After the Age of Stuff
The last few decades, during which long value chains have reshaped the world economy, have been notable for one characteristic above all: a rapidly improving material standard of living. In 1987, China’s streets were crowded with bicycles, and its auto plants turned out all of 17,840 new cars; thirty years later, China produced more motor vehicles by far than any other country. The price of clothing tumbled, which may explain why the average person in Great Britain purchased five times as many pieces of apparel in 2017 as three decades earlier. The median new home built in the United States in 2017 was 38 percent larger than in 1987, with 2,426 square feet to fill with acquisitions, and there was a one-in-three chance that it had more than one refrigerator. The intervening years could aptly be named the age of stuff.
Those days are not entirely over, but data from many countries suggest that consumers increasingly are spending their money on services and experiences rather than goods. In part, that’s because goods prices are falling while services prices are not. But it also reflects real changes in purchasing patterns.
There are several reasons “stuff” is losing ground. One is that the world is aging. From Iran to China to Mexico to Italy, median ages are moving steadily higher. Older households have had years to accumulate belongings and are often disinclined to acquire more; vacation trips, restaurant meals, and medical bills are likely to figure larger in their spending than furniture and fixtures.
Another factor suppressing demand for physical products is the transformation of goods into services. Digital downloads and streaming services have made it possible to enjoy films, books, and music without physically possessing a television set, a book, or a stereo. Automakers assume that consumers will prefer to pay a car-sharing service for access to a vehicle when needed rather than purchasing a car for exclusive use—a development that seems likely to lead to a decline in the total number of registered vehicles. Instead of buying dresses, some women are renting them for a few days from an apparel lending service. Sharing reduces the waste of assets sitting idle—and thereby reduces the demand for those assets.
Many industries will still involve making stuff, but the manufacturing process will likely become simpler, requiring less labor. Unlike vehicles powered by gasoline or diesel engines, electric vehicles do not have engines, transmissions, and emissions-control equipment, so as they gain market share, there will be less need for workers to produce gears and piston rings—and less reason to farm production out to low-wage countries. Automated factories are now making athletic shoes in the United States and Germany, taking jobs from factory workers in Indonesia. With additive manufacturing, in which a computer directs a printer to build an object by depositing layer upon layer of a plastic or metallic material at precise locations, manufacturers can make specialized parts in small quantities near where they are needed instead of shipping them from far away. By squeezing out labor costs, such technologies are eliminating a major rationale for far-flung value chains.
All these developments were underway well before China announced its Made in China 2025 plan in 2015, the British voted to leave the European Union in 2016, and Donald Trump became the U.S. president in 2017. I think they’ll continue even if the United States and China retreat from the brink of a trade war. Globalization isn’t going away, but I expect that over the coming years it will have less and less to do with giant ships carrying boxes full of stuff around the world. For more on why I think globalization is changing, see my new book, Outside the Box.Tags: Manufacturing, shipping