January 23, 2004

Not the Future

Posted at January 23, 2004 11:39 AM in .

Not the future we expected
By John Kay

It is a truth almost universally acknowledged that we are living through a period of technological change whose speed and impact are without precedent. The effect is on our desks and in our pockets. We carry devices whose processing capability would a generation ago have required a roomful of computers and, a generation earlier, would have demanded an army of clerks. Our personal lives are transformed by mobile phones and internet access, our business activities galvanised by instantaneous data transmission and computerised inventory management.

Yet there are dissenters. A recent article by Alexander Field, an economic historian, concludes that the most rapid innovation in American history occurred not in the booming 1990s, or even in the roaring twenties, but in the period between the Wall Street crash of 1929 and the attack on Pearl Harbor in 1941 - the period we still call the Great Depression.

Could Professor Field be right? I began to doubt the conventional wisdom when I discovered a Hudson Institute report from the mid-1960s that predicted technological changes from then till 2000. Its prognostications about information technology were impressively accurate - it foresaw mobile phones, fax machines and large-scale data processing.

But in other areas the Hudson Institute was wide of the mark. Where are the personal flying platforms, the space colonies, the artificial moons to light our cities, the drugs that make weight reduction a painless process? Progress in IT has fully matched the expectations of three or four decades ago. But advance in other areas has, by historic standards, been disappointing.

In the first half of the 20th century, the car revolutionised transport. Civil airliners shrank the world. But we still drive cars, not personal flying platforms, and our vehicles are still powered by internal combustion engines. The 747 that was delivered to Pan American in 1969 would have been beyond the imagination of an aviator from 1934; but 747s are still in production 35 years later.

In the postwar decades new drugs virtually eliminated infectious disease as a cause of death among otherwise healthy adults in developed countries. Futurologists predicted that new discoveries would postpone heart disease and conquer cancer. Instead we have Prozac and Viagra, pills that control stress and capsules to reduce stomach acidity. These are significant and profitable innovations but without the dramatic effect on productivity or longevity of earlier discoveries.

Similar advances revolutionised industrial materials. Schoolboy aircraft modellers learnt how plastics could be applied to all forms of construction. In the 1960s you could make shirts of nylon and slacks of polyester, although they were not nice or elegant to wear. And that is, pretty much, where things remain today: our clothing is still largely derived from the sheep and the cotton plant.

Economists such as Prof Field measure technical change by looking at changes in total factor productivity - the part of output growth that is unaccounted for after you have measured the effect of changing labour
inputs, increased skills and growing capital employed. By this measure the final decades of the 20th century were unremarkable. Even the productivity acceleration that some observers have seen in the US in the past five years is no more than a return to growth rates that were once commonplace. Those who believe the pace of change today is without precedent are either ignorant of history or fixated on IT.

Business gurus, management consultants and journalists have a shared interest in exaggerating the pace of change. The excitement they generate makes their ideas sound more important, their services more urgently required. These commentators tell us that lessons from the past are irrelevant because the future will be so radically different. Old concepts of valuation and financial control are redundant and the determinants of business success have fundamentally changed. We should be wise to take all these claims with a large pinch of salt.

http://www.johnkay.com/trends/318

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