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June 30, 2014 at 08:00 PM
The high-tech revolution that began in the final decades of the 20th century is once more gaining momentum. The Nasdaq Composite index is approaching its heady heights of March 2000—except this time the bull market in high-tech shares is being driven by profitable companies with proven business models. More to the point, the changes wrought by the IT revolution are starting to cause social disruptions that may eventually prove even more severe than those of the industrial revolution 200 years ago.
Industrial Revolution 2.0
Until the second half of the 18th century, economic value was produced mainly by the physical labor of humans and domestic animals, with the help of primitive implements and tools. Then came the industrial revolution and by the middle of the 19th century Europe and North America entered the age of the machine, with industrial equipment, steam engines and other technology taking over production and changing the economy.
But machines mainly replaced or enhanced the productivity of physical labor—even though by the second half of the 20th century they became extremely complex and efficient. Still, human input was required to organize and manage production, set up logistics, operate machinery, control quality and perform a variety of sophisticated tasks.
A new, qualitatively different stage of the industrial revolution, the development of electronics and information technology, started around 1980. While the mechanical civilization dealt mainly with physical processes, the new digital civilization began optimizing and supplementing higher quality “mental” activities: computation, data collection and processing, analytics, communications and management.
Our bodies limit our abilities. We can’t cover long distances on foot. We are weak and perform physical tasks slowly. The mechanical civilization addressed our physical limitations, but our mental shortcomings—such as short-term, selective memory, inability to perform more than one task at a time and lack of long-term concentration—hinder us to a much greater extent. Digital technology for the first time in history started to enhance mental processes and take over many tasks that only human beings had been able to perform.
Digital technology is completing processes that began in the 19th century, when agricultural production shifted from a highly labor-intensive activity to a mechanized one, gradually freeing millions of former peasants for jobs in manufacturing. Now, it takes less than two man-hours to produce 100 bushels of corn, versus 100 man-hours in the 1930s.
North America, the most advanced agricultural region in the world, employs less than 1% of the workforce in agriculture, and even as farming employment shrinks, crop production keeps rising. Corn and wheat production increased 5–10 times over the past 30 years while acreage shrank substantially thanks to the growth of residential areas. In 2013, farmers’ incomes measured a record $131 billion, more than $40 billion above the previous 10-year average.
The leader in the mechanical age was General Motors, once the world’s largest industrial company, employing 600,000 in 1979. The best symbol of the new digital age is probably Apple, which has no manufacturing plants and just 80,000 employees—many of them in its retail network—each generating over $2 million in annual sales and nearly half a million dollars in profits.
Apple’s profit margin is approximately 30%, while the Chinese manufacturer of many Apple devices, Foxconn, has to be content with about 1–2%.
A city symbolizing mechanical civilization was Detroit, which shriveled over the past three decades, losing some 60% of its 1.8 million population. San Francisco and New York epitomize the electronic age. They are multicultural and international, and London has become Europe’s success story for the same reasons.
Wither the State
