroads (transportation), large-scale iron and steel production, widespread use of machinery in manufacturing, use of oil and petroleum (car transportation), beginning of electricity (energy) and by electrical communications, principally the telephone (communication). Both the First and the Second Industrial Revolutions required vertical integration and embedded command and control structures. The Third Industrial Revolution is horizontal and will require a far more collegiate and democratic approach.
According to Ashley Porter, and many others, we are in the throws of the Third Industrial Revolution now. Porter contends this is going to have a major impact on society and by extension the superannuation industry. It’s all about new technologies and “how the marginal cost of production is going to zero”. Already the giant monopolies of the music industry, the publishing industry, the print, the entertainment industry, have experienced this ‘shock and awe’.
Macroeconomics is facing this reality. With deflation the result of cheaper production and producers starting to sell at close to zero marginal cost. Quantitative easing (QE) is the government’s response. But ‘laterally’ integrated economies of scale through the Internet are just the beginning and QE may not be as effective as needed. The advent of free renewable energy will mean both winners and losers. Already “some energy companies such as Origin Energy are getting on the band wagon and offering plans to install solar for their customers.” Others will follow. (Although I did notice on Tuesday, November 25, in the ‘AFR’ that AGL’s Paul Simshauser was crying foul about subsidies to solar power in Queensland, but in his shoes I’d probably do the same). The world is changing and it would be foolish to think that superannuation is exempt.
Porter indentifies some interesting trends in both technology and professional services. His basic premise is that under the new ‘paradigm’ of close to zero margin cost for production those that “do not hug the zero cost line closely will become obsolete quickly”. This is already happening in other industries and the investment superannuation industry is not immune.
One trend he sites is Microsoft Office, an ardent monopoly rent company if ever there was one, is now giving away Microsoft Office for free for portable devices such as phones and tablets. He also mentions Elance and his own company, Mclowd, which offers a cloud-based self managed super platform – with full accounting and taxation functionality – that is being given away at zero marginal cost – that is for free.
What will this do to the existing major players will be most interesting. One thing is certain though – Mclowd’s sales are going gangbusters. If I was CBA, WBC, NAB, ANZ or AMP I would have cause for concern as their economics may not remain viable. Their total cost of advice, manufacture and distribution on their financial services will become unsustainable. New nimble players will abound, financial planners will become both manufactures and distributors. Consumers should reap better, cheaper and more tailored services.
Ashley Porter will be a keynote speaker at the “My Platform Rules” conference on the Gold Coast, February 23-24, 2015, which is being produced by my company, MSI Group, and Investor Strategy News. Go to website for details.