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The next industrial revolution: waiting in vain

Published:Monday | May 28, 2012 | 12:00 AM

By John Rapley

Recently in London, I gave a public lecture on the topic of technology and development. It took place in Shoreditch, a lively and bohemian community in the eastern part of the city. Filled as it is with lots of young entrepreneurs in the creative industry, Shoreditch has become something of Britain's Silicon Valley.

So, because I was there to throw cold water on the long-held belief that computers and the Internet will usher in the next industrial revolution, I was heading straight into the lion's den. And the, shall we say, lively reception I was given by at least some in the audience suggested that the belief in the transformative power of new communications technologies remains tenacious.

But as John Adams famously declared, facts are stubborn things. The economist Robert Solow once famously remarked: "You can see the computer age everywhere but in the productivity statistics." While some improvements in efficiency have been attributed to computerisation, specialists on productivity nonetheless agree that the information revolution has had nothing like the impact on output that earlier innovations, like the humble telegraph, once did.


Technology enthusiasts still maintain, as did some in my audience, that it takes time for the gains to show up in the output figures. Change is coming, they insist. Well, we've been hearing that for a while now: Solow made his observation a quarter-century ago.

A simple example illustrates the paradox. A century ago, when Henry Ford pioneered the assembly line, the automobile transformed life in America. When Mark Zuckerberg, founder of Facebook, pioneered the conversion of social networks into news resources, he transformed life around the world. But Ford went on to create tens of thousands of jobs. Facebook created, count them, 4,000. Twitter, with a market valuation of over US$8 billion, employs a whopping 650 people.

Conservative Prime Minister David Cameron has staked his hopes for Britain's economic renaissance on the Shoreditch growth pole. Those entrepreneurs will create clever firms, gadgets and ideas. But it's looking increasingly unlikely they will create many jobs, let alone a new British economy. Figures released last week showed that Britain is sinking ever further into recession.

Not that the opposition Labour Party has any better ideas. Recently, I heard the shadow chancellor (Britain's opposition spokesman on finance) argue for a Keynesian stimulus programme by invoking both the multiplier effect and Ricardian equivalence. These two concepts emerge from contradictory positions on stimulus - a bit like declaring, "As Allah says, Jesus saves."

The problem with both the government and opposition positions in Britain is that both presume the growth rates of old can be restored. The Conservatives believe the free market, led by technology entrepreneurs, will do it; Labour calls for government to lead the way. But there's a strong case that neither will work.


I pointed out to the audience that technological innovation is indeed occurring, and it is even revolutionising our world. But it is doing so with less productivity impact than in the past. Western countries will have to get used to the fact they can't just return to the golden age in which output doubled every dozen or so years. If tech entrepreneurs, or anyone else for that matter, are determined to become billionaires, they will have to do it by reorienting money away from other parts of society.

How long can that go on? Facebook's recent flop flotation is raising questions that the company may have overhyped just how much wealth it could create. Its founders made a killing. Most investors have lost at least a sixth of their investment in just a few days.

In the future, generating jobs and rising living standards for all is not going to be an easy task for developed countries. It's time politicians stopped pretending otherwise.

John Rapley is a research associate at the International Growth Centre, London School of Economics and Political Science. Email feedback to and