Revolution that brings riches to most of us

THE BALTIMORE SUN

WASHINGTON -- I talked recently with Professor Nancy Koehn of the Harvard Business School. She is a historian of business, writing a book about at least three industrial revolutions. A fourth, which should interest you, may arrive by the time she finishes dealing with the first three.

The first business revolution, says Ms. Koehn, lasted roughly from 1760 to 1820. It was centered in northwest England, the Silicon Valley of the 18th century. The central new product was the old kind of software, textiles, mostly cotton. The critical technological drivers were the spinning jenny and the steam engine.

The second industrial revolution was centered in the United States between 1870 and 1920, driven by the railroad and the telegraph, linking people and places and goods and businesses in new ways.

A national market formed, which birthed national advertising campaigns, like the one explaining why "You Need a Biscuit" (Uneeda Biscuits). Some companies caught on quickly, like Coca-Cola, Sears-Roebuck and Montgomery Ward. Of last year's Fortune 500 companies, 247 were founded between 1880 and 1920. It was an exclamation point in the history of capitalism, says Ms. Koehn.

Business revolutions are woven of technology, politics, economics and psychology, she explains. The second industrial revolution created factories, the rise of organized labor, the Federal Reserve system and antitrust and labor legislation.

Comes now the third exclamation point. Ms. Koehn prefers to call it the third industrial revolution, but says it could just as easily be called the information revolution or the communications revolution.

She says it began around 1970, before the Netnik nudniks arrived, not long after IBM put out its System 360 mainframe.

By the mid '70s there was something called the "home group computer club," meeting in a classroom at Stanford University. Apple was founded in the '70s, Microsoft in 1975. Gordon Moore, one of the founders of Intel, predicted that semiconductor processing capacity would double about every 18 months. It did. It does.

Again, Ms. Koehn is careful to point out that new technology is not the whole story. Economists and historians, she says, don't fully understand what kindles the sparks that light the fires of capitalism, which produce and exploit the explosive technology.

I asked Professor Koehn if perhaps we ain't seen nothing yet. If a group of economic thinkers had come together 10 years ago to form a five-point plan to boost economic growth, what might they have come up with?

Surely, an end to the Cold War. An acknowledgment that democracy best fosters the commercial and civic law intrinsic to modern business. A surge of international trade. A takeoff of new technology, bio-tech, for example. A global acceptance that free markets will beat the pants off government-regulated markets any day of the decade.

In 1986 most of that would have been regarded as pie-in-the-sky nonsense. An end to the Cold War? Market-driven economics while the welfare state was still riding high? Ridiculous. Yet it happened. In the last few years global GDP has grown at 4 percent, twice its previous rate.

I asked Ms. Koehn whether that might be a harbinger of a third-and-a-half industrial revolution.

"It might well continue," she said. "These moments of change bring spikes in production. And over the long term, those spikes seem to lead to a rising increase in economic productivity and growth. But do those spikes lead to a smooth [upward] path? No. In the late 19th century, the second industrial revolution was fraught with peaks and valleys, as 4 percent growth or 6 percent growth gave way to 2 percent, and to significant business downturns.

"Are we on autopilot or cruise control with 4 percent growth? I think not. Is it likely that this kind of technological change and the organizational, product and human-resource innovations that can come out of it can drive long-term sustained increases in productivity? Yes, it is."

She notes that politics, economics and communications have again intertwined with technology.

"For much of the 20th century there has been a five- or six-round bout waged between state-planned economies and capitalism," she says. "It ended in the late '80s. Capitalism won.

"Adam Smith can roll over and rest easy in his grave. We're in the third industrial revolution, and moving into chapter two or chapter three of that revolution, getting close to a denouement. The threads of politics, social issues and communications are interrelated in this very rich quilt, this chaotic weave of the third industrial revolution. And they're going to give way -- if history is any signpost -- to another very interesting quilt."

So what? The Dow Jones Industrial Average is at about 7,300, up about 2,800 from this time in 1990. I would guess that a fourth industrial revolution takes it to 11,000 by the end of the year 2000, making most Americans much richer.

Ben Wattenberg is a syndicated columnist and the host of the weekly public television program, "Think Tank."

Pub Date: 5/26/97

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