£ccAy
I S THE 1~L~1~
INFORMATION
RE:VQ UTIQNDEAD?If historyis aguide,it is not.AT THE PEAK OF THE INTERNET FRENZY
two yearsago,whentheNasdaqwasover~,ooo anddotcommillionaireswerebuying spreadsin thehills abovePaloAlto, it seemedthat theinforma-tion revolutionwouldgo on forever.Little techcompanieswerepoppingupeverywhere,andsmallinvestorswerereapingreturnsthatmadethemfeellikegeniuses.Thenthe bubbleburst.Itburst,managementguruPeterDrucker
tellsus, because“the informationin-dustryasabusinesswasn’tgoingany-where.”The informationrevolutionhadbeenhyped,exaggerated.NeithercomputersnortheInternet,Druckersays,hadaddedmuchto theeconomy.
Is the informationeconomygoingnowhere?Is its revolutionover?In Sil-iconValley, certainly, theprospectslook bleak.But historysuggeststhatsuchpessimismis misplaced—thatthe
A 1947
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BY W. BRIAN ARTHUR IMARCH 2002 BUSINESS 2.0 65
informationrevolution’sbestdaysmight actuallylie ahead.
Lookedat withouthistoricalCon-
text, theinformationrevolutionap-
pearsto beunique,comparableto
nothingwe knowaboutfrom before.Lookedat aspartofhistoryit is mere-
ly onein aseriesoftechnologicalrevo-
lutionsthathavebeenoccurringsince
themid-x8th century.Eachof these
revolutionshasbeendifferent:The
Industrial Revolution,from about17(O to 1820in Britain, replacedhand-
craftingwith machineryandbrought
thefactoryandmill system.Therail-
wayrevolution,from aboutx8zg to
1875, againin Britain, sawagreatcon-
nectingof commerceandthecoming
ofsteampower.Thesteelandelectric-
ity revolution,fromabout2875to 2920
(theactionnowshiftsto theUnited
StatesandGermany),wasanageof
massiveengineeringandtheelectrifi-
cationoftheeconomy.Thegreatman-
automobilesandcheapgoodsaplenty
And ourownrevolution,whichstart-
edwith themicroprocessorin about
2970,bringsustheageof digital every-
thing, theWeb, andinterconnected
commerce.ThedatesI’ve givenareap-proximate.Economistsquarrelover
whensucherasstartedandended,and
aboutwhichclustersqualifyas“revolu-
tions.” Somedenythat “eras”of great
changeexist at all. Others,notably
economistssuchasCarlotaPerezand
ChrisFreemanof theSussexschoolin
England,championthenotionofrevo-
lutionsandseein theirphasesportents
ofwhatis to come.
All threadsofthoughtontechnology
revolutionsleadbacktoAustrianecon-
omistJosephSchumpeter,asinglefig-
urewriting in thefirst halfof thezoth
centurySchumpeterhasacuriousposi-
tion in economics.Heis reveredonthe
continentofEurope,yethasashadowy
reputationin Anglo-Saxoneconomic
circles—youcangetagraduatedegree
in economicsat anEnglishorAmeri-
canuniversityandscarcelyhearofhim.
He is rememberedmoreby businessgurusfor his ideaof innovationbring-
ing“galesof creativedestruction.”Pro-
fessorswhodo speakofhim arefond of
telling theirclassesthatSchumpeteras-
piredearlyin life to bethegreatest
economistin theworld, thegreatest
horsemanin Austria,andthegreatest
lover in Vienna.The storysmacksof
myth.Butasfar asI cantrackit down,
it is true,andlatein life Schumpeteris
saidto haveonly admittedthathewas
notthegreatesthorsemanin Austria.
soduringhis lifetime—others,hisnemesisJohnMaynardKeynesamong
them,werebetterknown.But I believe
thatSchumpeterwill turnoutto bethe
mostimportanteconomistof thezoth
century.Heconcernedhimselfnotwith aneconomyatrestbutwith the
unfolding ofeconomies,with their on-
goingtendencyto evolveanddevelop
andchangeinstructure.And thisheas-
cribedto innovation—toongoing,dis-
ruptivediscoveriesin technologyand
their incorporationin theeconomy.His writings, somenow nearly100
yearsold, aresurprisinglymodern.
