The fourth industrial revolution – this time it’s exponential!

The World Economic Forum at Davos provides a reliable barometer of conventional wisdom amongst the globalised elite, so it’s interesting this year that, amidst all the sage thoughts on refugee crises, collapsing commodity prices and world stock market gyrations, there’s concern about the economic potential and possible dislocations from the fourth industrial revolution we are currently, it seems widely agreed, at the cusp of. This is believed to arise from the coupling of the digital and material worlds, through robotics, the “Internet of Things”, 3-d printing, and so on, together with the development of artificial intelligence to the point where it can replace the skill and judgement of highly educated and trained workers.

A report from the FT’s Izabella Kaminska of one session – Davos: Historians dream of fourth industrial revolutions – captures the flavour nicely. I’m struck by her summary of the views of the historian Niall Ferguson – “The fourth industrial revolution, Harvard’s Niall Ferguson notes, is distinctive because of its exponential rather than linear pace, not only changing what and how we do things but also potentially who we are.”

This succinctly summarises conventional wisdom, but almost every word of this statement is questionable or wrong.

Why do we talk of a fourth industrial revolution? I do think it is helpful to admit that there was more than one industrial revolution. For example, I think it is useful to stress the importance of the the revolution in the second half of the 19th century (sometimes called the second industrial revolution). This brought the development of the chemical industry, electrical technology, cars and aeroplanes, all of which were supported by social innovations like technical training, research universities and industrial R&D. This phase of development is distinct from the developments in the late 18th century, of factories, especially for the spinning and weaving of textiles (the so-called first industrial revolution). This distinctiveness is neglected in many British accounts of history, perhaps because Britain didn’t unquestionably lead this “second industrial revolution”, with Germany and the USA setting the pace in many areas.

But there were other industrial revolutions (see for example this discussion and alternative periodisation from Anton Howes – “How many industrial revolutions”). I’ve discussed here the importance of an earlier revolution, starting in England in the mid-17th century, of process industries like glass making, pottery, lime making, and metallurgy, fueled by the ready availability of coal. And, expanding the definition of technology, one could talk of an earlier technological revolution from the mid-15th century, with the new financial technologies of banking and accountancy driving an expansion of trade and capital investment.

So much for history, where discussions of how many industrial revolutions may be inconclusive, but are at least interesting prompts for us to go back to the evidence and argue about it. But for the present and future, announcing the onset of a new industrial revolution doesn’t constitute analysis, it can only be marketing. And indeed, we’ve seen such “new industrial revolutions” announced before – with nanotechnology, then synthetic biology, to give just two examples. Marketing is useful for those with something to sell, but is not necessarily a good basis for policy-making.

If we were to accept that we were seeing a new industrial revolution, though, what is the basis for Ferguson’s assertion that the current revolution is exponential, while previous ones were linear? In fact, the earlier revolutions were exponential too. One needs to remember that exponential growth is not something magical, it occurs any time a process has a constant fractional growth rate. John Lienhard demonstrates (in The Rate of Technological Improvement before and after the 1830s) exponential growth in a number of early technologies – steam engine efficiencies between about 1750 and 1850, accuracy of mechanical clocks between 1400 and 1900, and refrigeration from 1860 to 1940, to give three examples.

The economic outcomes of these technological revolutions were exponential too – they resulted in periods of roughly exponential economic growth. Exponential economic growth is, of course, the natural consequence of a constant positive percentage growth rate – compounding. Niall Ferguson presumably once knew this, given that he used to be a historian of finance of some repute.

So what’s exponential about the current revolution? The most important exponential in recent economic history has been Moore’s law – the constant (and very high) rate of fractional improvement in computer power which resulted from the continual miniaturisation of the components of microelectronic circuits. Transistors are still getting smaller, and computers are still getting faster, but it’s important to realise that the exponential phase of Moore’s law has now come to an end, as exponential growth in the physical world always does.

Meanwhile economic growth in the developed countries, in the countries at the technology frontier, has conspicuously stopped being exponential. Growth rates are slowing, as the productivity growth that arises from technological innovation, and which is the fundamental driving force behind economic growth, has declined across the world in the last decade.

At this point, optimists about technology begin to question whether economic measures, like GDP, can capture all the benefits that current digital technology brings. In effect, the hard-nosed capitalists of the tech industry morph into dopey hippies to argue that really, money isn’t everything. What about the value consumers gain from being able, at no marginal cost, to do free searches through all the world’s information, or to call up music and entertainment on demand?

