Disruption is something that is happening every day. We are seeing companies that were previously seen as infallible suddenly falling by the wayside, outdone by newer and more intuitive organizations who are outmanoeuvring incumbents to get to the top of the pyramid.
Companies like Kodak and Blockbuster saw their dominance last for decades, with billions of dollars being made in the process before going bankrupt thanks to innovative companies taking their place. However, this domination time is becoming shorter for many companies, take AOL as an example. In the year 2000 they were the king of ISP providers, raking in $4.4 billion annually from their dialup subscriptions alone. In 2015 they were bought by Verizon for the exact same amount, down from a peak valuation of $224 billion (adjusted for inflation). This is a huge fall from grace in 15 years. Yahoo had a similar, if not more impressive fall from grace in a similar time frame.
Companies like Ask Jeeves, Myspace, and Nokia had their domination cut even shorter, quickly moving from undisputed market leaders to relative obscurity in practically no time at all. Even the iPod, which was one of the most revolutionary products in history is no longer produce and MP3 file downloads are quickly becoming obsolete, with a 10.3% decrease in sales in 2015, quickly being replaced by streaming services like Spotify and Apple Music. The march of technology is increasing in pace, but is this pace of change healthy?
It is a concern that many people and organizations have, with Citigroup saying in February 2015 that ‘Historically, countries have adopted a new technology on average 45 years after its invention … [but there's a] shortening of the lag in adoption, from telephones needing 75 years to get to fifty million users, to Angry Birds taking just 35 days’. The example of Angry Birds is even dated, with Pokemon Go hitting 50 million users in just over 2 weeks in 2016. However, this increasing pace of change means there is little doubt that people, companies, skills, and even profitability are being left behind for the sake of disruption.
Uber, for example, has fundamentally changed the way that people travel in the 720 cities in which it operates, but this disruption has not been healthy. Customers are happy because in most cases the cost and convenience of Uber’s service has been a huge boon for them, but in its wake there has been tragedy and huge losses. In Hyderabad in India an Uber driver committed suicide after his earnings fell off a cliff due to Uber’s aggressive expansion but small user base. He was left financially ruined after getting a loan for the car needed to do the job. Although there isn’t sound empirical evidence, it is unarguable that the company has caused many traditional taxi drivers to lose their jobs. However, the company as an entity would still be considered a failure as a money making endeavor, as it has never made a profit. In fact in 2016 it is widely reported to have made a loss of $3 billion. Its success has been measured purely in disruption rather than business success.
When we look at the industries that have been disrupted or outsourced over the past 50 years there is a definite trend that shows decline and poor social outcomes.
A fantastic case study is Brownsville in Texas, which has the highest unemployment rate in the US at 7.3% as of December 2016. Much of this increase has been put down to declining oil prices over the past few years, which saw the primary industry in the area decimated. However, the actual output of oil across the state has increased drastically since 2011, with 529,406,103 barrels extracted in 2011 compared to 1,255,257,634 in 2016. With productivity so high, but employment down from its 2014 high, there is little doubt that technology and automation have disrupted the sector and had considerable societal impact, which is likely the cause of this high level of unemployment.
With the impact that disruption and technological development has had on this one industry, it begs the question of what will happen when there are huge disruptions in store for many industries across the world. Driverless automobiles are only one of the disruptions we are likely to see sooner than many would think. Lior Ron, co-founder and president of Uber-owned automated trucking company Otto said recently that he believed we would see driverless vehicles on the roads in around 10 years. BMW and Ford, two of the world’s largest automobile manufacturers, believe that this could be as soon as 2021 for some degree of automation.
The issue with disruption, as we have seen with Uber, is that there is seldom much thought that goes into the larger ecosystem in which they operate. The company is publicly doing well, but as a profitable business has so far been an abject failure and they have destroyed the livelihoods of thousands of people with no concerted effort to rectify this situation from the company.
Governments are meant to act as the safety nets to protect against the damage that these kind of innovations can do to the general population, but with the pace of change, they cannot act, or afford to act, quickly enough to stop the rot. If we look only at truck drivers, an industry that could be destroyed by automation, there are 3.5 million in the US alone. If we accept the prediction that 50% lose their jobs due to automation, with average unemployment benefits of $293 per week, it would add $26,663,000,000 to the annual welfare budget.
Disruption is what pushes the world forward, but the reality is that the pace of disruption we have today is likely to damage our society. We need to work out ways to deal with the looming crisis, the question is whether we can do so in time to avoid the worst outcomes.