Schumpeternoticedthattechnolo-
gy arrivesinclusters—withelectrifica-
tion comedynamos,generators,trans-
formers,switchgear,powerdistribu-
tion systems;with massproduction
andtheautomobilecomeproduction
lines,modernassemblymethods,“sci-
entific management,”roadsystems,
oil refineries,traffic control.These
clusters,if theyareimportant,define
anera.Theyeventuallychangethe
waybusinessis done,eventhewayso-
ciety is conducted.As Pereztells it, a
technologyrevolutionstartswith the
openingup of oneor moretechnolo-
giesthat“enable” thenewcluster.The
newtechnologycluster,at first little
noticed,achievessuccessesin early
demonstrations,andtechnicalpeople
startsmallcompaniesbasedon the
newideas.Thesecompeteintenselyin
this earlyturbulentphase.Govern-
mentregulationis largelyabsent,and
assuccessesmount in atechnicalfree-
for-all, thepromiseof extraordinary
profit l100ms.The public startsto
speculate.(In themass-production
revolution,think of the19205 in the
UnitedStates.)Themiddle phasesees
asustainedbuildout orgoldenageof
the technologyduringwhich it be-
comestheengineof growthfor the
economy.Largecompaniesandoh-
gopoliesreign,andtheperiodis oneof
confidenceandprosperity(Thinkof
the1950S and‘6os.) In thelastphase,
thetechnologyis mature.It hassatu-
ratedits possibilities,production
movesto placeson theperiphery,and
complacencysetsin. (Think of the
1970S andtheriseof competitioninJapanandTaiwan.)Profitsathomeare
low, andentrepreneursbeginto look
aroundfor newopportunities.The
economybecomesripefor thenext
revolution.
Theexactphasesandwhathappens
within themaredebatable.But whatinterestsmeis thepatternofspecula-
tiveexuberance,followedbycrash,fol-
lowed by astrongbuildout period.If
ufacturingage,from 1910 to 1970 or Washethegreatesteconomistin the
so,broughtus massproductionand world?Hewascertainlynotconsidered
IN THE FIRST STAGE OF A TECHNOLOGY REVOLUTION,
A PERIOD OF SPECULATION IS FOLLOWED BY A
CRASH. THEN COMESA STRONG BUILDOUT PERIOD—
THE GOLDEN AGE OF THE TECHNOLOGY.
66 BUSINESS 2.0 MARCH 2002
& EssexRailroadpromisedthat“the
first necessariesof life will besupplied
in greaterabundance;competitionin-
creased,andareductionin pricesthe
necessaryconsequence.”Railwaysbe-
camefashionable.QueenVictoria
madeherfirst railwaytrip in 2842 in a
suitablyimperialcarriageandallowed
thatshewas“quitecharmedby it.” En-
trepreneursbeganto emerge,among
themGeorgeHudson,the “railway
king.” Hudsonstartedasadraperin
York, inheritedmoney,andfoundhe
.‘~ ‘S
theSchumpeter-Perez-Freemanstory
holdswater,we arenot attheendoftheinformationrevolution.We are
only partwayinto it, andthebuild-
out—thegoldenage—hasyetto come.
