Alaskan Bananas
Few sectors were more changed by globalization than agriculture. The US depends on low-wage, labor-intensive overseas farms for many important foods. Meanwhile, exports from our hyper-efficient grain producers feed millions of people in other countries.
As a result, consumers can now enjoy all kinds of non-native foods no matter where they live. If you are in Alaska and you like bananas, you can have them. The agricultural supply chain will grow them in Central America and bring them to your local store, for a price.
Bananas in Alaska are an extreme example, but the same process feeds practically all of us. Buy a hamburger anywhere in the United States and the lettuce on it likely comes from California. Why is this? Because areas of California have soil and weather perfectly suited to growing leafy vegetables. Bananas come from Central America for the same reason.
If we could re-create Central America indoors, Alaskans actually could grow their own bananas. To do this, they would need to regulate moisture levels, soil quality, temperature, and lighting at a cost that was competitive with bringing in foreign bananas.
John Mauldin
The newest LED lighting technology brings this idea closer to reality. Scientists are learning how to deliver light at the intensity, frequency, and duration that optimizes growth. LED lights dramatically reduce the electricity required to do this. Paired with solar, wind, and other renewable energy sources, indoor banana farms are no longer hard to imagine – even in Alaska.
Carry that thought process a little further, and we can conceive of entire cities becoming self-sufficient for much of their fresh food. Produced locally in converted warehouses and vertical farms, the food would be truly fresh, too. Fruits and vegetables wouldn’t spend days or weeks in transit between farm and city, nor would they need chemical pesticides and preservatives.
This won’t work for everything we eat. Centralized production may still make sense for grains, meats, and some other foodstuffs. Regional production on land around cities will continue to increase, too. Nonetheless, when this technology reaches maturity, we won’t move nearly as much food around the world. It will grow near the people who eat it. This change will likely be good for our health, but the economic consequences may be even greater.
Early in the Game
We’ve seen here that technology trends will nudge the world economy away from global integration and back toward local production and investment. Without container ships, jetliners, satellites, and mutual funds, globalization would have unfolded quite differently – and possibly not at all. Now, alternative energy sources, additive manufacturing, virtual and augmented reality communications, and sophisticated local food-production systems will take us back in the direction of regionalization and localization – and hopefully help to level the economic playing field for people worldwide.
Technology isn’t the only factor, though. Much depends on central bank decisions, international trade agreements, electoral politics, and geopolitical factors.
That said, technological change is implacable. Useful innovations rarely disappear once they’re invented. They can be suppressed or delayed but not eliminated. The globalized economy based on shipping stuff back and forth will make less and less sense as the technologies I’ve described continue to mature.
The political debate over manufacturing jobs is missing the point. Manufacturing is already coming back to the US, as are manufacturing jobs – but not in the numbers that once existed. Additive and robotic manufacturing technology will raise productivity far faster than humans can manage to do, and humans will be displaced.
Last week John quoted General Electric CEO Jeff Immelt saying that “wage arbitrage” is over. Robots do not care where you install them. They cost about the same and work at equal speed no matter where they are. Robotics will greatly reduce the incentive to make goods far from the end user simply to save on labor costs. The new incentive will be to produce in proximity to your customer. This will let you deliver faster and offer greater customization.
Technology is changing the foundational principles of globalization. That which loses its foundation eventually disappears – though its demise can take a long time. We are still very early in this megatrend.
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I want to thank John Mauldin for giving me the opportunity to write this issue of Thoughts from the Frontline. John was my first writing mentor many years ago. He started me on a career that took some unexpected twists. Now, working with him again, I feel like I’ve gone full circle.
If you like the thoughts I shared today, I have two invitations for you.
First, follow me on Twitter @PatrickW. I share links to some of the interesting economic and technology research I read every day. I’ll also post some action photos from Camp Kotok, if I can do so without breaking the rules. They’re pretty serious about keeping the conversations here private.
Second, check out Macro Growth & Income Alert. Working with our senior equity analyst, Robert Ross, I explore the macroeconomic trends that John discusses in his newsletters. Robert and I then look for specific investment opportunities that take advantage of the trends. You can learn more here.
NYC, Montana, Iceland … and a little question for you
John here again. Sunday I head back to New York for a few days before flying off to Flathead Lake, Montana, on Wednesday for a few days; then it’s back to Dallas for a few days before I take off to Iceland. New York is going to be a very busy time. That fact actually gave me an opportunity to talk with my young son Trey this week about the technological changes that have happened in my lifetime. Trey was talking about the importance of his smart phone in enabling him to stay in touch and get information.
I agreed with him, of course, and then mentioned that some 30 years ago I found myself on Wall Street on Black Monday in October 1987. I had numerous appointments, which had to be lined up weeks in advance through a rather laborious process and very expensive phone calls. This week, while sitting in a restaurant, at the airport, and on the plane, I used email and phone calls to arrange one meeting after the other. In response, other friends decided to fly in, and a very full day took shape in literally an hour or so. Just simply not possible 30 years ago.
Trey was a lot more focused than in previous years on our group’s late-night conversations at Leen’s Lodge, where the sharp polarization of the country seems mirrored at our own small gathering. Ironically, only a few attendees here are actually passionate about the candidates, but everyone seems to have an idea about what is causing the polarization in the country and whether it’s a lasting phenomenon. Last night we had one of the best conversations I can recall having here in Maine, and there have been a number of really great ones.
Leland Miller (of China Beige Book fame) got off one of the best lines of the night: “I wonder if Trump appreciates the irony that it will actually be Mexican workers in the United States that will be needed to build his wall.” Trey thought this was especially funny as Hispanic Americans are easily half of the labor force at any major construction site here in Texas. And yes, you can probably come up with all sorts of other bits of follow-on irony, some of which can’t appear in a family publication.
On a more serious note, Jim Bianco was describing the last-minute bailout by global big banks of Italy’s Banca Monte dei Paschi, relieving the burden from Prime Minister Matteo Renzi of having to take the political poison pill of bailing out a big bank before an election, when his opponents are already within the statistical margin of error of unseating him. Bianco claims that the rescuers were worried that Renzi would be pushed out of office, putting the whole of Italy at risk, which would put the whole concept of the European Union, or at least the eurozone, at risk.
I’ve mentioned this issue a few times, but it hasn’t really generated any traction among my readers. The Italian constitutional referendum coming up in late October or early November is make or break for Renzi. He has said he will resign if he does not get the authority to proceed with reforms. I know the US and much of the world will be focused on our own elections here, but that election in Italy is very important for the future of the European project.
It’s time to hit the send button. In a few minutes I’ll head back to the lodge. Tonight is lobster night. You have a great week, and I’ll report some of the further happenings here next week. And speaking of ironies, I find it fascinating that I have the hubris to write a book about what the world look like in 20 years, and I can’t even figure out with any degree of certainty what will unfold in the next three months. I can see the mountain passes off in the distance that we want to get to, but I’m pretty unclear on which path we’ll take next.
Oh, and speaking of unclear, one of the many issues we’re having trouble coming to any kind of consensus on here at Leen’s Lodge is the question of when the Fed will finally gird up its ample loins and raise rates again. It occurred to me that we could apply the “wisdom of the crowd” to this question (and the present crowd – that would be you, my million best friends – is wiser than most), so I got with my fellow Mauldin Economics editor and we hatched an idea for a one-question poll. All you have to do to contribute your bit of wisdom is jump over to our Facebook page and click on the image of the Eccles Building (the Fed’s pile of marble in Wash. DC). I’ll let you know what we all come up with.
Your needing to upgrade his crystal ball analyst,