Benjamin Studebaker

Yesterday, I ran across a new paper from economist Robert Gordon that suggests that long-term innovation and technological development may be slowing, at least in the case of breakthrough technologies. I found Gordon’s paper interesting, and would like to use today’s post to discuss it and its possible future implications.

Gordon looks at our society’s technological development as broken up into three “industrial revolutions”, which he terms “IR 1”, “IR 2”, and “IR 3”. Each revolution features some core number of technological and scientific breakthroughs which then take some number of years to reach full implementation through the rest of the economy and into the daily lives of people. It’s worth noting what each revolution is composed of:

• IR 1 takes place between 1750 and 1830 and features the breakthrough technology of the steam engine, which spawned railroads, steam ships, and steam-powered machinery.
• IR 2 takes place between 1870-1900 and features the breakthrough technologies of electricity, modern plumbing, and internal combustion, spawning movies, telephones, electric machines and appliances, cars, planes, sewers, supermarkets, suburbs, all sorts of things.
• IR 3 is defined nebulously, and entails the breakthrough technologies of computing and the internet, spawning personal computers, mobile phones, tablets, computer-enhanced design and manufacturing, and so on.

Gordon proposes that while IR 1 and especially IR 2 brought about many major changes and improvements to the daily lives of people in developed countries, IR 3’s impact has been weaker, with the rate of economic growth having already plateaued and now in the midst of a decline. He illustrates this point with these graphs:

It is important to note that Gordon excludes the recent economic crisis from this data to avoid skewing it–were that data to be included, the projection would be an estimated 8% lower. He believes that the previous industrial revolutions drove growth far more than this third one is doing.  He highlights some of the massive changes that took place after the second industrial revolution:

• The introduction of non-candle based indoor lighting
• Heating was extended to areas of the house not immediately proximal to a hearth of stove
• The average North Carolina housewife in 1885 had to 148 miles and carry 35 tons of water per year prior to modern plumbing
• Prior to the introduction of cars, horses produced 5 to 10 tons of manure per urban square mile per day that had to be removed
• Life expectancy grew from 45 years in 1870 to over 70 by 1980 due to improvements in sanitation and medical care

What Gordon terms “the great inventions” brought about tremendous improvement to human quality of life, and also increased the efficiency of human production through automation via electric machines. In contrast, Gordon has this to say about the third revolution:

Attention in the past decade has focused not on labor-saving innovation, but rather on a succession of entertainment and communication devices that do the same things as we could do before, but now in smaller and more convenient packages. The iPod replaced the CD Walkman; the smartphone replaced the garden-variety “dumb” cellphone with functions that in part replaced desktop and laptop computers; and the iPad provided further competition with traditional personal computers. These innovations were enthusiastically adopted, but they provided new opportunities for consumption on the job and in leisure hours rather than a continuation of the historical tradition of replacing human labor with machines.

Indeed, while the period of 1891-1972 saw in improvement in productivity of an average of 2.33% per year and the period of 1996-2004 saw a 2.46% improvement, the last eight years have only seen a 1.33% rise in productivity on average annually, which would indeed suggest that the recent technological developments have yet to translate into the same kind of broad mechanisation and automation improvements that we’ve seen in the past. Instead of building computer run, robot operated factories, our industries have gone to developing countries to take advantage of cheap labour costs.

Gordon identifies six issues that may be impeding further breakthroughs, which he calls “headwinds”:

• Demography–life expectancy is growing, but retirement ages remain more or less flat
• Education–falling education standards leads to a failure to optimise potential
• Inequality–most of the new production is going to the wealthy, meaning that demand grows slowly and ends up relying a lot on credit and debt
• Globalisation–outsourcing encourages private enterprise to hire cheap overseas employees rather than investing in labour-saving technology
• Environment–the cost of repairing or preventing damage that previous growth has done to the environment
• Debt–large amounts of debt make spending difficult for consumers

To this list I would also add a lack of government investment in technology and innovation.

If Gordon’s study has one flaw, it is that it tends to focus on GDP, a statistic that, while valuable, can be inflammatory and rubs some people the wrong way. GDP tends to exclude or underemphasise advancements that make existing technology cheaper or cleaner (though Gordon does, to his credit, mention some of these factors in his “headwinds”, and some of those innovations may be helping to combat said “headwinds”.

The most thought-provoking observation he makes, I think, is just how little the IT revolution has actually revolutionised our lives to this point, relative to say, electricity in the 19th century, or the internal combustion engine. There have been many small, incremental improvements to previously existing technology as a result, but very few major life-changing breakthroughs relative to previous periods of revolutionary development.

It is possible that our societal conditions are precluding further breakthroughs and development through the “headwinds” Gordon mentions and through reduced state investment, in which case we are in danger of at minimum a reduction in the rate of improvement, if not an eventual full-out absolute decline. This is actually preferable to the alternative, because the alternative is that we really have reached a point where the amount of new development we get for each dollar we spend on innovation is falling, that we really have reached some sort of limit to human ability and may not be able to get much further technologically for an indefinite length of time. I certainly hope that that is not the case. Social malaise can be corrected, but absolute limits are just that.

Source list:

Original Full Report from Robert Gordon:

http://av.r.ftdata.co.uk/files/2012/08/IS-U.S.-ECONOMIC-GROWTH-OVER-FALTERING-INNOVATION-CONFRONTS.pdf