Riding the 'fourth wave' to perfect capitalism

Technology Spectator

The technology remodelling consumer behaviour across the globe is destined to reshape the very nature of capitalism. That's the future according to theoretical physicist Michio Kaku, who says that a "fourth wave” of innovation, one that unlocks a new age of economic growth, is just around the corner.

Kaku's boldness may seem nave, but there is a lot to admire about his defiant optimism when compared to the sombre realism of those who say the conditions for unlimited growth are no longer possible.

Responding to Financial Times commentator Martin Wolf's hypothesis that the era of unlimited growth may be over, Kaku told Business Spectator that while it's premature to say for certain whether capital returns will be higher for this wave of innovation than earlier waves, the technology underpinning growth is about to be revolutionised as the "nanotech and quantum era" unleashes new forms of energy, biotechnology and telecommunication.

"It's where we can grow new organs to replace the ones that get old – this is already starting to happen. Soon, within five years we will be able to grow a liver," he says.

"Just think how dramatically this will dramatically change our lifespans... and we are already starting to investigate the reversal of cellular ageing.”

Meanwhile, wallpaper common in every house will enable visual communication in real time, and out on the street "... if you are in an accident and you need a lawyer, you will have glasses or contact lenses that will bring a lawyer to you instantly, right there."

Such technologies touch the surface of Kaku's "fourth wave” which the string theory co-founder and popular author equates to the popularisation of steam power, electricity, and transistors and computers, each of which triggered a surge of productivity and capital growth.

The age of ‘perfect capitalism'

But the fourth wave comes with a fundamental difference: it will boost competition as the spread of information enabled by new technologies creates a "perfect capitalism" – the exact correlation of supply and demand.

"Capitalism is based on competition – may the best man win, right? However it's imperfect in the sense that the consumer doesn't know how much things really cost. And the manufacturer doesn't really know what the consumer wants,” Kaku says.

"That's where technology is coming in, because now the consumer will know everything about a product. The internet will be in a consumer's contact lens, which will scan every item, which has a chip in it, telling the consumer what things really cost. And then the manufacturer can use data mining to understand who the consumer is."

For the consumer, this customisation will mean an item of clothing, for example, can be instantly created to personal preferences. "All products will be suited to our personal taste... if you want the dress in red, you got it – you won't have a problem where something is out of the store, or not in your size."

This in turn becomes a new force for profit, Kaku explains, putting upwards pressure on consumption. "Perfect capitalism increases competition, makes better service for the consumer, and also more profits for the manufacturer."

For corporate players, it means the advantages of market capitalisation will shrink as playing fields even out, while data mining, targeted marketing and branding become the nexus points of competition..."

The inevitable bust

But in the end, whatever the precise GDP implications of these trends, they do come with a sober warning: that growth will inevitably overshoot the bounds of sustainability, creating a new bubble – possibly in 80 years.

"It turns out that every 80 years, starting in 1850, we had a massive crash of the markets, creating a depression," Kaku cautions.

"In 1850 it was caused by speculation in railroad stock, because of the invention of the steam engine. In 1929 it was because of utility stocks and automobile stocks, because we physicists unleashed the power of electricity. Eighty years later we physicists unleashed the power of computers and that led to the crash of 2008.”

"Now I'm not a prophet, I'm not a seer, I only look at trends. It means that the process of the fourth wave could be the engine for this. So if that is true, tell your grandchildren that the next crash may be in 2080."

Kaku's timetable may not be perfect but a bust will be inevitable. Technology may redefine the fundamental dynamic off supply and demand but there is one thing that it can't change: greed.

As Kaku puts it, as long as the emotional drivers of capitalism remain free of technological manipulation the prospect of another bubble is a certainty.

"Capitalism, the day to day supply and demand, will be perfect. But hey, greed is human nature... there is no computer program that can eliminate greed."