4IR

4IR (wonkish)

I’ve taken the lead from Paul Krugman who labels some of his blog posts wonkish if the subject gets into the weeds to make a point that might not be appreciated by the average reader. In addition, this piece reflects some of the arguments in my new book, “The Age of Sustainability,” which I think you should purchase.

It has become fashionable to talk about the times we live in as another Industrial Revolution and for some reason popular culture suggests we live in the Fourth IR or 4IR. The meme seems to be floating around Davos and it’s only a matter of time before we’re all uttering 4IR in our sleep. Not for nothing but I am certain we live in the 5IR and it’s ending. The 6IR is on the tee and people are taking practice swings. Why does it matter and can I prove any of this?

Well, it matters and here goes.

Scholars differ on exact beginning and ending points but most agree that the original IR began in the middle to end of the 18^th century about the same time that people like Adam Smith were writing about the invisible hand of the market, supply and demand, and what would be called capitalism. Smith’s enduring classic, “The Wealth of Nations” was published in 1776.

Just prior to that others like Rousseau, Locke, Burke, Hume, and Hobbes, to name some of the more famous ones, were writing about the natural rights of man and things that were eventually subsumed into democracy. The age is generally referred to as the Enlightenment. So the philosophers came first, then by 1760 practical men (yes, they were all men) began putting Enlightenment ideas into practice. The result was capitalism and in Jefferson’s America, democracy. Capitalism spread everywhere especially in the UK.

Many scholars use 1760 as the kickoff for the first IR and the date is important because later researchers discovered that any IR has a lifecycle of 50 to 60 years. The cycles are based on disruptive technological innovations that ripple through the economy creating wealth and jobs and in some ways improve life.

From 1760 to 2018 is a span of 258 years, which gives us a bit over 5.16 lifecycles using the 50-year interval or 4.3 lifecycles using 60-years. For completeness, here’s a table from, “The Age of Sustainability” with IR’s or ages stipulated at 50 years.

The difference 5 or 6 ages isn’t very great if you simply adjust the time frames for each age but what to leave out? 1820 and 1929 seems opportune. Steam, railroads, steel and heavy engineering seem like they could go together. But steam and railroads had a long life when iron was the structural material. Steel was a known quantity but hard to make until Henry Bessemer invented his steel-making process in the 1850s. Steel enabled railroads to develop into the continent-spanning network they became thus fulfilling the promise of early rail.

Also steam power goes back to the early 1700’s well before the official start of the IR. But early steam engines were impractical, took up a whole building and burned and wasted coal at a prodigious rate.

Similar stories can be told about the age we live in, The Age of Information and Telecommunications (IT age). But now the lifecycles become important because we need to understand if we’re at the beginning or end of the age. If you think the IT age began in about 1971 suggested in the table, it would coincide with the introduction of the mini-computer about 5 years earlier by Digital Equipment Corporation.

As with steam engines, iron, and steel, mainframes were introduced in the early 1950s but they were big, consumed resources prodigiously, and were generally too hard to use and expensive to make significant inroads. If you accept this reasoning then the 5IR is getting long in the tooth and a new disruption is likely. If you take the longer 60-year view of the lifecycle then we’re right in the heart of 4IR and the new meme makes all the sense in the world. This is where it gets interesting.

The lifecycle

Regardless of your position on the 50 or 60 year split, the lifecycle, like all cycles, has an upside and a down side. The upside produces a booming economy (yes there is some lag time) because the disruptive innovation driving things needs new infrastructure, which investors gladly pay for. That spending permeates all parts of the economy. But when the infrastructure is fully built out the down side of the cycle emerges caused by two things.

Early on customers pay high prices for the innovation causing an opening for anyone with an improvement on the basic design. High prices are used to build out the delivery infrastructure. When the infrastructure is finally built and paid for a wave of automation takes hold and the cost of products and services dives. Consumers make out with scads of low priced goods and services but too soon they discover that high prices paid the salaries of suddenly unemployed workers themselves included.

So where are we? Are we closer to the middle of 4IR, suggesting a 60-year average? Or are we at the end of 5IR and a 50 year cycle? Logic tells me that we’re at the end of the Age of Information and Telecommunications. The IT market has already expanded to global proportions, it is increasingly automated by way of AI, ML, IoT, and other advances. Their products and services are now dirt-cheap—think handheld devices and 99-cent apps—so it’s hard to make money in IT these days.

My take

It’s much more likely that we’re at the end of the IT era than in the middle of it. This is important because the frame of reference determines what’s most important to invest in. Further investments in technology such as the IoT and machine intelligence will continue regardless of this discussion. They will be easy investments with opportunities in big markets but the possibility of failure is high because a small number of large vendors, an oligopoly, already control these markets.

When cloud computing was new you couldn’t count the number of vendors in the space. They sold infrastructure, software, and platforms. Most were acquired or went bust. Today Oracle, IBM, Google, Amazon, Facebook and other social media, Microsoft, and Salesforce are the dominant players and invading that space with a new offering is problematic at best. That’s not a new IR it’s a continuation of an older one.

At the same time there is a boatload of renewable energy companies and more electric car companies than you can put arms around. That’s the new IR. Next year most carmakers will begin deploying fleets of electric vehicles causing a further ripple effect in demand for a new electric infrastructure and all that entails.

So how you think about it, 4 IR or 6IR, is important. The free market will determine who is right, as it should be.