1 Technology’s Impact on Corporations: Technology’s Impact on Corporations: Financial Structures and the Barter Economy and the Implications for the Future.

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Technology’s Impact on Corporations:Technology’s Impact on Corporations: Financial Structures and the Barter Economy

and the Implications for the Future of Deutsche Bank

Campbell R. HarveyDuke University, Durham, NC USA

National Bureau of Economic Research, Cambridge MA USA

http://www.duke.edu/~charvey

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Technology and Finance:-----Plan

Brainstorming of the future landscape in which DB will operate.

• Forecasting technological change and its impact

• A Reassessment of the Role of the Corporation

• The Individual as the Market

• Money, Debt and Barter in the New Economy

• Implications for Deutsche Bank

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Technology and Finance:-----Forecasting Change

Jack Welch

Q: Where do you think we are as an economy as far as e-business goes?

A: “First inning.”

Fortune, May 1, 2000

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Scott McNealy

“We are just 0.5% into the e-commerce revolution. This has just started.”

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Lou Gerstner

“It will have implications for the nation-state, for the ways we organize around the world.”

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Peter Drucker

“Distance has been eliminated. There is only one economy and one market.”

Atlantic Monthly, October 1999.

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What does this mean?

What are the implications?

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We have seen exponential growth in exponential growth of computing!

Growth factors:

• Shorter distance for electrons to travel (transistor die size gets smaller)

• Greater number of transistors

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New growth factors:

• “Pipelining” -- Multiple calculations performed at the same time (parallel processing)

• Hence, conservative forecast would be to slow to exponential growth

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Human brain:

• 100 billion neurons

• 1000 connections between each neuron

• 100 trillion connections, each capable of simultaneous calculation

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Human brain:

Strength:

• Massively parallel

Weakness:

• Very slow, only 200 calculations per second.

Explains why brains does a great job at operations that require massively parallel, such as pattern recognition.

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Human brain:

At 200 calculations per second and 100 trillion connections, implies 20 million billion calculations per second.

Today, we can do 2 billion calculation per second.

Let’s forecast!

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1900 1920 1940 1960 1980 2000 2020 2040 2060 2080 2100

1040

1035

1030

1025

1020

1015

1010

105

10

10-5

10-10

Cal

cula

tion

s pe

r se

cond

per

$10

00

Mouse Brain

Human Brain

All Humans’ Brains

Insect Brain

Computing and the Human Brain

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Ray Kurzweil’s Forecasts:

2020 Will achieve capacity of human brain

2025 Will achieve the same capacity for $1000

2060 Achieve the capacity of 1 trillion humans

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What about memory?

Brain capacity is 100 trillion synapse strengths which is approximate 1 million billion bits

• 1 billion bits (128 megabytes) today costs less than $100.

• Reasonable forecast would be the memory equivalent of the brain by 2020 for $1000

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Impact for the Corporation?

Corporations mainly evolved in the late 19th century as a way to reduce transactions costs (including limited liability)

The forces that created the environment for the corporation to thrive seem to be working against the corporation in the future.

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Transactions costs are dramatically lower (this includes barriers to entry, cost to reach consumer, etc.)

The logic of centralized control has given way to a decentralized entrepreneurial type of capitalism.

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We see glimpses of this in some recent spinoffs: BCE and Nortel as well as AT&T.

Need to look hard at what are the advantages that a large corporation in this future landscape.

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Impact for the Consumer?

More information, more competition, more value.

Evolution from mass marketing, to segments, to individuals.

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Impact for Finance?

Stock exchanges as we know them today will disappear.

Trading will be computer versus computer - there will be little role for humans

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Impact for Finance?

We have seen very crude neural net applications fail.

In the future, much more complexity is possible.

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Example: Next generation of pattern recognition

Consider a string of numbers

0100101010001010111101011010101010

Could represent graphics, words.

Let’s represent this in a binary tree and use the theory of data compression.

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0100101010001010111101011010100101

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0100101010001010111101011010100101

IIIII

Only 20% probability of drawing a 1

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What about currency?

Logic of currency:

• Unit of account

• Eliminates transactions costs of barter

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What about currency?

Transactions cost of barter have dramatically decreased with Internet

• In the future, money will be a unit of account - and it is not even clear that is necessary (unit of account could be anything)

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Implications for currency

• Large B2B barter market

• Forward barter could reduce much of the need for working capital

• Rethink the need for debt

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Implications for global finance

• Currency less important

• Shorter term: Three currency zones

• Shortly after: One world unit of account

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Implications for finance

• Currency hedging will be less important - if it exists at all

• Implications for interest rate management– Debt will not be in traditional currency but goods

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Implications Deutsche Bank

• New ways of thinking about business

• History of NBD/DB

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Implications Deutsche Bank

• What core competencies can DB sustain in the future?

1 Technology’s Impact on Corporations: Technology’s Impact on Corporations: Financial Structures and the Barter Economy and the Implications for the Future.

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forecasting changewhat

forecasting changewe

forecasting changeimpact

forecasting changehuman

forecasting changejack

brain capacity

multiple calculations

capacity of human brain2025