No. 4, 2009

The world economy enters a new round of technological renewal

The Russian Federation is blessed with an enormous share of the world's reserves of energy resources (more than 27%). 

As a result, the direction in which the vector of world energy development tends in the 21st century will depend largely on the development of Russia's energy potential.

At the point of no return

The current macroeconomic situation is tied to the development of the world financial crisis, the start of which many people associate with the drop in prices for the main energy resource dominating world markets - oil.

What is the reason for the world crisis? It is often called a financial, an investment, an economic crisis. But perhaps more fundamental reasons are hiding behind these labels? To answer this question, we studied the worldwide dynamic of the distribution of patent applications - the number of applications for patents per 1 million world inhabitants - for a number of extended time series (each approximately 130-140 years long). When we correlated the statistical data from three patent offices around the world (American, European, and Asian), we obtained a curve that we call Phases of Technological Growth.

On the curve, every 25-30 years of growing intensity in the proportion of patent applications is accompanied by a 25-year period of decline in this intensity. Such periodicity is entirely explainable: the scientific and technical knowledge accumulated during a period of increase in the number of applications materializes in the form of new technologies that are created during the stage of reduced intensity in the number of applications. A de facto technological renovation of the world economy takes place during the stage of a reduction in patent application intensity. The world acquires a new technological face.

The world right now is in fact at a point of no return, one at which the world economy has already embarked on a new journey of technological renewal. At this technological stage, there are no longer any large reserves of consumable resources, and the effective management of those that are left will become the main focus of world economic development.

Vector of the world economy

In which parameters will the world economy develop during the period of this new technological phase?

To answer this question, the cycles of patent application intensity are described on the basis of the method of harmonious analysis. Cycles of patent application intensity were compared with the price cycles for oil and the prices of other end-consumer goods and services.

An analysis of the cycles for the proportion of patent applications testifies to the coincidence of these cycles with the cycles of world prices for oil.

When there is an elevated proportion of patent applications, the world price for oil rises, and when the proportion of patent applications declines, the price falls accordingly. During the stage of a reduction in the proportion of applications, new technologies that neutralize the bullish behavior of oil prices take shape. When cycles of the dynamic for the proportion of patent applications coincide with the price dynamic for oil, their asynchronicity in time must be noted. It would seem these cycles are displaced in time by a period of approximately five years.

This is entirely explainable: technological patents must logically come ahead of their materialization as new technologies put into practice. There is a very similar coincidence of cycles between the proportion of patent applications and prices for other end-consumer goods and services.

In the calculations below, the relation between nominal GDP and real GDP is used as an indicator of these prices, which we call "GDP prices." According to the calculations, GDP prices also show asynchronicity with the dynamic for the proportion of patent applications. This asynchronicity, however, is on the order of seven years.

Our comparative analysis allowed us to obtain forecast values for world oil prices and the prices for other end-consumer goods and services. The results from our calculations show that the world price for oil will most likely enter a corridor of a systemic decline. It will be falling until sometime around 2014-2015 and then level off at about $40-$50 per barrel. This will last until around 2035.

Such a systemic decline will in all probability be characteristic for prices of other end-consumer goods and services as well. These prices will be falling until sometime around 2025, and will then level off until 2035.

On the whole, the world economy in the period up to 2035 (when a new technological phase will emerge) will, for the first time in many years, alter its price vector from continually rising to continually falling.

This indicates that the world economy is entering a period of its development in which demand for energy and goods, rather than their offer, will dominate the market. This, plus the application of improved technologies, will lead to their more efficient consumption.

Trends and outlook

In comparing the dynamics for oil prices and prices of other goods and services, we should note their asynchronicity in time. The stage of an active drop in prices of goods and services should in fact begin two to three years after the active stage of a drop in oil prices.

