How distance survived the communication revolution | Deloitte UK has been saved
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Errors in predicting the future of technology tend to be extreme. At one end are the naysayers, like the Hollywood mogul Darryly Zanuck, who in 1946 predicted that TV would flop, “People will soon get tired of staring at a plywood box every night."
At the other is understandable mistake of thinking that improvements in the latest hot technology are on an exponential path. Thus the delightful prediction, made by Alex Lewyt, of the Lewyt Vacuum Cleaner Company, in 1955, "Nuclear powered vacuum cleaners will probably be a reality within 10 years". Four years later the US Post Master General announced that, "Before man reaches the moon, your mail will be delivered within hours from New York to Australia by guided missiles. We stand on the threshold of rocket mail."
One writer who has got a lot right about technology is the British journalist and economist, Frances Cairncross. Her book, “The Death of Distance - How the Communications Revolution Will Change Our Lives” was published in 1997. In it Ms Cairncross predicted that the cost of transmitting information would fall close to zero making vast amounts of information available instantly. She was also on the money in anticipating the convergence of mobile telephony and the internet.
This may seem unremarkable now but 20 years ago it was heady stuff. Those were the days before Skype and internet phone calls. In 1997 the Chief Executive of the US telco, Qwest, Joseph P Nacchio, remarked that, “Long distance [telephony] is still the most profitable business in America, next to importing illegal cocaine”.
Today communication and data have become vanishingly cheap and widely available. The internet provides communication at zero marginal cost and instant access to vast stocks of information. When the Death of Distance was published there were roughly 10,000 Google searches carried out every day. That figure stands at five billion today.
Like earlier general purpose technologies, such as the internal combustion engine and electricity, the the communication revolution has had profound effects on society and the organisation of work. It has boosted trade and cross border capital flows, enabling people to work anywhere, facilitated growth in off-shoring, outsourcing, self-employment and flexible working. Some effects have been surprising. One of the reasons for the sharp drop in the number of British teenagers holding driving licences is that staying at home is more fun when you have an internet connection and a mobile. Young men aged 17 to 29 today spend 80 minutes more per day at home compared with 1995; women in the same age group spent 40 minutes more a day at home.
Yet for all the change wrought by the communication revolution it has not spelled ‘the death of distance’. Indeed, distance and location matter, and in some respects they matter more than ever.
The communication revolution, far from spreading populations and economic growth more evenly within economies, has played out during a period of rapid urbanisation. In emerging and developed nations the movement of population is towards urban areas. The lure of location is stronger than ever. In 2014, for the first time, more of the world’s population, some 54%, lived in urban than rural areas. The UN forecasts this will rise to 66% by 2050. Businesses remain wedded to city locations. More of the UK’s top companies are headquartered in London than a generation ago. The lead that so-called mega cities, those with populations in excess of 10 million, such as Tokyo and Delhi, have over the rest of the country has increased.
Proximity matters, and for good reasons. Cities offer business a valuable shared pool of resources, particularly labour and infrastructure. Bringing large numbers of people and businesses together increase the chances of matching the right person with the right job. The scale of cities improves matching in other areas, from restaurants to education and the choice of a partner. Scale, in terms of the number of businesses, tend to stimulate competition and productivity. Nor has technology fulfilled its promise to work equally well everywhere. By and large, technology tends to work better in urban areas than the country.
Urbanisation facilitates learning and the diffusion of knowledge, two vital processes for the modern economy. Workers in cities can more easily change jobs without changing homes, enabling the transfer of ideas across businesses. On-line learning has supplemented, but shows few signs of usurping the classroom, lecture theatre or face to face contact. Despite the collapsing cost of communication, competition for entry to the best schools and universities has intensified in the last three decades.
For all the transformative effects of the communication revolution the lead that cities have over the rest of the country seems to be widening. The LSE reports that in the UK workers in urban areas earn 8% more than those elsewhere; in London the premium is 24%. Buoyant property prices in major cities underscore the gap.
Human welfare also varies by geography. Last year two US-based academics, Angus Deaton and Anne Case, documented a shocking rise in mortality rates in some areas of rural America. Recent UK research show that life expectancy in some post-industrial and rural areas of the UK had fallen by more than a year since 2011, even as life expectancy continues to rise in London and parts of the south-east.
The communications revolution, has, as Ms Cairncross forecast, caused profound changes in the way we live our lives.
Yet technology only takes you so far, a point that can be illustrated by dating apps and sites. They have revolutionised the business of finding a partner, creating a theoretically efficient way of matching huge numbers of candidates. Anyone, wherever they live, can participate.
But most relationships require proximity, and the benefits of a vast pool of potential partners is most easily realised by being able to meet lots of them - which means being in an urban area. For all the power of the internet, people want to be close to other people. Distance still matters.
Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.