F WE LAY THE INFORMA-[~~ tion revolutionalongside
thegreatrailwayrevolu-[~H tion in Britain, yearforyear,we’d now besome-
wherearoundx8go—justaftertherail-
wayinvestmentmaniaof 1845 anditscrashin 1847. Therailwayrevolution
tookplaceroughlybetween2825 and
2875.I sayroughly,becausetherenever
is amarkedbeginningor endto an
economicrevolution.Evenin 1825,
railwayswere by no meansnew. For
centuries,mineshadusedhorse-
drawnwagonsto moveoreson wood
oriron-cappedrails.Thefirst com-
mercialrailway, theStockton& Dar-
lington, ownedasinglelocomotive
whenit openedin 2825,andits Express
wasstill acarriagedrawnon rails by a
canteringhorse.EvenwhentheLiver-pooh& ManchesterRailwaywasbeing
plannedin 1829,its directorsdoubted
thatamovinglocomotivecouldretain
adhesionon uphill gradients.Thecon-
ventionalviewbetoncarriageshauled
by ropesattachedto stationarywind-
lagengines.In October1829,theL&IvI
organizedalocomotivetrial atRainhill,
stipulating that theenginemustbe~capableof“drawingatrain ofcarriages
at io mph.” Five locomotivesentered,andRobertStephenson’sRocketas-
tonishedthewatchinggentlemenbyachieving24mphunloadedand22mph
haulingatrainup theRainhill incline.
Locomotiveshadprovedthemselves.
Technicalpioneersbeganto crowdin, a
host of improvementsfollowed, and
adecadeandahalfof frenziedtechni-
calcompetitionwasunderway.
Thenewtechnologyengendered
talkof anew,moreprosperousecono-
my.An 1831prospectusfor theLondon
Britain’srail boom,fromtop:Rocket,anearlylo-
comotive,in 1829; railwaystockcertificate,
1823;QzjeenVictoria in herroyaltrain cai 1875.
MARCH 2002 BUSINESS 2.0 67
good ... andall wassmiling,” Francis
wrote. “The mostcautiouswerede-
ceivedby this apparentprosperity...
Like drunkenmentheylost theircau-tion andgavetheirsignaturesto every-
thingthatwasoffered....Manyof the
railwaysattainedpriceswhich stag-
geredreasonablemen.Themore
worthlessthe article, thegreater
seemedthe struggleto attain it.”
Schemesfor directlines connectinglit-
tle-knowntownsto otherlittle-knowntownsbecameacraze,launchedmore
with aneyeto garneringinvestment
thanactualprofits. “Thecountry,”said
Lord Cockburn,aScottishjudge,“is an
asylumofrailwaylunatics.”Not all
schemescould beprofitable.“We seenine ortenproposalsfor nearlythe
AFTER A CRASH MUCH OF THE GLAMOUR OF THE
NEW TECHNOLOGY IS LOST. THE MOOD
IS DIFFERENT. INVESTMENT PROFITS BEGIN
TO REFLECT REAL RETURNS.
- - nificent 100-acreNewbyParkestatefrom EarldeGreyin 2845.
Hudsonwasoneof manyrailwayen-
trepreneurs.Theprocedureinpropos-ingarailwayrequiredbringingabill be-
fore Parliament;if it wasapproved,thestockcouldbesubscribedin asortofVictorian IPO.Gentlemenandpoliti-ciansanddignitariessuchastheDuke
of Wellingtonboughtstock.Those
whocouldnot afford stockcouldbuy
scrip—sharesdicedandparceledintosmallunitsthatcouldbesold on the
street.Servantsandspinstersandtradesmenbegantopourtheirsavings
into railwayscrip.By 2845 afull railwaymaniawasrag-
ing.By thesummernewschemeswere
beingfloatedatthe rateofmorethanadozenaweek.Scripwassoldby alleymen,andthestockexchangeresem-
bleda countryfair. Thegeneralpros-peritycontributed.“Themarketswere
sameline, all at a pre-
mium, whenit is wellknown thatonlyone
CAN succeed,”saidthe
Economist.Theresult,predictably,wasoverca-
staveoff nationaleconomiccollapse.