In this, of course, they are right – GDP doesn’t measure everything that matters. But why should we think this is any different to the great innovations of the past, which themselves brought huge benefits not measured in money? This argument is forcefully made by the FT’s chief economist, Martin Wolf, in a recent article: “Same as it ever was: why the Techno-optimists are wrong”.

Technology has always brought about benefits that weren’t fully captured in GDP. Think of the non-monetary value of there not being a 4-5% chance of mothers dying through childbirth, as there was in Britain before around 1930, and weigh that up against the free entertainment possibilities of the web.

As for the new technologies being different because they change, not just what we do, but who we are, all that this illustrates is the bleeding of transhumanist rhetoric into the mainstream that I criticise in my ebook Against Transhumanism: the delusion of technological transcendence. It’s a wish that some people have, that technologies will allow them to transcend the limitations of their human nature (and most notably, the limitation of mortality). What is yet to be proven that the new technologies are any more capable of fulfilling that (admitttedly powerful) wish, than the previous ones.

Yet I remain optimistic about the potential of technology. The technological developments that underly this “fourth industrial revolution” excitement are real, though they are sometimes not as new as is being portrayed, and their effect on the broader economy so far remains disappointing. I don’t entirely accept the pessimistic case made by Tyler Cowen and others that slow technological progress is inevitable because we’ve already taken the “low hanging fruit”. The problem is that fast progress in some areas (the combination of mobile communication with large databases that constitutes the core of the so-called “tech sector”, especially) obscures, but doesn’t counteract, the glacially slow progress we are making in other areas – including areas that matter to us a great deal, like the development of sustainable, scalable energy technologies.

There is no fourth industrial revolution. Technological progress continues, in some areas it moves fast, in other areas it moves much more slowly, despite our society’s most pressing needs. Which technologies move fast, and which we neglect and allow to stagnate, are the results of the political and social choices we make, often tacitly. We might make better choices if our discussions of technology weren’t conducted entirely in terms of tired clichés.

Against Transhumanism – the e-book

Transhumanism: technically wrong, ideologically suspect, and damaging to the way we talk about technology…

As an experiment, I’ve brought together a number of the pieces I’ve written here and elsewhere about molecular nanotechnology, mind-uploading, and the origins and wider implications of transhumanism, to make, after some light editing, a 54-page e-book with the title “Against Transhumanism: the delusion of technological transcendence”.

It can be downloaded as a PDF here:
Against Transhumanism, v1.0 (PDF 7.1 MB).

Nobody knows anything (oil price edition)

Perhaps no single number is more important to the world economy than the price of oil. Modern economies depend on energy, and oil remains our largest energy source, supplying 31% of the world’s energy needs (another 21% comes from gas, whose price now moves quite closely with oil). And yet, huge movements in this number seemingly take experts by complete surprise.

OIl price predictions 2015
The price of oil in constant 2008 dollars, compared with the US Energy Information Authority predictions from 2000 and 2010. Data from the EIA.

My graph shows how the price of oil, corrected for inflation, has changed in the last 45 years. This is an updated version of the plot I blogged about five years ago; I included the set of predictions that the US Energy Information Administration had made in 2000. Just a few years later, these predictions were made nugatory by a large, unanticipated rise in oil prices. The predictions the EIA made ten years later, in 2010, had learnt one lesson – they included a much bigger spread between the high and low contingencies, amounting to more than a factor of three by the end of the decade. Now, only halfway into the period of the prediction, we see that the way oil prices turned out has so far managed both to exceed the high prediction and to undershoot the low one.

These gyrations mean that views that were conventional wisdom just a couple of years ago have to be rethought. Continue reading “Nobody knows anything (oil price edition)”

Land of my Fathers (and they can keep it)

When someone asks me “where do you come from”, my reply is generally “I’m Welsh. A Welsh Jones. Descended from a long line of Joneses” (and Lewises and Williamses and Howells and so on). But then I have to qualify this, not least because I don’t sound Welsh: I sound like someone who’s spent 15 years in Cambridge (with maybe a bit of east midlands/Yorkshire influence). I was born in England (Stamford, Lincolnshire); my father had left Wales to join the Air Force, so my early childhood was spent trailing around a series of RAF bases in the Midlands and Eastern England. It was only after I finally left home that my parents moved back to Wales. The only time I properly lived in Wales myself was for a year in 1967, an experience that was so alienating and unhappy that, even though it was a short time, and a long time ago, it colours my emotional response to that part of North Wales, the Lleyn Peninsular.

