"We wanted flying cars, instead we got 140 characters." ~ Peter Thiel, Founders Fund website
We live in an age of rapid change. Amazon, Apple, Facebook, Google, Twitter and many other innovators have changed how we work, communicate and live. But is this a new industrial revolution?
Twenty-some years ago, a large bookstore might have had 100,000 books available. Today online retailers (e.g., Amazon) have millions of books to sell. Similarly, there were no smartphones two decades ago--just simple mobile phones and land lines. Social media then consisted of email and listservs; now we have Facebook and Twitter. A 1990s personal computer had only basic capabilities (word processing, spreadsheets, and a few others). Now an iMac has the power of an earlier generation's supercomputer.
Revolutionary? Well, it depends on what we mean by a revolutionary innovation. I propose that: An innovation is revolutionary if it so changes society that going back to the pre-innovation technology would be catastrophic. By this standard, many of our most recent innovations are incremental, not revolutionary.
Consider the automobile, that archetypal innovation of a few generations ago. If all motor vehicles vanish tomorrow, the result would be catastrophic. If all phones (land lines and mobiles) suddenly stop working--the result would be disastrous for communication.
Now, let's imagine that all social media disappear. Would the economy collapse? I don't think so. Or, if every online store in America closed, would it be catastrophic? Probably not.
Leaving aside these anecdotal examples, it's noteworthy that there isn't an obvious economic growth spike resulting from the Internet era.
The San Francisco based venture capital firm Founders Fund believes that many recent innovations have been incremental, and not revolutionary. It attributes this incrementality to the VC community's failure to support revolutionary technology companies. Critical as this view may be, it implies that incrementalism is a reversible choice. Founders Fund itself is dedicated to investing in revolutionary technologies.
My hypothesis, however, is that we're at the start of a new megatrend of diminishing marginal innovation. The low-hanging fruits of revolutionary technologies have already been discovered and picked. Consequently, we'll need increasing effort to achieve changes that are only incremental and at most, transform a sector. If this megatrend is real, consider these potential consequences:
First, for many entrepreneurs/VCs, incrementalism will be their defining strategy. Stretching to develop revolutionary products will be a losing proposition. Incrementalism isn't unprofitable. LinkedIn, for example, hasn't revolutionized society, but has been very lucrative.
Second, diminishing marginal innovation applies at the economy level, not the sector level. We don't have flying cars as routine transport, and it's difficult to see this occurring. On the other hand, DNA technology is still in its infancy, and might have "running room." We will continue to see sectors transformed (e.g., conventional retailing impacted by online retailing). But innovations in the remaining high growth sectors won't be sufficient to drive revolutionary change/growth in the overall economy. (Consider that even in the 21st Century, an estimated 1/10th of all American jobs are connected to the car industry; it's difficult to see Social Media having that kind of impact.)
Third, by the end of the 21st Century, the world's global multi-nationals will increasingly be headquartered in Asia. Since the late 1970s, the rest of the world has been catching up economically with the West. This trend will only accelerate, unless there's new high-impact revolutionary technological innovation in the United States, or economic collapse/stagnation in China/India. (If country GDPs per capita converge to about the same level, country GDPs will then be driven by population. Consequently, China will have four times America's GDP.)
Fourth, as wage levels converge globally, wage differentials (as a driver of offshoring) will also decline/reverse. This is already happening, as the global management consultancy BCG has recently highlighted:
By around 2015, we concluded--when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account--it may start to be more economical to manufacture many goods in the U.S. An American manufacturing renaissance could result.
Fifth, as the public increasingly understands that growth has slowed, and won't soon increase, the focus of politics will be on the zero-sum game of dividing up what already exists (it feels like this political trend has already started).
And last, a future of slow-growth incremental capitalism will favor corporate bureaucrats rather than visionary entrepreneurs.
For most of human history, economic innovation and productivity growth have been low, as were productivity differences between countries. The last two or so centuries have been an exciting exception--but not the norm--for human history.
I hope Founders Fund will be right and I'll be wrong. So, let me close with the sage counsel of Yogi Berra:
Prediction is very hard, especially about the future.
This piece first appeared in Issue 11 of our FREE new weekly iPad magazine, Huffington, in the iTunes App store.
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