Technology
• There will be two notably disruptive technologies that affect business this year: VOIP and WiMax, both affecting, but not restricted to the telecommunications industry. VOIP (Voice Over Internet Protocol) means using high-speed Internet to make telephone calls. It’s advantages are (1) that there are effectively no long-distance charges within North America, which will shortly be extended to include Europe; (2) you can have a telephone number from virtually any North American area code, allowing people in that area code to make local calls to your number; (3) you can take your phone anywhere, plug it into any high speed Internet server, and have it ring as if you were at your own home or office; and (4) you can use the power of your computer to manage phone calls. Of the four, the last may become the most important long-term effect.
Meanwhile, WiMax is the creation of wireless, high-speed Internet connections over a broad area, such as an entire city. Much as Wi-Fi has created ‘hot spots’ of high-speed Internet access in specific locales, such as coffee shops and airports, and allowed people to create wireless access in their homes without ripping open walls, WiMax will revolutionize access to the Internet by making it almost universally available. With handheld and wearable computers increasingly including communications functions (and cell phones increasingly including computational functions), making wireless Internet widely available will significantly increase the areas of application and uses for IT anywhere.
Likewise, it will directly threaten the telecommunications industry, whose stocks used to be recommended for widows and orphans, but which are now suitable only for high risk portfolios. Basic POTS (Plain Old Telephone Service) and long distance will have to compete with more powerful and less expensive VOIP; cell phones will have to compete with handsets connected to VOIP through WiMax; soon video signals will be transmitted by wireless Internet, threatening satellite and cable providers, as well as undercutting traditional broadcasters. The entire infrastructure of the communications industry is under siege – and new fortunes will be made by those who can see future applications before anyone else.
• Meanwhile, Apple’s iPod has not only become a runaway bestseller (and the savior of this beleaguered company's profits); it threatens to re-write all the rules about what, when, and where electronics are used. The iPod has changed the financial and operating structure and future of the music business. More importantly, though, it has fundamentally changed the way people experience music. Now you can carry your entire music library with you, listen only to those things you wish, sort, shuffle, replay, and program music to suit your mood – and do it without involving any other listeners.
Apple’s next move has been to add a camera to the iPod, much as cell phone makers did some time ago. The difference is that Apple’s Macintosh computers offer a powerful and convenient back-end to the front end camera, which cell phones don’t – a way to sort, store, forward, print, catalog, or share them in ways that cell phones cannot. I expect Apple will shortly start marketing a US$500 iMac computer as a peripheral to its iPod, gaining a new entry point for its remarkable (and virus-resistant) computers. And others are starting to use the iPod for other applications as well, from schools and universities, that provide lectures and language lab materials to students, to the military, that use it for storing and accessing information. Moreover, I expect Apple to continue to expand the capabilities of the iPod, creating the computer companion that I have written about for years. After all – is the iPod a handheld computer, or a wearable computer? And Apple seems to have caught everyone else in the industry off-guard. They are now eagerly chasing after Apple with the intention of duplicating the iPod’s success in music – while Apple pushes on into new areas. Will they once again invent the territory, and then give it away through incompetent marketing, or have they learned their lessons from the failure of the Macintosh?
• Last year I said that 2004 was the year that High Definition TV would finally make serious inroads into the consumer market because of the rise of digital media (DVDs and digital broadcasts and cable stations); the HDTV format (which has been around for years), and, most importantly, the price declines of big format, flat-screen LCD and plasma TV’s. That has happened, with sales of large-format TVs tripling in 2004. But this whole trend is about to get supercharged. Once big format TVs fall below $1,000 in price (which should be this year), consumer demand will accelerate dramatically. Once they fall below $500 (which may not be until next year), demand will explode. And once that happens, broadcasters will toss out analog signals and go fully digital.
What’s interesting is that I’m now starting to get rumbles about 3D-TV – images that give the impression of three dimensions. I know of two groups working on this, and one of them has a technology that uses what amounts to off-the-shelf technology, but requires a change in the number of frames per second. We won’t see 3D this year, but it’s not that far off.
Global Trade & Geopolitics
• This year could be a make-or-break year in global trade. The U.S. dollar is going to continue to fall against the Euro, the Canadian dollar, and the Yen, increasing the temptation for America’s trading partners to cheat on trade issues. Couple this with Washington’s unabashed (and unrepentant) cheating with steel subsidies, softwood lumber penalties against Canadian imports, the illegal Byrd amendment (which rewards industries for calling for protectionism), and more, and the environment is ripe for a trade war that all countries know will hurt everyone. Balance this against the up-coming WTO trade negotiations in Hong Kong, probably in December, which hold out the promise of an improved trade deal for poor countries. Ironically, while poor countries would be major beneficiaries, this deal would also benefit consumers in rich countries as much as poverty-stricken workers in underdeveloped countries. It’s going to be interesting to see if national governments can manage to control their almost knee-jerk protectionist instincts when they know their long-term good lies in continuing to open up trade.