The circumstances were this – after a couple of postings in East Anglia, my father was sent abroad, to help with what turned out to be the shambolic and violent end of one corner of the British Empire, in Aden, now in the Yemen. Aden was then a Crown Colony, a strategic port and military base for the British, usefully placed on the way to India and the Far East. Britain’s retreat from Empire reduced the port city’s value, but through the mid-1960’s a worsening insurgency had destabilised the British’s attempt to install a friendly government before they left. By 1967 parts of the city were alternately a no-go zone for the British troops, then being reoccupied with some brutality. Finally (and I think uniquely in the end of Empire) there was no orderly hand-over when the British left, no ceremonial lowering of the flag, no hand-shakes between the Governor-General and the incoming President, just a scramble by the British forces to get out with as much of their kit as they could carry. My father’s part in the retreat, having organised the repatriation of the remaining families, was to tip Radio Aden’s record collection off the Steamer Point quay into the harbour, to make sure the Communist hordes of FLOSY and NLF didn’t benefit from the latest Jazz and Pop sounds (for some reason he saved one Thelonius Monk album, which I still possess).

Aden was clearly not a place for dependents, so my mother and I were packed off to the North Wales seaside town of Pwllheli, where my mother’s parents lived. There my mother tried to avoid reading the newspapers, with their reports from Aden of random shootings and grenade attacks, while the six-year-old me went off friendless to a new school. I remember the terrible food and the boys’ toilet, outside, in the corner of the playground, a slate urinal brilliant green with moss and with an overwhelming ammoniacal smell of decaying boys’ urine. The school was old-fashioned in teaching methods and discipline – I vividly remember an assembly with a purple faced teacher standing on a stage, roaring with anger and threateningly waving his stick above his head. I never found out what atrocity it was that some child had committed, as the diatribe was conducted, like all the other business of the school, entirely in Welsh, a language I didn’t know then (and still don’t).

West End Parade, Pwllheli
West End Parade, Pwllheli, N. Wales. A flat in one of these houses was my unhappy home for a year.

My mother must have been bored, worried, lonely. At least she had a car, a sweet little Mini, in which she frequently drove me to Caernarvon Castle, with which I became fascinated. She would take her own father on trips a few miles up the coast, to see his friend, the priest and poet R.S. Thomas. I don’t exactly know what had drawn Thomas and my grandfather together, whether that was religion, or poetry, or simply a shared gloomy disposition. My grandfather died before I got to know him properly; I know he was a cultured man, though he had dropped out of theological college to become a Conservative Party activist.

Something I don’t remember myself, but which my mother tells me, is that for the first few months I refused to talk about my father at all, or even acknowledge his existence. Continue reading “Land of my Fathers (and they can keep it)”

Science, productivity and the spending review

This post appears on the blog of the Campaign for Science and Engineering, as part of a series in the run-up to the UK government’s comprehensive spending review arguing for the value of science spending. As with my earlier pieces, supporting statistics and references can be found in my submission to the BIS select committee productivity inquiry, Innovation, research, and the UK’s productivity crisis (PDF)

Stagnating productivity is one of the biggest problems the UK faces, and it’s the most compelling reason why, despite a tight fiscal climate, the science and innovation budget should be preserved (and ideally, increased).

It’s clear that the government regards deficit reduction as its highest priority, and in pursuit of that, all areas of public spending, including the science budget, are under huge pressure. But the biggest threat to the government’s commitments on deficit reduction may not be the difficulty in achieving departmental spending cuts – it is the possibility that the current slowdown in productivity growth, unprecedented in recent history, continues.

Over many decades, labour productivity in the UK (the amount of GDP produced per hour of labour input) has increased at a steady rate. After the financial crisis in 2008, that steady increase came to an abrupt halt, since when it has flat-lined, and is now at least 15% below the pre-crisis trend. The UK’s productivity performance was already weaker than competitors like the USA, and since the crisis this gap with competitors has opened up yet further. If productivity growth does not improve, the government will miss all its fiscal targets and living standards will continue to stagnate.

