Category: Technology

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The Only Savior of Middle-Income Trap

and the striking similarity that resembles Dot-com Bubble

As the market continues to trend downward and internet conglomerate becomes stale in innovation, our economic growth is going to experience a precipitous downward trend. In addition to the natural market cycle that predicts a contraction in or around 2020-2021, trade tension and contractionary economic and financial policy might accelerate the progress, making deep depression inevitable.

The manufacturing industry is going to be the first old guard of the economy to fell victim to the tariffs, social insurance policy and contractionary monetary policy, resulting in mass unemployment and social unrest. The threat of economic stability is then going to trickle out towards other traditional industries, and negatively affect equity market’s price evaluation. At this period, the entertainment and fast food industry are going to observe extraordinary growth, as we currently witnessed in Chinese market.

After manufacturing industry collapse, retail service industry, a complementary industry, is predicted to be next to experience pain from economic slowdown. However, since the retail industry is already starting to slowly transform into e-commerce, the economic effect will be less observable. The newly established e-commerce law is also going to negatively affect the cash flow of e-commerce portal like Alibaba, JD and WeChat, and their revenue from transaction fees and advertisements.

The aforementioned problems are also going to raise the price of consumer goods. With low confidence and high purchasing price, rapid inflation is next to ensue. Currently, inflationary pressure comes from three sources: tariff related inflation, stricter taxation related inflation, and monetary policy related inflation. If the central bank decides to push expansionary monetary policy further, then the rapid inflation is going to be unstoppable.

Then we discuss whether housing market is going to absorb expansionary monetary policy like 2008 and 2013. Although the purchasing leans heavily towards property market, the restriction placed on buying secondary houses and the mortgage policy is going to stop most of the newly minted money from flowing into the market. Further, since the restriction placed on property market serves to maintain social stability, it is unlikely to be lifted.

Next, since Chinese wage growth is stagnant, the entire country is slowly slumping into middle income trap. In order to escape the middle income trap, the only two potential solutions are to innovate revolutionary technologies that breaks productivity barriers, and/or transform the economy to service-based economy. Since the second solution is long and painful, the only way out is through rapid technological innovation that increases the productivity exponentially.

There are a couple candidates for innovation breakthrough. Robotic automation technology that promises less reliance on human workers, automated vehicle that reduces wasted productivity time. Artificial intelligence that learns repetition in work. These revolutionary technologies depend on breakthrough in telecommunication technology (5G) for its 20 Gbps theoretical speed and its Massive MIMO that can support tens of thousands of device simultaneously.

5G technology is predicted to be delivered in 2020, with infrastructure deployment planned in years following the commercialization of technology. Although there isn’t a specific plan on the date of implementation, we can map this plan on 4G LTE deployment and predict that it would have wide coverage starting 2022-2023.

If the bubble burst before the 5G deployment, then the new wave of company is going to establish around 2024-2027, which mirrors the Made in China 2025 plan, and coincidentally, the advent of online economy begins at around 2004-2007, after 2001’s Dot-com Bubble burst. Most famous among them: Facebook, Google, Netflix and Amazon.

Escaping the middle-income trap is extraordinarily hard but breaking it would promote the country into the ranks of developed countries. Only with precision of execution and the open economy can this country become a revolutionary force to be reckon with.

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Drive No More

Twelve years after the first DARPA sponsored challenge in developing autonomous vehicles, we are now approaching the commercialization of self-driving cars. Google’s self-driving car have already plotted down 1 million miles with only one minor accident at a road junction in Austin Taxes, where it wrongly assumed that the bus driver would yield to its lane change. As we race towards putting autonomous cars on roads, we need to start a conversation about the economic impact of driverless cars.

Google’s co-founder Sergey Brin paints a picture of the future where we no longer need to drive in an interview by The New Yorker:

“As you look outside, and walk through parking lots and past multilane roads, the transportation infrastructure dominates,” Brin said. “It’s a huge tax on the land.” Most cars are used only for an hour or two a day, he said. The rest of the time, they’re parked on the street or in driveways and garages. But if cars could drive themselves, there would be no need for most people to own them. A fleet of vehicles could operate as a personalized public-transportation system, picking people up and dropping them off independently, waiting at parking lots between calls. They’d be cheaper and more efficient than taxis—by some calculations, they’d use half the fuel and a fifth the road space of ordinary cars—and far more flexible than buses or subways. Streets would clear, highways shrink, parking lots turn to parkland.

Rest assured, Autonomous vehicle is going to fundamentally change the personal transportation market and our daily lives—taxi driver might soon be out of jobs and insurance rate for traditional vehicles might skyrocket in the not soon distant future. With this in mind, we should explore strategies and transform our economy accordingly.

