A Manifesto for the Next Industrial Revolution
Posted on Edge Economy: June 17, 2008 5:47 PM
This is one of my favorite times of the year—because the Supernova conference is on. There are few conferences that combine so much big-picture insight, tons of fresh ideas, and real-world problem solving. It was awesome to be invited to speak there again this year (here's a video of my session from last year).
Unfortunately, because my mom is ill, I couldn't make it (I'm really sorry, Kevin). That sucks massively—because I've been looking forward to it all year.
So here's a short summary of the talk I was going to give instead. To get the most out of it, I suggest reading my guest post at Leading Green on new DNA first.
21st century capitalism needs a revolution. How does growth happen—from a strategic point of view? The great Joseph Schumpeter argued that growth happens through a process of creative destruction. There's a simpler word for that: turbulence.
I think there's a problem with this thesis. In an interconnected world, there are more and more players creating and destroying—as a simple example, the pool of workers in export-oriented industries has tripled, from 300 million to about 900, over the last 20 years. And so, today, turbulence is intensifying.
Creative destruction has two sides—the costs of destruction as well as the benefits of creation. And as creative destruction intensifies, the costs of this great tradeoff are going to sharpen. The price of growth, it seems, is a world that's always riskier, more uncertain, and more brutal at the margin.
I think that accepting this tradeoff, perhaps, is the single most toxic orthodoxy that holds boardrooms back today. Why? The problem is that value creation isn't just about productivity gains: it's also about human welfare.
Consider this. When the last bubble was in internet technology, welfare was minimally affected—jobs were lost. When it shifted to housing and credit, welfare was affected more—houses and saving were lost.
Today, it's shifting in large part to energy and food. What happens when hypercapitalism causes a food bubble? What happens when the masters of the universe in Greenwich bid up the price of food for India, China, and Africa's huddled masses?
Here's the answer: marginal starvation. Lives are lost.
That's the very real toll that creative destruction extracts. It's the price that a better food industry tomorrow demands of us today.
If that's 21st century capitalism—maybe it's time for a revolution. One where the price of a dynamic economy isn't relentless damage to everything and everyone else.
The invisible hand is crippled. What's going on here? Wasn't the invisible hand supposed to raise everyone into prosperity and well-being?
Yes—but it's not. The world is getting phenomenally richer—but the costs of that wealth seem to be endemic poverty for vast swathes of the world's population, the poisoning of the water we drink, the pollution of the air we breathe, and the fraying of the social and cultural fabric that binds us together.
We're richer, but that wealth doesn't reflect durable, authentic economic value—which is hitting fast diminishing returns. The growth that we're pursuing is neither sustainable—nor is it, in many ways, real growth at all. Boardrooms from finance to autos to energy to pharma to fashion have learned that the hard way.
Growth is in the DNA. So how do we begin rethinking economic growth? With the understanding that technology alone isn't enough—and in fact, it's not the harder part of sustainable growth.
Even if we invent a magic energy or food source tomorrow, it does the world little good if it's in the hands of a Bill Gates 2.0—the amount of new value that's created is minimized. Conversely, it also does us little good if it's in the hands of a Ford 2.0, who'll just push-market next-generation gas guzzlers that put us squarely back into an energy trap.
The real problem is that the industrial economy is riddled with incentives to rip your head off, sell you lemons, maximize so-called "profit" at all costs, and exert power against you—not for you. That's why it seems that pain, suffering, and value destruction are deeply embedded in the very DNA of our rusting, industrial-era economic system itself.
And that means that though technology is necessary, it's not sufficient. What's harder—and what truly unlocks new value—is new DNA. The fundamental question new DNA must answer is this: how do we organize and manage resources so they're not depleted, crushed, strip-mined, and slashed-and-burned?
It is players who can answer that question—players who can renew yesterday's rusting DNA—who will be able redraw the boundaries of value creation in the 21st century.
Organize something. Why does Google insist that it's goal is to "organize the world's information"? Because it's figured out one of the deepest secrets hidden at the heart of 21st century economics: markets, networks, and communities can organize economic activities radically more efficiently than firms.
How do we begin reorganizing the industrial economy? By using markets, networks, and communities to alter the way resources are managed: to weave a fabric of incentives for sustainable growth and authentic value creation into the economy—a new economic fabric that's meaningful to people.
Google utilized a market—AdWords—to utterly eviscerate a stale, broken media value chain. Here's a more visceral example. Muhammad Yunus revolutionized finance—not by collecting more money to lend, but by using communities to fundamentally alter the value equation of lending to the poor. The result was industry transformation.
See the similarity? Two vastly different industries—finance and media—were both revolutionized by new DNA. It was new ways to organize and manage that exploded the boundaries of value creation.
The revolution needs revolutionaries. Today's investors, boardrooms and entrepreneurs are looking for value in all the wrong places. Facebook's game of musical chairs won't solve big economic problems—and neither will making token investments in greentech.
Where is the next industrial revolution crying out for revolutionaries? Simple: in industries dominated by clear, durable, structural barriers to efficiency and productivity.
The next industrial revolution begins here. What happens when we think of using new DNA to reorganize structurally inefficient industries? A blueprint for the next industrial revolution emerges. Here's what it looks like.
Organize the world's hunger.
Organize the world's energy.
Organize the world's thirst.
Organize the world's health.
Organize the world's freedom.
Organize the world's finance.
Organize the world's education.
That's not an exhaustive list—it's just a beginning. In fact, let's open source it: please add to it ("organize the world's xyz"), and we'll keep an index here or elsewhere.
What's important is the logic behind the list. Let's make that as razor-sharp as possible.
Organize: to transform DNA, not lower-value technology. The world's: to have a global impact; to be able to scale to global levels. Hunger, health: some measure of economic well-being: to radically change the world for the better.
If you're a startup, and your elevator pitch isn't shaped by this blueprint; if you're an investor, and your portfolio isn't full of companies like this; if you're a corporate boardroom, and you're not refocusing and restructuring to meet these new challenges—here's the bottom line: the next industrial revolution has your name written all over it.
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