Whenthe panicwasover, railwayshareshadlost 85 percentof theirpeak
valueandseveralhundredcompanieshadfolded.AsFrancisrecordedit,“En-
tire familieswereruined.Therewas
scarcelyanimportanttownin England
butwhat beheldsomewretchedsui-
cide.” Hudsonhimselfwasnevercon-victedof wrongdoing.(“He wasobvi-
ouslyno adeptat thehigherartsof
swindling,” Schumpeterremarked.)But hewasnow apariahandfled to
Paris.ThomasCarlylewrotein i8~oof
imaginingHudsonswingingon agib-
bet“as atragicpendulum... veritably
theSupremeScoundrelof theCom-monwealth,whoinhisinsatiablegreed
andbottomlessatrocityhad... ledmul-
titudestogo, in thewaysof
gildedhumanbaseness;
seekingtemporaryprofit
whereonly eternallosswaspossible.”Manyof
Hudson’sinvestorscher-
ishedasimilarhope.Fifty yearsearliera
similar storyhadplayed
out in thecanalmaniaofthe1790s.Canalshadbeen
aroundfor acoupleof
hundredyears,butgot
underwayseriouslyinBritain in 1761whenthe
Dukeof Bridgewaterdrove acanal
from his coalminesatWorsleyto thetextile mills at Runcorn.In the two
decadesthat followed, largeprofits
from this andsimilar undertakings
broughtabouttheswift expansionofcanalsystems—andaspeculative
maniain 1792. Canalsharescrashedin‘793, totheruinofmany.
Whatis interestingaboutboththecanalandrailwayrevolutionsis thattheircrasheswereby nomeanstheend.In thedecadesafter1793, Britain wenton to build outz,ooomilesofwater-way,doublingitsprecrashmileage.Andcanalsbecamethekeyinfrastructure
TheRailwayKin&GeorgeHudcon(1800-1871)
pacityiTherewerethree
independentroutesfrom LondontoPeterborough,andthreefrom Liver-
poolto Leeds.
1]~oublebeganinOctober2845,whenscrip ceasedto payapremiumand
sharesinestablishedrailwaysbegantofall. GreatWesternRailwayshares had
plummeted40 percentfrom theirAn-
gustpeak.A harvestfailure in 2846
compoundedthedownswing,further
bankruptciesfollowed, andaneco-nomicWeekofTerrorbeganonMon-day,Oct. 17, 1847.Somebankswereforcedtoclose.TheBankof Englandheld lessthan£2 million in reserves,
andspecialmeasureshadto betakento
hadatalentfor puttingtogethernew
andbranchlines.He becameapublic
figure, fawnedover, known asHis
SteamMajestyA contemporaryob-
server,JohnFrancis,recordedthat“his
fortunewascomputedwith analmost
personalpride....Thechoicestaristoc-
racy ... soughthis presence....Thebishopbentin homage....Whenhis
namegracedanadvertisement,men
ranto buytheshares.Hewastheirrail-
waypotentate;their ironking; their
goldengod.”Therailwaykingssuchas
Hudsonwerenot somuchtechnical
peopleasorganizersandinvestors—
mainlyof otherpeople’smoney.Andindeedtheyorganizedandinvested.
And got rich.Theyboughtlargees-
tates—Hudsonpurchasedthemag-
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componentof theIndustrialRevolu-tion. Similarly, in 1845, justbeforethe
crash,Britain possessed2,148milesof
railway;6~yearslaterit had2I,00o
miles.Themajorbuildoutof railwayscameafter thecrashof2847.
Ofcourse,afteracrashmuchoftheglamourof thenewtechnologyis lostandis noteasilyreplaced.Thenewpe-nodis different.Themoodis differ-ent.If theperiodbefore1847~ atimeofexcitementandof smallcompanies
jostling for dominance,theyearsafter
1847areonesof seriousnessandhard
work—yearsof buildout ratherthan
novelty,yearsof confidenceandsteadygrowth,yearsof orderliness.Investmentprofitsbegintoreflect the
realreturnsfrom thenewtechnology
Thebasetechnologyis now inplace,
but beforethe crashit hadnotac-countedformuchin economicterms.In the decadesfollowing the 1847
crash,the railwayscomeinto their
own.Passengerandfreight receipts
becomemultiplesof whattheywerebefore,andtheverygrowthoftherail-wayshelpsthe economyto grow,which furtherstimulatestherailways.After 2850,railwaysbecometheen-
gineof theeconomyinBritain.In theUnitedStates,therewasno
equivalentoftheBritish railwaymania.
