My colleague Stuart Lauchlan’s report from the World Economic Forum (WEF) in Davos about the training needs of the global economy got me thinking about what is described as the Fourth Industrial Revolution or 4IR.
The fact that WEF is focusing on change and preparing for change is great and a mark of what global bodies ought to be doing to advance the prospects of humanity. But there is room to doubt the designation because it will have material impacts if it’s wrong.
To understand the direction that the 4IR is heading, it is helpful to know where we’ve been. Industrial Revolutions 1, 2, 3 happened over the last 250 years. This is the first time we forecasted a new 'revolution' in advance.
IR’s are usually identified in retrospect when historians, economists, and others tally up what happened during an era to explain why it was distinct from the past. Economists have alternately called these eras Ages, as in the Age of Information and Telecommunication or Industrial Revolutions associated with a number like the currently fashionable short hand 4IR.
About 100 years ago the Russian economist Nicolai Kondratiev did some tallying and described a long economic cycle that now bears his name and lasts 50 to 60 years. The American economist Joseph Schumpeter agreed and proposed naming the cycles after their discoverer. K-waves, as they’ve become known, are driven by disruptive technological innovation and operate along a waveform as illustrated at the top of this story.
The first part of a K-wave is expansionary. Investment pours into the innovation creating jobs and diffusing out to the mass market. The second half is about efficiency as innovators find ways to deliver innovation at lower cost or with fewer inputs through automation and commoditization. Eventually, the innovation becomes so commoditized it no longer functions as an engine of the economy.
For example, mini-computers began replacing mainframes because they were much less expensive to purchase and operate. The coup de grace was administered to both by the networked PC. Today, those networks are secondary in many cases to smartphones, which some consider represents the endgame for personal computing.
Proponents of the 4IR concept say the prior IRs lasted much longer than 50 to 60 years as Table 1 shows.
|Industrial Revolution||Start date||Characteristics|
|1.0||1784||Mechanical production equipment water and steam power. Introduced railroads, steam engine, cotton spinning.|
|2.0||1870||Mass production, the division of labor, electricity. Introduced light bulbs, telephone, and assembly line.|
|3.0||1969||Electronics and information tech., computers and the internet.|
|4.0||Today||Based on cyber-physical systems, IoT. Introduced 3D printing, big data.|
But something in this analysis doesn’t quite make sense.
According to proponents, 3IR is only 50 years old and already done for being replaced by 4IR. If so, it’s no wonder the WEF is so focused on the 4IR. If the historical analysis is right, the era will last well into the current century.
But if we take the 50 to 60-year interval proposed by Kondratiev and Schumpeter (Table 2) we can find a great deal more granularity and not four industrial revolutions but six. The difference is important. Rather than being in the middle of a cycle, a time when efficiency and effectiveness outstrip expansion, we are more likely to be at the start, the expansionary part of a brand new cycle as Table 2 indicates.
Nonetheless, 4IR looks like a lot like the automation and commoditization of 3IR. It’s also hard to see how 4IR drives the global economy. As important as its components are, things like IoT and 'cyber-physical systems' don’t employ many people and thus, in and of themselves, it’s hard to see them as economic drivers.
|Technological age||Start date||Characteristics|
|The Industrial Revolution||1760||Textile factory, limited liability company, mass production (textiles). Stationary steam engine. Energy from water wheels, wood, coal. Wrought iron.|
|The Age of Steam and Railroads||1820||Mobile steam engine, pig iron, energy from coal. Joint Stock Companies Act 1844, UK.|
|The Age of Steel and Heavy Engineering, Mass Production||1870||Isaac Merritt Singer builds the sewing machine with interchangeable parts, petroleum use for lighting, automobile invented. Telephone, modern skyscraper Eifel Tower|
|The Age of Oil, Electricity, the first electronics, and the Automobile||1929||Radio, TV, Radar, vacuum tubes, transistors, integrated circuits, mainframe, and mini-computers. Software.|
|The Age of Information and Telecommunications||1971||Integrated circuits, Internet, communication weather satellites and others. Solar panels, modern wind turbines. Cell phone.|
|The Age of Sustainability and Ecosystem Services||2020||District heating, the end of fossil fuels, electric cars, renewable energy. Man-made ecosystem services, i.e., fresh water from oceans, carbon capture, soil replenishment.|
Whether you call them industrial revolutions or ages it’s vitally important to know where you are in the cycle. Guessing wrong can whipsaw businesses and lose money.
The signal characteristic of Ages is that the dominant, disruptive innovations give their names to the times because they drive the economy. Most, but not all of us, earn a living within the paradigms of an age. The expansionary, job-creating, investment-driven aspect is missing from the IR description. That's important because it informs us about topics like education, social cohesion, and many other societal impacts.
Commoditization and automation are end of era characteristics. Cloud computing is popular today because it started the process of automating away the labor and cost associated with IT. It is both automation and commoditization.
The leading industries of the 4IR are bunched in IT and represent further automation and commoditization of a set of disruptions that began about 1971. These industries will make lots of money and will remain important to the economy. But, they are running out of gas as economic drivers and job creators.
IT has already commoditized to such an extent that it doesn’t drive the economy as it once did when teams of people built computers and installed and managed them. Further evolution in areas like robotic process automation will help drive the economies of emerging nations coupled to lower wage scales.
IBM has 60 data centers around the world; Oracle is deploying 13, Microsoft is aggressively expanding its data center capacity as do SAP, Salesforce, Amazon, Google, Facebook and many others. IT has gone global and continues to commoditize as these and companies attempt to capitalize and grab as large a share of the associated network effects as they can.
Given all that it begs the question of why we’re now describing further commoditization of IT as an industrial revolution. There’s nothing revolutionary about commoditization and automation.
It may be that 4IR benefits the information and telecommunications industries, but the free market is already working toward renewable energy and electric cars as well as investments in district heating and geothermal energy—all areas that act as economic drivers I expect to drive large-scale investment and, in turn, job creation.
These all have the capability of disrupting the world and generating the jobs and economic expansion expected at the start of a K-wave. So for many reasons, 4IR sounds like a good idea but it is likely misapplied to the times we live in.