Mon, Jan 25, 2016 - Page 9 News List

Human ingenuity to master fourth industrial change

The successful adoption of new technologies could boost global productivity by as much as the Internet did during the late 1990s

By Larry Hatheway

Technological innovation has long triggered diametrically opposed reactions — awe of new possibilities for some; for others, fear of disruptive change. However, most people do not even realize what is happening as change is taken for granted.

Human ingenuity is far too little recognized or appreciated, particularly in financial markets. Investors obsess about more pedestrian concerns — fears about a hard landing in China, the repercussions of falling crude oil prices and the risk that some shock could tip a fragile world economy into renewed recession or deflation.

Obviously, worries about international demand conditions are not unfounded — surely the last thing the world economy needs now is renewed stress. However, for all the angst about excessive debt and policy inadequacy, nothing is as important as human ingenuity for delivering improved living standards and investment opportunities. Indeed, the advent of new technologies holds out the promise of a “fourth industrial revolution,” the theme of this year’s World Economic Forum meeting in Davos.

The “first industrial revolution” was based on the steam engine. James Watt’s invention, introduced about 1775, powered the nineteenth-century expansion of industry from its origins in England to Europe and the US. The “second industrial revolution,” from the last third of the nineteenth century to the outbreak of World War I, was powered by developments in electricity, transportation, chemicals, steel and especially in mass production and consumption. Industrialization spread even further — to Japan after the Meiji Restoration and deep into Russia, which was booming at the outset of World War I. The “third industrial revolution” arrived at the end of the last century with the manufacture and diffusion of information technology.

The promise of a fourth industrial revolution consists in advances in robotics, the Internet of Things, big data, mobile telephony, and 3D printing. According to one estimate, the successful adoption of these new technologies could boost international productivity by as much as the personal computer and the Internet did during the late 1990s. For investors, the fourth revolution offers opportunities for vast profits, similar to those delivered by its predecessors. Already, early movers in fourth-generation technologies command eye-popping valuations.

New eras of rising investment, productivity and living standards are not just possible; they are probable, recurring with increasing frequency — and they are the result of human ingenuity. However, new eras require more than basic science or garage-based entrepreneurial wizardry. To be transformative, technology must be adopted and diffused into everyday life.

This is easier said than done. At the very outset of industrialization, Watt struggled financially and did not successfully commercialize his steam engine until he formed a partnership with the English manufacturer Matthew Boulton.

More important, history suggests that enthusiasm can run ahead of reality. One does not have to be a “productivity pessimist” — arguing, for example, that the indoor toilet was the last great human invention — to acknowledge that many new technologies deliver less than promised or reward investors only with long lags.

It is worth remembering that early steam power predated Boulton and Watt by nearly 100 years and that it took more than 50 years for their invention to overtake conventional water-mill power as the mainstay of 19th century industrial production. Volta first discovered electricity cells in 1800, but it took another 80 years to introduce direct current as a means of power transmission.

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