Certainlytherewereperiodsofset-backinwhichrailroadoverinvestmentwaspartlyto blame.In thedepressionof 1859, theeconomiccommentatorHenryCareyBaird complainedthat
“our railroad systemhascostmorethan$x,ooo,oooandhasbroughtruin
uponnearlyeveryoneconnectedwith
it, thenationincluded.”But, again,atthistime railroadsin theUnitedStates
werejust beginning.In 2860 theUnit-
edStateshad3o,00omilesofbuilt-out
track; by 1914 it had253,000miles.
Thebuildout,whenit came,wasmas-sive.And it broughtanageof oligopo-liesandrailroadbarons.Yet inspiteofsuchexcesses,railroadsbecamethe
driving forceoftheUS. economy.Rail-roadsopenedup theWest,theypro-videddemandandthusthebaseforthenewsteelindustrytheymadepos-siblenewcommerceandothernewin-dustries,theybroughtnewcities andcentersof populationinto existence,
STEAM ENGINE.
M8
W4TT3~ENGIYE.
F~.1.
Sz~gle’aamgENGINEfor pwnp~j,zt
CHELSEAWATER WORES.
.1~L4rSIT!
8
Progresstakestime.JamesWattinventedhisnewsteamenginein the176os;steampowerdidn’tcomeinto wide useuntilthe182Os.
MARCH 2002 BUSINESS 2.0 69
andasin Britain thecommerceof the
countryorganizeditself aroundthem.
Not all technologyrevolutionsof
thepastexhibit maniasandcrashes.Economistsdisputeto whatdegree
thegreatcrashof X929wastheresult
ofoverexuberanceaboutthestocksof
thenewautomobilemanufacturersandothermassproducers.And there
wasno steelcrashin the189os.But
this dog-that-didn’t-barkclue— the
absenceof asteelcrashanddubious-
nessof a mass-productioncrash—
doesn’tnegateanycorrelationbe-
tween the railway crashandthe
Internetcrash.It points to aresem-
blance that might otherwisebe
missed.Railwaysandcanals,like the
Internet,areconnectiontechnologies.
Theyconnectplaces,theyconnect
businesses.As suchtheyarenatural
monopolies—onlyoneline, or one
canal,canprofitablyconnectLiver-
pool to Manchester,andoncethis isputin place,competinglines lose.For
- connectiontechnologies,this brings
ona“race for space.”And this in turn
means thatwhentheopportunities
openup, theyopennotwith anorder-
ly fundingbutwith aheatedsensethat
theyarefinite andwill soonbefilled.
Theresultcaneasilybeaninvestment
frenzy—amania.By contrast,steelfac-
toriescanconstantlyimproveandan-
dercutoneanother,sothat asthe tech-nologyimprovesin an orderlyway, it
becomesfinancedin anorderlyway.
Nomania.But withorwithoutmanias,
all revolutionsstill progressfromearly
chaoticinnovationto buildout,and
thento tiredovercapacityandforeign
competition.
L_0 — ogy cluster—micro-
T HECURRENT TECHNOL-
r-~ ~ processors,telecom-
[~‘ H munications,software,theInternet—hashad
its boomandcrash.And aswith therailways,thetelecommunicationssideof it suffersfrom overcapacityIt has
madepossibleahostof subtechnol-
ogiesanddigitally basedactivities—
genomics,CTscanners,DNA.probes,
global positioning systems,cell
phones—andnobodydoubtsthatit
will spawnothers.But the Internet
partof this revolutionseemsto bein
troubleandits prospectsarederided.
Is itsbuildout yetto come?Certainly
we canmatchtheInternetwith what
happenedin the184os: theinitial suc-
A REVOLUTION DOESN’T TRULY ARRIVE UNTIL
WE STRUCTURE OUR ACTIVITIES AROUND THE
NEW TECHNOLOGY—AND THE TECHNOLOGY
cesses,theballyhoo,the IPO kings,thelargeestates.And thecrash.But
aneerieresemblanceto eventsof 260
yearsagodoesn’tguaranteethattheinformationrevolutionis aboutto
enteranygoldenage.Whatevidenceis therefor this?