This chain reaction for prices will have the greatest negative impact on resource-driven sectors of the economy, especially on branches of the fuel-and-energy complex. The revenues of raw materials companies, being dependent on the price of oil, will fall faster than their expenses do. A situation like this will lead to lower profits - an important source of investment generation. A decline in the source will lead to a decline in investments and, consequently, to a loss in the companies' development potential. A situation like this will last as long as the dynamic for prices of other goods and services lags behind the dynamic for oil prices.

We may answer the question of when we will see some stabilization of the economy quite simply: in another one-and-a-half to two years, so long as the dynamic of oil prices and the dynamic for prices of other goods and services continue to approach each other.

As the results of our calculations show, per capita GDP (in index form) coincided with the volume of accumulated scientific and technical information (in index form) for many years in the 20th century. Beginning in 2010, the volume of accumulated scientific and technical information will break away from world per capita GDP and will cease to accompany its growth. In 2010, the 20th century economy will de facto come to an end. In the 21st century, scientific and technical progress will not be associated only with per capita GDP growth. Information and knowledge will become the main means of societal development.

Does the worldwide energy industry confirm these new patterns in the world economy? To answer this question, we studied the dynamic of world energy consumption for extended time series of more than 200 years. Based on our analysis of this dynamic, we were able to establish a clear pattern of energy consumption doubling every 40-50 years. The question therefore arises: Will our pattern continue into the 21st century, or will it be violated for one reason or another?

To resolve this, our studies included an examination of the dynamic for per capita energy consumption relative to the size of the world's population. Our results established a Z-form curve, according to which per capita energy consumption will not rise at all in the future; instead, it will asymptotically approach a value of approximately 2.5 tonnes of oil equivalent per person. This figure cannot, however, be applied to the world as a whole. It will be different for different countries. Certainly the developed countries, being the world's top energy consumers, will in the future bring their per capita consumption down to moderate levels while the developing countries will do the opposite and gradually raise their consumption to moderate levels.

This trend, in combination with the future dynamic of population growth, allows us to conclude that, despite politicians' assertions of increased demand for primary energy sources (oil, gas, coal), there will still be a decline in the developed countries' overall consumption of energy in the future.

Along with a change of technological phase, there will in the near future be a change in the world's energy order. This change will attend to the third technological phase (the first in the 21st century) until around the 2050s or 2060s. It will then be replaced with a non-hydrocarbon order in which the entire available spectrum of renewable energy resources will be used. It is important to note that the rapid creation of the non-hydrocarbon order is taking place in the depths of a natural gas order.

While the natural gas order is becoming more important in world energy, the priorities of per capita energy resource consumption are changing. The developed countries' per capita consumption of oil in the first half of the 21st century will be curtailed. A similar reduction will take place in the per capita consumption of coal. The per capita consumption of gas in the developed countries will stabilize, but a trend toward its reduction will emerge on the threshold of the 2040s. The per capita consumption of renewable energy resources will increase until the middle of the 21st century, and possibly stabilize afterwards.

Studies show that the rate of increase in patent applications in traditional energy industries is less than half that in the renewable energy field. In nuclear energy, the number of patent applications is barely one-third that in traditional energy. The greatest average annual rates of growth in the number of patent applications are found in wind energy (almost 31%), fuel cells (almost 22%), solar energy (almost 10%), and geothermal energy (almost 11%). The traditional energy industries accounted for approximately 30% of all patent applications over the period of interest, while renewable energy accounted for 48% and nuclear energy accounted for a bit more than 22%. The largest and fastest growing sector in terms of patent applications was renewable energy. Within this sector, the greatest numbers of patent applications were in scientific and technical areas associated with the development of fuel cells (around 50%), solar energy (25%), and wind energy (13%). All of the patent applications mentioned above should find their material embodiment during the first technological phase of the 21st century and de facto exist before 2050.

According to our calculations, oil's share of the energy sector will fall from 37% to 19% by 2050, while coal's share will fall from 21% to 12%. Natural gas's share will rise from 20% to 33%, but renewable energy's share will of course also rise, and very sharply - from 11% to 30%.

Our analysis shows that the pattern of world energy development corresponds to the trends that will characterize the world economy, the new economy of postindustrial development.