Paul David: It took decades for the economic impact of electricity to become clear. The same will prove true of information technology.





... Paul David, an economic historian at Stanford, presented a brief, prescient research paper to the American Economic Association back in 1990, titled "The Dynamo and the Computer". Professor David's aim was to persuade economists that the history of the electric dynamo would tell them something about the ongoing information revolution.

Electric light bulbs were available by 1879, and there were generating stations in New York and London by 1881. Yet a thoughtful observer in 1900 would have found little evidence that the "electricity revolution" was making business more efficient.

Steam-powered manufacturing had linked an entire production line to a single huge steam engine. As a result, factories were stacked on many floors around the central engine, with drive belts all running at the same speed. The flow of work around the factory was governed by the need to put certain machines close to the steam engine, rather than the logic of moving the product from one machine to the next. When electric dynamos were first introduced, the steam engine would be ripped out and the dynamo would replace it. Productivity barely improved.

Eventually, businesses figured out that factories could be completely redesigned on a single floor; production lines were arranged to enable the smooth flow of materials around the factory. Most importantly, each worker could have his or her own little electric motor, starting it or stopping it at will. The improvements weren't just architectural but social: once the technology allowed workers to make more decisions, they needed more training and different contracts to encourage them to take responsibility.

David showed that the first world war, which led to immigration controls and choked off the supply of cheap but untrained immigrant workers, was one of the spurs to make these changes. US productivity growth eventually leapt in the 1920s, four decades after the commercialisation of electricity. Productivity growth rates in US manufacturing in the 1920s were more than five per cent per year, a rate that makes the "new economy" look laughable, at least for now.

But David's research also suggests patience. New technology takes time to have a big economic impact. More importantly, businesses and society itself have to adapt before that will happen. Such change is always difficult and, perhaps mercifully, slower than the march of technology....

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