Market Service Approach

First, we review the most popular method within the business world. After the rapid rise of popularity (and market dominance) of Uber, many corporations adopt on-demand service model as the best method of implementing autonomous vehicles. As Brin has described, the on-demand service will significantly reduce the idle time of the privately owned vehicle. However, this approach wouldn’t necessarily help relieve traffic congestion in the urban environment for that the problem with rush hour still persists. With this in mind, the government can lead an initiative to alleviate congestion by encouraging industries to have different business hours.

We also need to consider the problems we face when implementing this model – parking, and road design. Our current infrastructure for parking can be integrated to accommodate for autonomous vehicles by using a unified parking payment system, and we expect that office buildings will charge a lower premium for parking autonomous cars in order to attract more service providers.

With the introduction of on-demand service, we also need to redesign our roads. Demand for street side parking will diminish over time, which would enable the government to add bicycle lane and expand sidewalk (Zhang 2015). Moreover, although this conclusion contradicts with the taxi stand approach, I would hereby discuss the problem taxi stand approach faces. The taxi stand approach is infeasible and uneconomic for both urban and suburban areas for that the approach would significantly decrease the efficiency of the system by asking people to walk to a specific location instead of picking people up at their location. The approach would also be uneconomic in the suburban area for that households are distributed more sparsely, and thus, it would be hard to be flexible with the demand of suburban households.

Market Goods Approach

Some car manufacturers have expressed their concerns over the decreasing demand for traditional automobiles in foreseeable future after Google, Uber, and other companies adopt on-demand service model. Their concerns are not unfounded since we already start to see the decrease in ownership of personal vehicle years after the introduction of ride-share and car-share programs. We expect that the on-demand autonomous vehicle will yield a much more devastating outcome. Vehicles aiming at low and median income family will be replaced by autonomous car and the on-demand service will reduce the overall demand to a much lower level. The car manufacturer will then be forced to focus on selling high-end automobiles to consumers. We currently see Tesla, Mercedes, and General Motors have all directed their effort to develop high-end self-driving cars and have plans to release them in the next decade.

Public Transportation Approach

Government and state-owned corporations are also going to be affected by the autonomous vehicles. Current literature disagrees on the future of bus and subway. Some argue that the need for human help in special situations still persists and cannot be replaced by autonomous car while other literature suggest that the autonomous car will increase the mobility of people who cannot drive a traditional car (Ford 2015; Fagnant 2015). I find that the government can put efforts in providing on-demand service specialized for those consumers by developing a solution that is friendly to all ride-takers, and reduces the fleet of buses in locations where on-demand service market is mature. The government can also provide on-demand service in rural areas, where service providers don’t have enough incentive to operate. Since the program will generate profit over time, we expect that taxpayers would not object to the government’s investment in autonomous vehicles.

Mixed Strategy Approach

The market service approach is likely going to suffer from power law distribution, with the best service provider dominating the entire market. In order to address this problem and allow the general public to benefit from the market, we should adopt a mixed strategy approach. I find that crowdfunding can both hasten the initial rollout phase and distribute profit to a greater number of household. Furthermore, taxi and bus drivers will be able to use this system as a buffer to alleviate stress and income shock caused by technological unemployment.

Crowdfunding can be implemented by using equity crowdfunding model. We expect that the model will be similar to our current model of real-estate crowdfunding in that investors fund for putting more vehicles in the system and take collective ownership of the vehicle. The equity crowdfunding will enable local resident investors to have a greater influence on service providers and improve the quality of service.

Conclusion

The autonomous vehicles are going to fundamentally change our lifestyle in the decades to come. However, if we want to ensure a smooth transition to a driverless society, many policies should be implemented beforehand instead of afterward. Although autonomous vehicles will not be in mass production in another decade, we need to start preparing our cities for a driverless future.

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Fagnant, Daniel J. and Kara Kockelman. “Preparing a nation for autonomous vehicles: opportunities, barriers and policy recommendations.” Transportation Research (2015): 167-181.

Ford, Martin R. “Technologies and Industries of the Future.” Rise of the Robots: Technology and the Threat of a Jobless Future. New York: Basic, 2015. N. pag. Print.

Greenblatt, Jeffery B. and Susan Shaheen. “Automated Vehicles, On-Demand Mobility, and Environmental Impacts.” Curr Sustainable Renewable Energy Rep (2015): 74-81.

Zhang, Wenwen, et al. “Exploring the Impact of Shared Autonomous Vehicles on Urban Parking Demand: An Agent-based Simulation Approach.” Sustainable Cities and Society (2015): 34-45.

Smoothgroover22. Google Self-Driving Car. Digital image. Flickr. n.d. Web.

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