Column : The need for a fourth industrial revolution

Written by K Vaidya Nathan | K Vaidya Nathan | Updated: Dec 22 2012, 07:43am hrs
I eagerly look forward to a book titled The Blueprint: Reviving Innovation, Rediscovering Risk, and Rescuing the Free Market that is slated to be released in March 2013. The authors are three persons who are known for their cerebral competence and are proven champions in their respective fields. The first author is Garry Kasparov, who many consider to be the greatest chess player of all time. The other two authors are co-founders of PayPalMax Levchin and Peter Thiel. Peter Thiel was also the first external investor in Facebook. The book claims to be an explosive manifesto that promises to launch a new era of global prosperity through disruptive technologies. As an IIT graduate, that means more worth for folks of my creed. But more seriously, thats precisely the kind of ideas the world needs today because we have been woefully short of revolutionary innovations in the last decade. And here we are not talking about the kind of incremental advances like iPhones.

The last 250 years have seen remarkable technological innovations that have, in turn, driven economic growth. I am not a big believer in economic theorists like Robert Solow who postulate that economic growth is a continuous process that will persist forever. There was virtually very little economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advances. If we think of innovation as the food that drives economic health, we can say that the quantity of innovation has definitely increased, but the same cannot be said about the quality of innovation or its utility. So it is very welcome that three original thinkers seem to have the answers to unlock disruptive innovation.

A useful organising principle to understand innovation in the last 250 years is the sequence of three industrial revolutions. The first industrial revolution (IR-1) with its main inventions between 1750 and 1830 created steam engines, railways and machines. The second industrial revolution (IR-2) was the most important, with its three central inventions of electricity, internal combustion engine and running water, in the relatively short interval of 1870 to 1900. As an aside, some extremely patriotic Indians argue that the running water system was invented in the Indus valley as far back as 3300 BC but it is difficult to imagine a 24x7 facility without the help of electricity.

Both the first two industrial revolutions required about a century for their full effects to percolate through the economy. During the decades 1950-70, the benefits of IR-2 were still transforming the economy, including air conditioning, fridges, mixer-grinders and even the transition of carrying pots of water to having water available on tap. However, after 1970, productivity growth slowed markedly, most plausibly because the main ideas of IR-2 had by and large been implemented by then.

The information and internet revolution (IR-3) began around 1970 and reached its climax in the dot-com era of the early 2000s, but its main impact on productivity has withered away since 2005. Many of the inventions that replaced tedious and repetitive clerical labour by computers happened a long time ago between 1970 and 2005. Inventions since 2005 have centred on entertainment and communication devices like iPhones that are smaller, smarter and more capable, but do not fundamentally change labour productivity or the standard of living in the way that electric light, automobiles or 24x7 running water did.

I think that it is useful to consider the innovative process as a series of discrete inventions followed by incremental improvements which ultimately tap the full potential of the initial invention. For the first two industrial revolutions, the incremental follow-up process lasted at least a century. For the more recent IR-3, the follow-up process was much faster. Taking the inventions and their follow-up improvements together, many of these processes could happen only once. You may think that I am being particularly harsh in calling them a one-time-only event, so let me illustrate with an example. Until 1830, the speed of travelling from one place to another was limited by that of a bullock/camel/horse, and increased steadily until the introduction of the Boeing 707 in 1958. Since then there has been no change in speed at all and, in fact, aeroplanes fly slower now than in 1958 because of the need to conserve fuel.

The benefits of on-going innovations like iPads and Playstations on the standard of living will not stop and will continue, albeit at a slower pace than in the past. To pull the global economy from the current economic slowdown, we need a fourth industrial revolution soon enough, else the effects of the crisis could impact the lives of people for an entire generation. In that context, the book is timely. If the book delivers as much as it promises, it could be a blueprint that could usher in a new era of global prosperity.

The author, formerly with JP Morgan Chase, is CEO, Quantum Phinance