Productivity growth, fundamentally, arises from innovation in its broadest sense. The technological innovation that arises from research and development is a part of this, so in searching for the reasons for our weak productivity growth we should look at the UK’s weak R&D investment. This is not the only contributory factor – in recent years, the decline in North Sea oil and a decline in productivity in the financial services sector following the financial crisis provide a headwind that’s not going to go away. This means that we’ll have to boost innovation in other sectors of the economy – like manufacturing and ICT – even more, just to get back to where we were. R&D isn’t the only source of innovation in these and other sectors, but it’s the area in which the UK, compared to its competitors, has been the weakest.

The UK has, for many years, underinvested in R&D – both in the public and the private sectors – compared to traditional competitors like France, Germany and the USA. In recent years, Korea has emerged as the most R&D intensive economy in the world, while China overtook the UK in R&D intensity a few years ago. This is a global race that we’re not merely lagging behind in, we’re running in the wrong direction.

In the short term of an election cycle, it’s probably private sector R&D that has the most direct impact on productivity growth. The UK’s private sector R&D base is not only proportionately smaller than our competitors; more than half of it is done by overseas owned companies – a uniquely high proportion for such a large economy. It is a very positive sign of the perceived strength of the UK’s research base, that overseas companies are so willing to invest in R&D here. But such R&D is footloose.

Much evidence shows that public sector R&D spending “crowds in” substantial further private sector R&D. The other side of that coin is that continuing – or accelerating – the erosion of public investment in R&D that we’ve seen in recent years will lead to a loss of private sector R&D, further undermining our productivity performance. The timescale over which these changes could unfold could be uncomfortably fast.

These are the short-term consequences of the neglect of research, but the long-term effects are potentially even more important, and this is something that politicians concerned about their legacy might want to reflect on. The big problems that society faces, and that future governments will have to grapple with – running a health service with a rapidly ageing population, ensuring an affordable supply of sustainable, low carbon energy, to give just two examples – will need all the creativity and ingenuity that science, research and innovation can bring to bear.

The future is unpredictable, so there’ll undoubtedly be new problems to face, and new possibilities to exploit. A strong and diverse science base will give our society the resilience to handle these. So a government that was serious about building the long-term foundations for the continuing health and prosperity of the nation would be careful to ensure the health of the research base that will underpin those necessary innovations.

One way of thinking of our current predicament is that we’re doing an experiment to see what happens if you try to run a large economy at the technology frontier with an R&D intensity about a third smaller than key competitors. The outcome of that experiment seems to be clear. We have seen a slowdown in productivity growth that has persisted far longer than economists and the government expected, and this in turn has led to stagnating living standards and disappointing public finances. Our weak R&D performance isn’t the only cause of these problems, but it is perhaps one of the easiest factors to put right. This is an experiment we should stop now.

England’s early energy transition to fossil fuels: driven by process heat, not steam engines

Was the industrial revolution an energy revolution, in which the energy constraints of a traditional economy based on the power of the sun were broken by the discovery and exploitation of fossil fuel? Or was it an ideological revolution, in which the power of free thinking and free markets unlocked human ingenuity to power a growth in prosperity without limits? Those symbols of the industrial revolution – the steam engine, the coke-fuelled blast furnace – suggest the former, but the trend now amongst some economic historians is to downplay the role of coal and steam. What I think is correct is that the industrial revolution had already gathered much momentum before the steam engine made a significant impact. But coal was central to driving that early momentum; its use was already growing rapidly, but the dominant use of that coal was as a source of heat energy in a whole variety of industrial processes, not as a source of mechanical power. The foundations of the industrial revolution were laid in the diversity and productivity of those industries propelled by coal-fuelled process heat: the steam engine was the last thing that coal did for the industrial revolution, not the first.

What’s apparent, and perhaps surprising, from a plot of the relative contributions of coal and firewood to England’s energy economy, is how early in history the transition from biomass to fossil fuels took place. Using estimates quoted by Wrigley (a compelling advocate of the energy revolution position), we see that coal use in England grew roughly exponentially (with an annual growth rate of around 1.7%) between 1560 and 1800. The crossover between firewood and coal happened in the early seventeenth century, a date which is by world standards very early – for the world as a whole, Smil estimates this crossover only happened in the late 19th century.

coal_vs_firewood

Estimated consumption of coal and biomass fuels in England and Wales; data from Wrigley – Energy and the English Industrial Revolution.

