The New Industrial Revolution

We like to think that the value of an idea is unlimited. From Watt’s steam engine to Darwin’s natural selection to Einstein’s relativity, ideas have changed the world.

But that’s not the whole story.  Watt, Darwin and even, to a certain extent, Einstein came from a privileged class and that matters. Most ideas go unnoticed because they require investment capital and distribution to make their way into the physical world.  That’s beginning to change.

While your ability to start a successful business still depends greatly on the place and situation of your birth (if you live in sub-Saharan Africa, for instance, you’re probably out of luck), many of the barriers to getting ideas to market are disappearing.  We’re in the midst of a new industrial revolution, which is cleaner, more efficient and more inclusive.

The Industrial Economy

1776 was a truly momentous year.  The American Revolution began, Adam Smith published The Wealth of Nations and, perhaps most consequentially, James Watt installed his first steam engine.  Those three events would converge to create unparalleled prosperity as machine power replaced muscle power.

The chart above tells the story of what happened next.  As the industrial revolution spread from England to the rest of Europe and eventually to Japan, incomes rose precipitously. People moved from farms to cities while life expectancy doubled even as population exploded and quality of life improved.

It was, above all, an economy of atoms.  Consequently, institutions and social structures reflected the enormous amount of energy it took to move men and materiel around efficiently.  Organizations were hierarchical, well suited for coordinating around a central plan.  Companies built brands that imbued identity and trust to mass produced products.

The Information Economy

The information age began in 1948 with the creation of the transistor and information theory, but didn’t really get going until personal computers arrived in the 80’s.  Whereas the industrial economy augmented muscle power with that of machines, computers would multiply the potential of human minds.

In the old economy of atoms, value was determined by energy, time and scarcity.  An expensive sports car, for example, is prized for the way that it captures and focuses enormous amounts of energy, while the time and craftsmanship that go into its manufacture, as well as the scarcity of the skills and materials required, drive its cost.

The information economy is quite the opposite.  Google’s search algorithms don’t use any more energy than anyone else’s and they become more effective as more people use them. It is an economy of networks rather than nodes and the key material is silicon, the eighth most abundant element on earth.

The defining attribute of the information economy, however, is accelerating returns.  We expect informational products to become cheaper and more powerful over time.  In ten years we can expect processing power to increase a hundredfold (a thousandfold five years after that) and we will not pay any more than we do today.

The Maker Economy

While the impact of computers and the Internet has been substantial, it has also been limited.  The vast majority of goods and services in our lives are still in the old economy of atoms.  While we might feel like we’re splurging when we buy a new iPhone, we spend far more on food, clothing, shelter and transportation.

However, as Chris Anderson explains in his new book, Makers, a vast array of devices, such as 3D printers, CNC routers, laser cutters, 3D scanners and other gear are transforming how products are made.  Much like the personal computer revolution drove the information economy, these are now becoming cheap enough for consumers to afford.

The maker movement is mirroring the PC revolution in other ways as well.  Just as people gathered in places like the Homebrew Computer Club in the 70’s, there are now dozens of fab labs scattered across the globe where hobbyists can meet and build prototypes.

The creation of fab labs is a story in itself.  If you are unfamiliar with it, watch this TED talk by Neil Gershenfeld the MIT professor who helped start the movement. (Although keep in mind he was speaking in 2006, so now fab labs like this one have become more advanced, cheaper and more usable.)

What’s more, all this tinkering can morph into a real business with amazing speed and ease. Service bureaus like Ponoko and Pololu are springing up to scale successful designs and crowdfunding options like Kickstarter and Indiegogo can provide not only financing, but real time market research.

Further, open software is giving way to open hardware where, as Anderson puts it, they “give away the bits and charge for the atoms.”  The maker economy is so potentially powerful that there is already talk of a Moore’s law for atoms that will bring accelerating returns to physical products.

Collaborate Globally, Act Locally

Probably the greatest impact of the new economy for atoms will be on supply chains.  It used to be that if you wanted to make something at industrial scale you would need a big factory where assembly was centralized, a complicated network of subcontractors to supply you and a sophisticated logistics system to get your goods to consumers.

Now you can design your product with a global online community (closed or open) and those designs can be sent anywhere in the world instantly and without error, where they can be fabricated locally.  One company is already giving their consumers the option to 3D print replacement parts.

And the impact goes far beyond simple 3D printing.  Vertical farming is bringing the concept to agriculture, which would eliminate transportation costs (a significant fraction of our energy use).  Local motors is using the maker movement to build and sell cars. Further, as industry becomes digital and local, the economics of outsourcing degrade.

We’re increasingly living in the world of the visceral abstract, where the power of an idea is no longer dependent on the one who has it, but can be implemented by anyone, anywhere. As the virtual world continues to invade the physical one, a new era of prosperity will be unleashed.

– Greg