• And China continues to be the big prize, the big question mark – and, increasingly, the big target. China’s government is doing a real high-risk tight-rope walk. It is hoping to avoid the chaos of not having enough jobs for an increasingly restless rural population, most of whom still work on farms. The government has to balance the needs of a population that can no longer depend on womb-to-tomb communism to take care of them with the need to create efficient, world-competitive industries that produce goods and services without a lot of workers, then balance that against the need to export everything they can so they can buy everything they need to modernize their economy. Meanwhile, there is a rising clamor among their trading partners, especially the United States, to let their currency rise, which could well trigger the collapse of the Chinese banking system. It’s an almost impossible job, but one which they have managed remarkably well so far. Now, though, external pressures are building. The Chinese government wants to keep their currency undervalued, much as Europe and Japan did prior to 1973, so they can keep exporting to the U.S. regardless of the strength of the U.S. economy. Yet America’s trade balance is hemorrhaging red ink, and making currency traders nervous. A run on the dollar could result, producing an international panic. As a result, China (with Japan) has become the biggest buyer of U.S. dollars, effectively financing American consumers and the U.S. federal deficit to unsustainable levels of consumption. China is, in effect, trying to make water run uphill by propping up the dollar. They can’t do it forever – but they have to try.
• Meanwhile, China’s influence continues to grow in many areas. They were responsible for a huge chunk of global growth last year, far more than the much bigger U.S. economy, and many countries are now becoming dependent on selling to China, especially in the rest of Asia. And one of the areas where they are spending money is on their military. I do not expect to see them throw their weight around in obvious ways – yet. I do expect that they are going to start demanding that things go their way in more and more private discussions – and backing their demands with implicit threats. Suppose, for instance, that China disagreed with the U.S. over something specific, such as how to deal with North Korea, for instance. They could quietly imply that unless the U.S. modified their stance, China might just stop buying dollars. That, in itself, would cause a global panic. Of course, such a panic would hurt China badly as well – but it would be an interesting bluff.
• North Korea and Iran are the two obvious soft spots in geopolitics. Both are poisonous regimes, in different ways. North Korea is xenophobic, paranoid, and unsophisticated. Iran is merely xenophobic and paranoid. Both are, or will be, members of the nuclear weapons club, and both will be threats to world peace in 2005. Suppose, for instance, that Kim Jong-Il decides that the U.S. and other nations need to be taught a lessonabout North Korea's importance by lobbing a missile (with or without a nuke) at an American base in Japan. Or, worse, suppose that Iran decides to nuke Israel to rid the world of Zionism. Either event would precipitate a crisis of enormous proportions, the latter probably the worse of the two, because you know that Israel would retaliate in kind.
I don’t think either is likely in 2005 – what’s more likely is a continuation of unsatisfying muddle, combined with a lot of behind the scenes pressure. But both countries remind me of the worst kind of unstable school-yard bully, but armed with a Smith & Wesson. They both need to be watched very closely, and neither one can be pandered to. In particular, the U.S. and Europe had better start working together over Iran, or they will both get what they fear most: a rabid theocracy armed nukes and the conviction that they have an open line to God.
• The early big story in U.S. politics is going to be George W. Bush’s attempt to revamp Social Security. It will start with an enormous public relations barrage about what bad shape Social Security is in, and how it must be revamped now. This is going to set off a firestorm, with AARP and the Democrats on one side, and the White House on the other. But the final say may belong to the capital markets: Will global markets be willing to underwrite $2 trillion in U.S. government bonds to refinance Social Security, especially on top of the weak dollar, the huge federal deficit, and the enormous trade deficit? There’s going to be a lot of thud and blunder around this issue – and it will probably lead to questions in other rich countries, from Canada to Italy to France to England, about the security of their pension plans. And that’s a good thing.