OneargumentI don’t buy is thepro-posalthat theinformationrevolutionhasbeenaroundlong enoughto have
hadits chance.Its enablingtechnol-ogies—thelaser,themicrochip,the
Arpanet(forerunnerof theInter-net)—datefromthe1950sto theearly
197os.Sotherevolution,thisargument
goes,hashad3, yearstoproveitself
andwe haveyetto seeits economic
gains.Hereagain,historytellsus oth-erwise.It tells usthataconsiderable
delay—severaldecades,usually—lies
betweenthetechnologiesthatsetarevolutionin motionandtherevolu-
tion’s heyday.Theenablingtechnolo-
giesofthesteelandelectricityrevolu-
tion (theBessemersteelplantandtheelectricmotorandgenerator)hadar-rived bythe187os,buttheir full effects
werenot felt until well into the1910S.
Watt’ssteamenginewasdevelopedin
the176os;steampowerdidnot come
into prevalentuseuntil the1820s.
Modernmassproductionarrivedin
1913,but didnot reachits peakuntil
the1950Sand‘6os.Suchdecades-long
delayedreactionsshouldgiveus aclue
thatsomethingotherthantheappear-
ADAPTS TO USBY BECOMING EASY TO USE.
TheIslington TunneiRegencyCanalin 1827.Afterthecanalbubbleburstin 1793,Britain wenton to
buildout2,000milesofwaterway,doublingitscanalmileage.
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70 BUSINESS 2.0 MARCH 2002
anceof a technologyandits subse-
quentadoptionis atwork. If apower-
ftil newtechnologyappears,it might
takepeopleadecadeto hearaboutit
andtry it. But threedecades?Five
decades?Somethingelsebesidesslow-
nessto glom onto thenewtechnology
• mustbegoingon.
That somethingelse,I believe,is
that manyarrangements,manyim-
provements,andmanyorganizational
Changesneedto beput in placebefore
thenewtechnologyclustercanbe-
comewidespread.It is not enough
thatthebasetechnologiesofarevolu-
tion becomeavailable.‘Whetherthese
arerailroadsor microchips,arevolu-
tion doesn’tfully arriveuntil westruc-
tureouractivities—ourorganizations
andbusinessmethods—aroundits
technologies,anduntil thesetech-
nologiesadaptthemselvesto asby be-
coming comfortableandeasyto use.
So it’s not merelythat thebasetech-
nologieshaveto becomebetter,faster,
cheaper.Thathelps,butwhat’sneed-
edfor therevolutionto fully blossom
are the 1,001 subtechnologies,ar-
rangements,andarchitecturesthat
adaptus to thenewtechnologiesand
themto us.Their arrival takestime,
andit definesthebuildout periodas
onethatcreatesthearrangementsand
subtechnologiesthat bringthenew
possibilitiesinto full use.
We canseethiswith railwaysafter
thecrashof 1847.Not only did rail
transportbecomebetter,faster,cheap-
er—withimprovementssuchassteel
railsarrivingin thex86osand,adecade
later,compoundlocomotivesthat in-
creasedpowerby expandingsteamin
onecylinderafteranother.But systems
thatmaderailwaysusableandsafe—
whatI will call arrangements-of-use—
S also followedin this period:leversys-
temsthatworkedswitchesandsignals,
controlof traffic via theelectrictele-
graph,air brakes,doubletracks,Pull-
mansleepingcars,dining cars,toilets.
(Toilets arrivedlateron British trains thereforeoftenrequiredfactoriestobe
redesigned.Industrialarchitectsknew
nothingof electricityandfinding the
properlayoutandorganizationtook
muchexperimentation.Full adoption
took40 years.We arein asimilarposition today
with computationandthe Internet.
