Sunday, April 13, 2008

Fighting inflation - with digitalization

There are real concerns that demand and cost rise driven price increases for basic food are making life difficult for people with little or next-to-no income in developing countries. This should not come as a big surprise - still we appear to be ill prepared for it - maybe because there is no easy way out. The notion that overuse of energy can be even partly solved by using arable land for it seems to come to an early end.

Inflation is for many reasons becoming a problem also in industrialised countries who for many years have been able to postpone some of the impact of rising energy and raw material cost by outsourcing work to low salary and low tax countries. This has of course been the best form of development aid - cost efficient and honourable.

Altogether the rising cost of living will lead to needs to increase salaries. Here it is not possible to pay more for the same work without endangering the general welfare. Instead productivity has to rise at least as much as the cost - and more to ensure growth. This can be done mostly by digitalization of processes and automation. In the time of inflation high salary and high taxation (leading to high gross salaries) have even more reasons to move on. Needless to say that high taxation drives unemployment.

An editorial in Computer Sweden by Johan Hallsenius enlightens the potential of digital tools as follows: In 1972 his parents bought a house for 26.000€ in Stockholm and a black&white 26" TV  costing 450€ - ie 1 house equalled 58 TVs - today the relationship is 500 flatscreen TVs to one house. When this example is extrapolated forward and to other digital tools it is easy to see that the cost effiency brought in by digitalization of processes will be even more profound. Especially as the cost for energy and raw material will continue to rise - and should be used as sparingly as possible.

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