• The sleeper story of 2004 has an outside chance to turn into the killer story of 2005. Did the minions of George W. Bush steal the vote in Ohio, Florida, and New Mexico and thus the presidential election? Bloggers on the Internet have been running amok with such stories since November 2nd, largely with an enormous lack of credible evidence, and an abundance of flimsy conspiracy theories. Yet, this whole story reminds me very much of that period in the early 1970s when Woodward and Bernstein were the only journalists pursuing the Watergate burglary. It may be that this is nothing more than sour grapes – the Republicans ran a slicker, more organized, more intelligent election campaign in every way than the Democrats. But every once in a while something turns up that makes me wonder if there is some fire under all this smoke. More to the point, is there a Woodstein out there willing to keep after this story until something breaks? If there is, it may well be Keith Olberman of MSNBC, a credible journalist who seems to have a bone in his throat on this issue. And watch the U.S. Senate. Two members of the House of Representatives have already announced that they will challenge the slate of electors from Ohio. If they can get one senator willing to risk political suicide by doing the same, they will, under law, force a debate in both houses of Congress before Bush can be formally elected president. This has to happen soon: January 6th. The odds of overturning the election are about the same as Martians landing on the White House lawn by the same date – but it would put this whole issue on the front page of every media outlet in the world, and focus a lot of attention on Ohio and Florida – again.
• Meanwhile, back on trade matters, expect to see the Euro pushing up towards US$1.50, and the Canadian buck stretching towards US90¢, much to the discomfort of America’s trading partners. Currencies tend to be like pendulums – they swing too far one way, and then too far the other.
Health Management
• In North America, the leading edge of the baby boomers will be turning 58 this year, and the strains on the health care systems in both the U.S. and Canada will produce even more audible creeks and groans. In Ontario, the largest jurisdiction in Canada, more than one-fifth of all doctors are thinking about leaving their practices, in part because the Canadian system has been economizing by abusing doctors, and not doing enough to encourage new practitioners. Meanwhile, in the States the number of individual states where lawsuits and malpractice insurance are chasing doctors away is growing, producing similar results – patients who need doctors but can’t find them.
Both countries ration health care while pretending that it’s freely available. In Canada, governments ration health care by forcing people to stand in line. If you die before you get to the head of the line, too bad. In the States, they ration health care by the kind of credit card you have. If you are (reasonably) well-off, or are working for a company that has good medical insurance, or if you’re poor and on Medicaid or old and get Medicare, you can get great medical treatment. If you’re none of these things (i.e., much of the middle class), you die, too bad. Both countries say the other has an unworkable system – and to a degree, both are right. Canada has to get over the (politically attractive) illusion that health care is free before they can even start to fix the problems. And the States has to recognize that their system is shedding people who are covered fast enough to create an enormous political backlash before such problems blow up in their faces. Already America spends more on socialized medicine than Canada does (not pro rata), and their costs are growing much faster than Canadian costs. In both countries, medical costs threaten the future prosperity of their countries, and the financial viability of their governments, yet both countries studiously ignore the elephant in the living room, yet gripe about the stains on the carpet. Disaster beckons unless governments on both sides of the border wake up.
• A start-from-scratch new drug takes about 15 years to make it to market, and we’ve had approximately five years since the completion of the Human Genome Project. This means that early discoveries will start making it into clinical trials. We’re going to start hearing of dramatic new diagnostics, treatments, and cures for various kinds of cancer (breast, ovarian, prostate, and more), obesity, heart disease, Alzheimer’s, and much more. Likewise, stem cell research is going to hold the promise of repairing heart attacks and severed spinal cords, replacing damaged brain tissue, and allowing diabetics to once again start producing insulin without drugs. Cancer drugs in particular, because the stakes are so high, tend to be allowed to leap some regulatory hurdles if they show particular promise in early stage trials, which is why we may hear more about them than other breakthroughs. But the biosciences revolution is going to unfold in many areas, from prosthetics, to diagnostics, to treatments, to silver bullet medications. And remember that new technologies tend to be over-hyped at first, before they are truly harnessed, then underestimated once they start to come to fruition. There is no doubt that we are in the Biosciences Century.
• Despite this, the pharmaceutical industry is headed for trouble, in large part because of incompetent public relations. They seem to be following the same playbook as the tobacco companies – deny, defend, delay – and with about as much success. Moreover, they are finding that knowledge is a two-edged sword: they are finding that more and more drugs are really suitable for genetically-defined niches, which runs completely contrary to the multi-billion-dollar blockbuster economic model that they’ve used to date. There is going to be big trouble and major shake-ups for the drug companies, despite the continuing bonanza of new information and possibilities in the biosciences.
• Likewise, the flow of prescription drugs from Canada to the U.S. is unsustainable, partly because Canada doesn’t have a big enough supply to provide for American demand, and partly because drug companies will cut off supplies to Canada rather than have prices debased in the U.S. Canadian politicians will eventually wake up to the fact that this flow is bad for Canada and Canadians, and stop it. That won’t solve the problems for American drug companies, though, as Americans will go online and buy from Mexico, India, or anywhere else that promises to save them money – even at the risk of getting impure drugs, or the wrong drugs. The gray market in pharmaceuticals has started, and it is not about to end.
by futurist Richard Worzel, C.F.A.
© Copyright, IF Research, January 2005.
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