Businessesroutinelyinstall digitally
thanonAmericanonesdueto acertain
Englishindispositionto admitbodily
functions in public.) In thebuildout
period,innovationcontinuesadapting
thenewtechnologyto humanuse
without,letup.And businessin turn
adaptsitself to therailway. Factories
thatmightformerlyhavebeenlocated
nearrivers arenow for
conveniencelocatednear
railways.Productionfa-
cilities andshipping
methodsareadaptedtothenewtransportation.
In fact,with anyim-
portantrevolution,busi-
nessorganizationneeds
to domorethanadapt.It
needs,to someconsider-
abledegree,to redefine
itself— to re-architectit-
self. In 2955,economist
Marvin Frankelnoted AndyGrove,RobertNoyce,andGordonMoore—
that England’sLanca- themainmindsofIntel—in1975.
shiretextile mills stillusedold, out-of-datemachinery.Yet
themill ownerswereawareof thead-
vantagesof modernmethodsandma-
chineryWhydidn’t theyadoptthem?
Frankelfoundthatthenew,moreeffi-
cientmachineswereheavierandlarger,
andtheold ‘Victorianbrick mill build-
ings with their closesupporting
columnscouldnot physicallyaccom-
modatethemorbeartheirweight.The
newtechnologyrequiredtearingdown
theold structuresandbuilding differ-
entones.Thecostsof thiswereprohib-itive. EconomichistorianPaulDavid
tells asimilarstory abouttheslow
adoptionof theelectricmotor.Before
electrification,everyfactorywaspow-
eredby asinglesteamengine,agiant
hissingandcrankingcontraptionwith
pistonsandaflywheel andasystemof
beltsandpulleys thatturnedshaftson
severalfloorsof abuildingto powerall
ofthefactory’smachineryElectricmo-
torspoweredmachinesseparately,and
basedequipmentor enterprisesoft-
wareorpeer-to-peercommunications.
But for effectiveuse,theyneedto re-
structuretheir activities— theirvery
organization.Howto dothis, exactly,is
notyetknown.Businessesdon’t know
whattheappropriateorganizationwill
look like, andtheyfacethepossibility
thatanyreorganizationmaywell be
quickly outdatedby newtechnologies.
Evenif thecorrectorganizationwere
known,businesseswould still haveto
paytheMarvinFrankelcostsoftearing
downtheold structures.Muchof the
technologyis available,but its usere-
quiresaslowprocessoflearningandin-
vestment.In fact thereis strongevi-
dencethatjustsuchaprocessoftearing
down old structuresandsteadily
adoptinginformationtechnologywas
underwayin mostUS. industriesall -
throughthe19905 andthatit statisti-
callyaccountedfor virtually all of the
considerableproductivitygainsofthat
MARCH 2002 BUSINES5 2.0 71
decade. Two recent studies show that
this processcontinues— thateven
aftertherecentcrash,productivity
gainsissuingfromthenewtechnologyhavebarelyslackened.Thereasonissimple:Crashor not, informationtechnologypricesfall constantly,and
businessestakeadvantageof this topurchase‘the newtechnologyand
adapttheirmethodsto it.
Thisishealthy.But it is not sufficient
thatbusinessesandpeopleadaptto anewclusterof technology.Thereal
gainscomewhenthenewtechnologyadaptsto them.Thenotionthata tech-
nologyneedsto adaptto itsusersseemsobviousenough,but isheavilyunderestimated.Peoplewill not usea
technologythatdoesn’tworkproperly.Theywill shunanythingawkwardoruntrustworthyor justplaindifficult to
use.Making the technologybetter,faster,cheaperis only partof what’sneeded.Anewtechnologyisusedwhenit is moreconvenient,easier,reliable.
