There is a consensus opinion that a rapid increase in the number of connected devices will play a role in reshaping the global economy over the next couple of decades. A McKinsey report has predicted that the number of internet-connected devices could grow to as much as 50 billion by 2020. Meanwhile, Cisco recently estimated that the trend could represent a $19 trillion economic opportunity globally. However, the real benefits of the new digital technologies is realised when the technical developments are combined with the evolution of a more effective economic system.
There’s no question that technological developments, like the ‘Internet of Things’ (IoT), have the potential to bring significant economic benefits. However, the majority of IoT innovations coming to the fore in the present day work mostly on a product or specific business level. Towards Smart Farming: Agriculture Embracing the IoT Vision, a report released by Beecham Research in 2015, found opportunities for IoT technologies across the board in agriculture, but all of the proposed solutions focused upon product development specifically for the existing farming systems.
Making crop, livestock and water management in agriculture more efficient isn’t negative. However, as Prof. Dr. Michael Braungart and William McDonough point out in their seminal book, Cradle to Cradle: Remaking the Way We Make Things, diminishing returns will be seen in attempting to make an ineffective system more efficient.
Historically, resource productivity increases have been met by an elastic demand effect. When relative prices decrease, consumers use more individual transport, floor space and food. This means that while the benefits previously highlighted are good from a prosperity perspective, they could be accompanied by exacerbated externalities and resource challenges. An ineffective system is made only more efficient.
A piece of meta-research, which reviewed 69 studies across North America, Europe and Japan, found that decreasing relative costs by 10% had the long-term effect of raising vehicle and fuel demand by more than 10% and increasing traffic by 5% – making congestion and commuter time worse.
The challenge: how can the economic potential of the digital and broader technology revolution be exploited as part of a more effective system?
The Ellen MacArthur Foundation’s recent report, Growth Within: A circular economy vision for a competitive Europe, interrogated just that issue across three focus sectors, mobility, built environment and food. It found that in a business-as-usual scenario, new technologies and business models could help add €0.9 trillion worth of value to the European economy by 2030 through increased resource productivity and reduced costs.
The problem identified in Growth Within was that product-level innovation usually outpaces system-level innovation. It means that Europe’s complex urban planning, mobility and food systems may not be able to effectively integrate new evolving technologies in a way that maximises their impact.
In contrast, the report suggests that by coupling the digital revolution with the principles of a circular economy, the economic benefits of new technologies can be significantly enhanced. The combination of the adoption of a circular economy and new technologies could create a net benefit of €1.8 trillion in Europe by 2030, twice the calculated benefits of the current path. Further societal outcomes were also uncovered, including an 11% GDP increase by 2030, versus 4% on the current path, and an increase of €3,000 in disposable income for EU households.
In a scenario where circular economy models and technological developments are combined, Growth Within estimates that primary material consumption measured by car and construction materials, real estate land, synthetic fertiliser, pesticides, agricultural water use, fuels and non-renewable electricity could drop 32 per cent by 2030 and 53 per cent by 2050 compared with today.
A McKinsey report has predicted that the number of internet-connected devices could grow to as much as 50 billion by 2020. Meanwhile, Cisco recently estimated that the trend could represent a $19 trillion economic opportunity globally.
The potential benefits for Europe, outlined Growth Within, are enabled and ultimately powered by technological development, including IoT. However, the scale of the economic opportunity is only unlocked when technological innovations are located in an effective system. In parallel, a circular economy, which aims to increase the utilisation and cycles of materials, components and products, is enabled by IoT technologies and the valuable information provided.
There are an ever-growing number of successful IoT examples that fit in with this more systemic approach. In October, Circulate covered ‘The Edge’, Deloitte’s Amsterdam office building, which aims to be the model for “the office of the future”.
The Edge is equipped with a garage that recognises your car or bike, opens the gate and guides you to an available parking place or a free electric charger. An app that finds you a free desk based on your schedule and your mood/preference for standing or sitting, sociable or quiet. Lighting and heating is tweaked to a precise degree by a network of 40,000 sensors, all connected to the internet, which are also able to conserve energy by detecting when spaces are unoccupied.
In a context where the average European office space is used less than 50% of the time during working hours, there is potentially significant economic advantage in investing in smart capabilities and transitioning to an office where employees no longer have assigned desks.
In another example, Slovenian-based Smart Futuristic Innovation is aiming to develop an online platform that connects soon to be food waste with consumers at a discounted price. FoodPlus has initially been launched as a marketplace platform for dry goods, but future phases are being designed to cover a full range of food with machine learning embedded, meaning that the platform could facilitate connections between excess food and potential customers on its own.
These examples barely scratch the surface of the potential. The rapidly growing sharing economy trend, where assets are ‘shared’ and maximised more effectively, rather than owned, has reached scale in large part because of developments in digital technology. Klaus Schwab, founder and executive chairman of the World Economic Forum, set up the body’s most recent annual meeting by outlining the potential impacts of the “fourth industrial revolution”. a term that describes the transition to smart, automated manufacturing processes.
Business, governments and innovators alike are clearly enthused and engaged with the emerging economic potential of both IoT and circular economy. The potential economic multiplier effects of combining these complementary trends are only just being explored.
Project MainStream, an initiative from the Ellen MacArthur Foundation, McKinsey and Company and the World Economic Forum, will launch a new report discussing the connection between the Internet of Things and circular economy next week.