growth. This seems counterintuitive; after all, how can economic stagnation signal future growth and opportunity?
It's because our current stall fits within a well-established pattern that shows up during every major shift in business and technology, when the economy moves from one industrial revolution to the next. In short, we are currently in an economic “stall zone” as the Third Industrial Revolution is (literally) running out of gas, while the Fourth Industrial Revolution – based on the new machine – has yet to grab hold at scale.
This situation creates a dissonance in which we marvel at the computers that surround us, and all they can do, while we search in vain for greater growth prospects for our companies and career security for ourselves.
The good news, which we will explore in this chapter, is that we are coming to the end of the stall zone and entering a time when the economy can break out for those who harness the power of the new machine. We refer to this as the coming “digital build-out,” in which the fruits of digital technology move from Silicon Valley to the entire economy. This value migration will be of a scale similar to the industrial build-out of the last century and will move much faster. To fully understand this transition, it helps to take a look back at the impact of new machines on work in previous periods of tumultuous disruption.
When Machines Do Everything, What Happens to Us?
People have been worried about “new machines” and their effect on the human condition for centuries. Only the machine has changed; the concerns remain the same.
Back in the early 1800s, during the First Industrial Revolution, the Luddites in northwestern England responded to the introduction of power looms by smashing them. They recognized that their textile jobs were at risk. It turned out that they were right; the machines did take over their jobs. Then the same thing happened in agriculture. At the beginning of the 19th century – when the Luddites were smashing looms – 80 % of the U.S. labor force was working the land. Today, less than 2 % of U.S. workers are in agriculture.
When the steam engine enabled mechanization during the Second Industrial Revolution, experts openly worried that “the substitution of machinery for human labor” might “render the population redundant.”17 As assembly lines made mass production possible, the economist John Maynard Keynes famously warned about widespread unemployment, “due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.”18
Today, many of us feel that same sense of trepidation as we read increasingly foreboding accounts of how new machines based on artificial intelligence will displace us. A widely cited Oxford University study estimates that nearly 50 % of total U.S. jobs are at risk from the new machines during the next decade or so.19
But Haven't Our Computers Made Us More Productive?
In spite of this doom and gloom, some of us, being ever-optimistic, will argue, “Maybe so. But all of these computers are having a broad positive effect as they are making all of us more productive.” However, the data doesn't support this argument either.
In spite of the billions spent on enterprise technology (think of all those Cisco routers, SAP applications, Oracle databases, and Microsoft-based PCs, combined with the recent explosion in consumer technologies such as smartphones and apps) worker productivity and associated G7 industrialized nation GDPs haven't budged much. For example, from 1991 through 2012 the average annual increase in real wages was a paltry 1.5 % in the UK and 1 % in the United States (which was approximately half the level of wage growth from 1970 through 1990), and these were the leaders in wage growth in the industrialized world.20 Similarly, GDP growth rates in the United States and Western Europe during those two decades were below the GDP growth rates of the previous two decades.21
How can this be? How is it that we are merely treading economic water in spite of massive technology investments? Isn't this a technology golden age?
Ask yourself: Have your PC, smartphone, e-mail, and instant messaging platforms shortened your work day? Ours neither.
Carlota's Way
The good news amid the gloom is that our current stall zone fits a historical pattern that foretells future growth. Indeed, the signals of fear that the new machine will take our jobs usually appear at the cusp of technology-led economic booms. In fact, if the Fourth Industrial Revolution doesn't generate widespread economic expansion along with associated job growth, we will have broken with history. Why do we have confidence in such a prediction? A Venezuelan-born economist will help guide us.
Carlota Perez is an award-winning economics professor at the London School of Economics. Her most important work focuses on what happens between the end of one era and the beginning of the next. She describes it like this:
History can teach us a lot. Innovation has indeed always been the driver of growth and the main source of increasing productivity and wealth. But every technological revolution has brought two types of prosperity.
The first type is turbulent and exciting like the bubbles of the 1990s and 2000s and like the Roaring Twenties, the railway mania, and the canal mania before. They all ended in a bubble collapse.
Yet, after the recession, there came the second type: the Victorian boom, the Belle Époque, the Post War Golden Age and…the one that we could have ahead now.
Bubble prosperities polarize incomes; Golden Ages tend to reverse the process. 22
Perez describes a coming Golden Age, the digital build-out that's just in front of us. But we're getting ahead of ourselves. How and why can this emerge from our current economic stall? The patterns of history provide us with the guide.
Riding the Waves
When we look back at the invention of the cotton gin, the internal combustion engine, and alternating current, we might sometimes think that one day there was an invention and the next day everything changed. But that's not how the world works. In virtually every case, there was a long and bumpy road connecting one era of business and technology to the next; the evolution of each industrial revolution follows the path of an S-curve (as shown in Figure 2.2).
Figure 2.1 Luddites in the early 1800s
Figure 2.2 The S-Curve and the Stall Zone
Why an S-curve? Historically, upon the introduction of new technologies, associated GDP does not rise for decades (the bottom of the S-curve). Select individuals and companies might get rich, but society overall does not. Yet once the technology fully grabs hold, usually 25 to 35 years into the cycle, GDP experiences near-vertical liftoff (the middle of the S-curve). All current members of the G7 nations have experienced this previously – for example, Great Britain rode the steam engine to massive GDP growth in the 19th century, and the United States did the same with the assembly line in the 20th century.
Over time, as the technology is fully adopted and finds its way into most every industry and part of the globe, GDP growth wanes (the top of the S-curve). This is where we are today with the industrial economy of the Third Industrial Revolution. The model of production is well understood, widely distributed, and commoditized. (Consider, for example, the nearly 23 million motorcycles produced in China in 2013.)23 This top-of-the-curve, flattening-out is what's behind our current economic malaise.
This S-curve pattern of innovation, stall, rapid expansion, then maturity has occurred with the previous three industrial revolutions, and to date