Forwidespreaduse,atechnologymust
provide,inaword,amenity
- - As technologistJohnSeelyBrownpointsout,somethingsubtlehappensto a technologywhen it achieves
amenity:It disappears.Webecomeab-
sorbedintoits world, andits bonesdon’tstickoutanymore.Thus,ifwearedriving acaratnight,we areabsorbed
into car-world—weareawarewe are
driving, awareof thepassingtreesandfences,butnotawareof thecarasatechnologyThecardisappears.By this
standardthe Internetissomewherearoundtheget-out-and-get-underdays
of theModel T Ford.To accessmy
THE DIFFERENCE WITH THIS REVOLUTION IS
THAT IT WON’T END WHEN WE HAVE BLANKETED
THE COUNTRY WITH FIBER. WE CAN EXPECT
MORE INNOVATION IN THIS BUILDOUT PHASE.
bankaccount,I haveto fire upmycom-
puter,andwait.Thendial in bymodem,
andwait.Thengetabrowsergoing,and
wait. Thenenteraccountnumbersand
velopment—toreachamenityNeededwerepavedroads,reliablebrakes,igni-
tionsystems,safetires,andathousand
otherthings.
Theinformationrevolutionis noti~adicallydifferentfrompreviousrevo-
lutions.TheInternethashaditsboom
andcrash,andthereis no reasontosup-posethathistorywill benegated:Full
useof thetechnologywill arriveeven-
tually.It alwayshas.But thiswill require
that thetechnologybecomeworkablefor theuser,andthatbusinessesre-architectthemselvesto makeuseofit.
Thiswill happengraduallyduring thenext20 to 20 yearsas,themissingcom-
ponentsof thetechnology’susestruc-tureareput inplace.In thisbuildout,thetechnologiesthatwill mattermost,thatwill determinethepace,arethe
onesI amcallingarrangements-of-use.
Ifthereisonedifferencewiththis revo-
lution, however,it is thatit won’t end
whenwe haveblanketedthecountry
with optical cableor haveteraflop
processors.Informationtechnology
morphseveryio yearsor so,so that
whatwe thoughtdefinedthe
information revolution—
batchprocessing,desktop
computing,Web-basedinter-
connection— is continually
supercededby something
new.What lies aheadcan
neverbefully foreseen.This
meansthatwe canexpect
more innovationin this build-
outphasethanwith previous
revolutions.But duringthe
next fewyears,atleast,what
will drive the buildout is
somethingatoncesilentand
unremarkable:thequiet,in-exorableinterconnectionof businessandtheslowappearanceofWeb-based
servicesthatdigitizationprovides.
How fastcanthe informationtech-nologyeconomycomeback?I don’tknow.Theeconomyis, quietnow,ges-tatinganewphase.WhatI do knowis
thatwhenthatnewphasecomesforth,
it will beagiant.+
FurtherReading• CarlotaPerez,TechnologicalRevolu-
tionsandFinancialCapital, Edward
ElgarPublishing,Cheltenhain,U.K.,
forthcoming2002.
• ChrisFreemanandFranciscoLouça,
AsTimeGoesBy,FromtheIndustrial
Revolutionsto theInformationRevolu-
tion, OxfordUniversityPress,2002.
WBrianArthurisCitibankProfessoratthe
SantaFeInstitute.His websiteis www.
santafe.edWarthui
passwords,andwait. All the
time thereexistsabarelyno-
ticeableanxiousnessthatthe
processmayhangup at any
moment.TheWeb’s interface
remainsuncomfortableto
use:ill-fitted, unreliable,frus-trating,slow,andlackingcon-tentwhenwegetthere.It has
notdisappeared,nor hasit
achievedamenityIt will take
timefor amenitytechnolo-
giesto becomeavailableand
used.It tookautomobilesfrom about1890 to the
194os—halfacenturyof de-
Two recent studiesThe economic effects oftechnology and produc-tivity are explored inthese reportr ProjectingProductivityGrowth:LessonsFrom theU.S.GrowthResurgence,byDale W.Jorgenson, MunS. Ho, and Kevin J. Stiroh(www.frbatlanta.org/frbatlanta/fiIelegacydoc~stiroh.pdD; and TechnicalChange in the U.S. (1947-2000): Measurementand MacroeconomicConsequences, by JasonG. Cummins and GiovanniL Viofante (wwwucl.ac.u~-uctpgvbtumvioI.pdf).
fJ~1U1(~fUThecb:~thatignitedthePC
revoludon.~theIntel8o86.
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72 BUSINESS 2.0 MARCH 2002