From the 'satanic mills' of the industrial revolution to the railroad, the automobile, electricity and the telephone, regulatory approval, rights of way and direct investment (interstate highways) provided the needed infrastructure support to support market acceptance, penetration and success.
Although the internet as we now know it was 'invented' by the US Defense Advanced Research Projects Agency (DARPA), many of the benefits of the financial and operational disruption it spawned have remained closely held by a chosen few. Which may be why a generation into the internet wave cycle, productivity gains remain elusive. The question is how to spread the utility - and the benefits - in such a way that more people can take advantage of them - and its true economic and social power can be realized. JL
Christopher Mims comments in the Wall Street Journal:
The information-technology revolution has transformed our lives. What it hasn’t done is give the world a true jolt of productivity or prosperity. Despite multiple Internet booms, we have yet to figure out how to allocate enough capital to information technology and all it enables. To get the IT revolution to truly scale will take more than the markets we have today. We’re going to have to transition to the building of public infrastructure and away from private enterprise.
The information-technology revolution has transformed our lives: how we drive, how we order taxis and record daily events, how we consume movies and the news. It has also transformed how we run companies and produce goods.
What it hasn’t done—yet—is give the world a true jolt of productivity or prosperity.
That day will come. We’re just going to face some bumps getting there.
Past technological revolutions—the steam engine, electricity, the automobile, the telephone—have brought gains in welfare to all corners of the world. Continued sharp declines in poverty in Asia and Africa can be traced to the belated adoption of these old technologies.
But if the automobile, to take one revolution, helped make possible one of the greatest sustained economic booms in U.S. history, one that led to unprecedented prosperity for the middle class, why isn’t the more recent tech revolution doing the same?
Economists and economic historians think they have an answer. To put it bluntly, they say, the problem with the current technological revolution is that, despite multiple Internet booms, we have yet to figure out how to allocate enough capital to information technology and all it enables.
This cycle—creative destruction, accumulation of wealth leading to asset bubbles and the dumping of capital into financial instruments rather than building real, productive assets, then a crash—happens every 60 or so years, according to Carlota Perez, professor of international development at the London School of Economics and author of the seminal book “Technological Revolutions and Financial Capital.”
To get the IT revolution to truly scale will take more than the markets we have today. We’re going to have to transition to the building of public infrastructure and away from the revolution being the domain of private enterprise. It’s not enough for Google to roll out high-speed fiber to a handful of cities—we have to recognize that cutting-edge technology yields whole new classes of public goods that we should be pouring money into.
In sectors from transportation to communications, markets are doing a great job of creative destruction. What comes next—what can’t happen without a larger, more coordinated effort—is the deployment of technology in a way that benefits nearly everyone.
The next phase, the one we have yet to enter, is the one in which a technology becomes not merely ubiquitous but also a kind of infrastructure that defines what it means for a country to be developed. It’s much more than just rolling out an innovation—dropping computers on desks or building rail across plains. It’s what happens when people learn how to use a technology to make themselves radically more productive.
As James Bessen, an economist who studies technology and innovation, notes in his book “Learning by Doing,” when the power loom was introduced, it made workers 2½ times as productive as they were. Eighty years later, the power loom meant they were 50 times as productive.
Some of this is due to improvements in the underlying technology, but it’s also a consequence of two other factors: workers learning how best to use a technology, and an ecosystem of concomitant technologies and cultural practices growing up around a new technology.
For example, the introduction of the electric dynamo—that is, the electric motor—was a complicated and historically contingent process. At first electricity simply replaced other power sources, like water wheels. But eventually it led to a transformation of all sorts of things, including the architecture of factories. Once multistory buildings whose shape was dictated by the need to efficiently transmit power from a single dynamo, factories became flat and sprawling with the proliferation of more and smaller motors. The changing shape of factories also changed the quality of the goods they produced, because machines could be more refined in their actions and the conditions under which their workers labored became airier.
It certainly seems as if we are already past the creative-destruction phase for many technologies, but this kind of thinking shows a fundamental lack of imagination. We have all been conditioned to think that the new, Internet-fueled economy represents some enormous transformation. But it’s easy to forget that, as science-fiction author William Gibson wrote, “the future is here—it’s just not evenly distributed.”
The evidence isn’t just in productivity statistics, but in the decline of the middle class. What we’re in now, in fact, is a transition phase we’ve seen many times before, one characterized by multiple economic crashes and, hopefully, a political and economic realignment in which the fruits of technological change are more widely shared, as they have been in the past.
If we have technologies that can make us more productive, there simply isn’t any upside in denying them to anyone, unless your goal is stagnation or decline.
The world is awash in wealth and yet seems utterly clueless about how to deploy it. Venture capital is important but represents only 1% or 2% of the investments in most private-equity funds.
Here are what I think the will be the drivers of the next phase of real growth.First, government and industry collaborating to create markets for Internet-connected everything—infrastructure, energy, consumer goods, buildings, transportation and all the other systems that sustain us and constitute our human-built planetary metabolism.
Second, government treating fast Internet access as a necessity and not a privilege. Third, a collaboration between those who would disrupt transportation and those who build the infrastructure on which it depends.
Finally, there is energy. Energy is already a highly regulated industry, and short of dismantling the power grid itself, there is no way to disrupt our current energy system without deliberately constructing markets with our ends in mind, whether it’s microgrids and small nuclear or vast fields of wind turbines and solar panels. China is already doing this on a massive scale, in its push toward renewable energy.
The idea, in other words, is that we should be able to take the most radical technologies in evidence in the world’s research centers, tech capitals and corporate campuses and diffuse them to most of the people on Earth. And if we think that market fundamentals alone will get us there, there’s an entire history of world wars, subsidized infrastructure and even the genesis of the Internet itself that suggests that notion has outlived its utility.
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