Five ways driverless cars will turn the economy upside down

From the school run to getting back from the pub, driverless cars will completely change the way we live, says Matthew Lynn.

Markets tend to get very excited about quantitative easing, interest rates and currency wars. But what really determines what will happen to the economy are trends developing in the background such as demographics, globalisation and technological developments. Of those three, the biggest thing right now is probably a technology: the driverless car.

Next month, the UK will apparently give the go-ahead for driverless cars to head out onto British roads (where they will promptly meet some over-running road works and heavy traffic). Some US states already allow them.

There are plenty of cars on the market that park themselves, and there's cruise control for motorways, so it is now a short step to mass-produced cars that drive themselves completely.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

To start with, they may have restrictions. For example, the UK's rules may insist you remain sober while your Google car is driving you home. But people are always wary of new technology. It took a while for people to feel happy using their credit card on the internet now you can hardly stop them. After a few years, we'll trust computers to drive us.

Obviously, car manufacturers will have to respond to that, making very different vehicles. Yet it won't stop there. Cars are such a huge part of our daily lives, and touch on so many different industries, that the effects will be far wider-ranging than that.

In fact, this development will turn whole industries upside down, in ways that no one is thinking about right now. Here are five big trends to watch.

Pubs bounce back: The countryside is full of shuttered pubs, largely because people quite rightly are not allowed to drink and drive any more. There isn't much point going to the pub for a Diet Coke, and it's too expensive to get a taxi home.

But with a driverless car you can drink all you like, and it will take you safely home at the end of the evening.That is great for the pub chains, and also for the brewers although it's rather less good news for the companies that sell wine and beer to drink at home.

A productivity boom:One of the mysteries of the tech boom of the last decade is that the amount we produce has tended to go down rather than up. Maybe that is because innovations such as email make us less efficient, not more so whoever came up with the "cc" function on email must have taken a couple of trillion off global GDP single-handedly.

This is different, however. The time people spend driving is dead time. With a driverless car, they can work during those hours. By the time they get to the office, they will already have deleted all those emails they were "cc'd" in on, and can get on with producing something.

More working women: It is hard for many mothers to work, or work full-time, because they have to run their children around. But the driverless car will do it for them fleets will be pulling up in an orderly queue outside the school gates every afternoon and heading for football or piano lessons.

If a lot of mothers could go from working three to four days a week, that could easily add 5% to GDP (working women are responsible for about 35% of GDP, and if half of those have children of school age, it is not hard to see how much difference it would make).

Insurance dies:It might take a few years to iron all the bugs outof the software, but the driverless car willbe smarter behind the wheel than weare, and safer too. It won't be thinking about anything else, won't get tired, won't speed, and will slow down as it approaches a sharp corner.

Most road accidents are the result of human error, and while we will never eliminate accidents completely, they are likely to fall dramatically. Everyone will need insurance, but it might only cost a few pounds a year, because there is so little risk. A whole industry will get virtually wiped out.

Car finance disappear:Car loans are a huge part of the banking or finance industry. But there's farless incentive to actually own a driverless car. For many people, it might be more attractive to sharea car rather than to ownone, because you onlyuse it for a few hours a day (and it can ferry itself to your door when you need it). If you don't need to buy them, then you don't need a loan either and a big chunk of the finance industry will disappear too.

This may well just be the start. There will be other ripple effects too. Local councils may be a bit short of money, as speeding and parking fine revenues dry up I'll certainly be programming mine to drive around the block when the time on the meter runs out. It will be a decade at least before the full impact is felt.

But the significant point is that most of what is happening in the economy is largely just background noise. It's technological change such as this that really determines how the economy will develop, and whether we get richer or poorer.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.