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entrepreneurship, innovation, R&D, technology, The Second Economy, UK economy, US Economy

Can new technology be the motor to help drive us out of recession?

Much has been written lately about the role of new technology in helping to stimulate and transform the global economy from recession back to growth. One such article I read recently in the McKinsey Quarterly entitled The Second Economy, stated that ‘Every so often—every 60 years or so—a body of technology comes along and over several decades, quietly, almost unnoticeably, transforms the economy: it brings new social classes to the fore and creates a different world for business. Can such a transformation—deep and slow and silent—be happening today?’ [1].

The author, W.Brian Arthur, External Professor at Santa Fe Institute, likens the impact of new technology to the impact of the railroads in mid-19th century America. He points out that in 1850 the United States’ economy was small. Forty years later, it was the largest economy in the world. What happened in-between, he argues, was the railroads. They linked the east of the country to the west, and the interior to both. They gave access to the east’s industrial goods; they made possible economies of scale; they stimulated steel and manufacturing—and the economy was never the same.

But is Arthur correct to say that railroads acted as the motor for America’s rise to global dominance? Yes they played a very important part in terms of developing the infrastructure of the country but the real reason for growth of the US economy was the massive expansion in the productive economy that created industry, jobs and incomes. Because of this expansion in the productive capacity of the US economy, railroads and shipping routes were needed to transport goods and people. Railroads were an important enabler of the economic dynamism but it was not the creator of that dynamism.

Arthur’s article reminded me of a talk at the European Association of Communication Directors in Brussels last year where a similar discussion took place around the role of social media and new technology and their transformative role in business. I made the point that this new technology was an enabler not a transformer and internet-related technologies were simply a new part of the infrastructure of the economy – like the railroad, telegram or the telephone before it.

This is an unpopular thing to argue and it does seem to go against the dominant outlook. New technology’s role in transforming the world economy and kick-starting it out of recession attracts a lot of attention. But it could be argued that most of this attention is hyperbole. Could it be that new technology only looks good compared with other sectors which have much slower growth rates?

For example, economists based in Google have predicted that an Internet boom in the UK could open as many as 365,000 jobs within the next five years, with the Internet accounting for a fifth of the regions GDP growth. [2] But is the creation of 365,000 jobs over a five year period really that big a deal? After all, this only amounts to 73,000 new jobs a year. The US economy, even in the midst of the worst recession since the 1930s, managed to create over 100,000 new jobs in September alone [3].

The economists at Google and Arthur are right to point to scientific and technological innovation as the key to economic success. In the past technology was used to overcome the barriers that nature threw up. Human innovation fuelled developments in electricity, flight, nuclear energy, space exploration and medicine. Past innovations spawned whole new industries capable of creating millions of new jobs and transforming society. Innovation drove huge increases in productivity and revolutionised infrastructure. Unfortunately today R&D tends to concentrate either on strategies for efficiency savings and cutting back waste or on the creation of ever funkier devices and applications.

As Dr Norman Lewis, consultant for Innovation at PwC, points out in an insightful article, innovation tends to mould itself around the ambitions and horizons of society at any given time. The problem today is that society has very low horizons and a lack of ambition of what it wants to achieve and is increasingly hostile to large-scale technological advances that aspire to tame nature and shape the world we live in. [4]

On the bright side, there are some entrepreneurs who do grasp what needs to be done. While the world mourns Steve Jobs, founder of Apple and the creator of the iPad, few have heard of Elon Musk. Musk became an innovator at a very early age. Inspired to be an inventor by the example of Thomas Edison and Nikola Tesla, Musk considered three areas he wanted to get into that were particularly important. “One was the Internet, one was clean energy, and one was space,” he said. Musk went on to found or co-found the companies PayPal, SpaceX and Tesla Motors. These three companies produced, respectively, an Internet payment system (PayPal), the first viable electric car (Tesla’s Roadster), and the successor to NASA’s Space Shuttle (the Dragon reusable spacecraft and F9 rocket). According to Musk, he never aimed to disrupt for disruption’s sake. Instead, he strategized around industries that were stagnant and in need of innovation. Musk is now focussed on the opportunities in the space industry, which he sees as one of the core skills necessary for success in the 21st century. [5]

What Musk and Lewis recognise is that the dire economic situation we face demands radical innovation, even if that means the destruction of clapped out industries, processes and products. We need big thinking to come up with new technological advancements that can help create real economic dynamism and we need the investment of money and time to develop the ‘big ideas’ that will allow us to innovate on a much more ambitious scale.

For more discussion on new technology and innovation have a look at the Battle of Ideas website or, even better, attend the conference next weekend hosted at Royal College of Art, South Kensington, London

References:

[1] The Second Economy, W.Brian Arthur, McKinsey Quarterly; http://www.mckinseyquarterly.com/The_second_economy_2853

[2] The Telegraph; http://www.telegraph.co.uk/finance/festival-of-business/8754672/Google-chief-predicts-UK-internet-jobs-boom.html

[3] BBC news; http://www.bbc.co.uk/news/business-15217784

[4] cityam; http://www.cityam.com/forum/steve-jobs-was-amazing-businessman-einstein-s-the-genius-behind-the-ipody

[5] Big Think; http://bigthink.com/ideas/40494

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About Theresa Clifford

I am a senior manager/digital consultant with international agency experience in leading the delivery of holistic customer-centric strategies and digital programmes. I am also a Tutor/Presenter in Digital Marketing for the Marketing Association and a regular writer and speaker on digital trends. If you would like to discuss any aspect of your digital requirements, please feel free to contact me. (e) mstheresaclifford@hotmail (m) +64 21 026 17779

Discussion

2 thoughts on “Can new technology be the motor to help drive us out of recession?

  1. This is a perfect example of why technological progression is an absolute necessity in our society. It was necessary in the past, the present, and will continue to be necessary in the future.

    Posted by tommywolfblog | October 21, 2011, 6:28 am
  2. Just a small point- well actually quite a large point. I find the example of The F9 Rocket and Dragon reusable space craft) itself actually an example of low ambitions, since it is fundamentally based on the same technolgies for its propulsion system as the ICMB based rocket technologies of the 40/50s. A much better example and a true successor to the Shuttle would be the Skylon or more specifically the Sabre engine which would power it (basically it collects and liquifies oxygen as it climbs into space, so dratically reducing it’s fuel load- the revolutionary technology being a super efficient heat exchanger):

    (See http://www.reactionengines.co.uk/skylon.htm l)

    This (in theory) promises to reduce the cost per kg of getting ‘stuff’ into space by a factor of 10 – a truly impressive and market changing factor and a true innovation. The problem of course is, as the article says, how to get the investment. Musk is right to spot stagnant market sectors – but for ambitious changes predicated on technologies such as Skylon – the real challenge is getting the long term investment (private/public/mixture) to fund R&D and build a completely new industry (which could also revolutionise sub space, high speed air travel. People will always flag up Concorde as a market failure, but even there it could be argued that it should have actually been larger for technological (potentially smaller sonic boom- so allowing flight over land) and market reasons (flights to ES Asia and Australia) .

    Reaction Engines has a small amount of European and UK money for feasibility studies – but how can we get Rolls Royce (or other large aero engine company – a natural partner to take it to the next stage? Individuals such as Musk are inspiring – but since his personal fortune isn’t enough for really ambitious projects (a personal fortune of Bill Gate’s proportions would be needed for Skylon to ‘take off’) – the problem to address is how to get those corporate cash mountains and public funding (if needed) into long term, risky projects?

    Posted by Paul Reeves | October 21, 2011, 3:17 pm

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