So why did coal use become so important so early in England? Continue reading “England’s early energy transition to fossil fuels: driven by process heat, not steam engines”

Innovation, research and the UK’s productivity crisis (the shorter version)

I have a much shorter version of my earlier three-part series (PDF version here) on the connection between the UK’s weak and worsening R&D performance and its current productivity standstill on HEFCE’s blog: Innovation, research and the UK’s productivity crisis.

The same piece has also been published on the blog of the Sheffield Political Economy Research Institute: Continuing on our current path of stagnating productivity and stagnating innovation isn’t inevitable: it’s a political choice, and it also appears on the web-based economics magazine Pieria.

The longer and more detailed post also formed the basis for my written evidence to the House of Commons Business Innovation and Skills Select Committee, which is currently inquiring into the productivity problem: On productivity and the government’s productivity plan (PDF).

Finally, here’s another graphical representation of the productivity problem in historical context, using the latest version of the Bank of England’s historical dataset “Three centuries of macroeconomic data”. It shows the total growth in hourly labour productivity over the preceding seven years; on this measure the current productivity slow-down is worse than that associated with two world wars and a great depression.

7yearproductivity_blog

Seven year growth in hourly labour productivity. Data from Hills, S, Thomas, R and Dimsdale, N (2015) “Three Centuries of Data – Version 2.2”, Bank of England.

The wrong direction

How does the UK compare with other leading research intensive economies, and how has its relative position changed in recent years? The graph above is an attempt to answer both questions graphically, separating out the contributions of both the public sector and the private sector to the overall R&D intensity of the economy as a proportion of GDP, and illustrating the trajectories of this expenditure since 2008. The UK stands out as having begun the period with a weak R&D performance, and since then it has gone in the wrong direction.

Govt vs Industry GERD timev2

Plotting both the private sector and public sector contributions to national R&D efforts stresses that there is a positive correlation between the two – public sector R&D tends to “crowd in” private R&D spending (1). Across the OECD on average, the private sector spends roughly twice as much on R&D as does the public sector, though in East Asian countries the private sector does more. The UK is substantially less R&D intensive than major competitors, and both public and private sectors contribute to this weak performance.

We can see some different trajectories in recent years. China and Korea stand out by their large increases in both private sector and public sector R&D intensity. Continue reading “The wrong direction”

Innovation, research, and the UK’s productivity crisis – part 3

This the third and final in a series of three posts. The first part is here, and this follows on directly from part 2

(Added 2/9/2015: For those who dislike the 3-part blog format, the whole article can be downloaded as a PDF here: Innovation, research and development, and the UK’s productivity crisis).

Quantifying the productivity benefits of research and development

The UK’s productivity problem is an innovation problem. This conclusion follows from the analysis of Goodridge, Haskel and Wallis, at least if one equates the economist’s construction of total factor productivity with innovation. This needs some qualification, because when economists talk about innovation in this context they mean anything that allows one to produce more economic output with the same inputs of labour and capital. So this can result from the development of new high value products or new, better processes to make existing products. Such developments are often, but not always, the result of formal research and development.

But there are many other types of innovation. People continually work out better ways of doing things, either as a result of formal training or simply by learning from experience, they act on suggestions from users, they copy better practises from competitors, they see new technologies in action in other sectors and apply them in their own, they work out more effective ways of organising and distributing their work; all these lead to total factor productivity growth and count as innovation in this sense.

There has been a tendency to underplay the importance of formal research and development in recent thinking about innovation, particularly in the UK. Continue reading “Innovation, research, and the UK’s productivity crisis – part 3”

Innovation, research, and the UK’s productivity crisis – part 2

This the second in a series of three posts, and continues directly from part 1.

Analysing the UK’s productivity slow-down

There are many theories of why the UK’s productivity growth has stalled, and in the absence of proper analysis it’s all too easy to chose a favoured hypothesis on the basis of anecdotes or a single data point, picked out to fit one’s ideological predilections. Indeed, I could be accused of doing just that, by drawing attention the UK’s weak R&D record; others might immediately start looking at a lack of competitiveness in the economy, or insufficient deregulation, as the root of the issue. But it would be surprising if such a striking occurrence had just a single cause, so a more careful analysis should help us not just by ruling possible causes in or out, but by ascribing different weights to multiple causes.

A better analysis needs both to consider what we mean by productivity and its different causes in more detail, and to look at the economy on a finer scale, looking both at the productivity performance of different sectors and the balance in the economy between those different sectors. Continue reading “Innovation, research, and the UK’s productivity crisis – part 2”