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Was the iPhone as important an invention as the steam train on the track of progress?

Was Steve Jobs' iPhone a more important innovation than James Watt's steam engine?

The answer to such an apparently flippant term paper question lies in the impact of these two innovations on long-term economic productivity.

While Watt’s separate steam condenser allowed the same quantity of mechanical work to be performed with less than half the weight of coal, it can be argued that the iPhone gives us Angry Birds, Facebook on the go and the odd phone call, but as yet not much else.

US economist Tyler Cowan argues the gains in productivity of the past, from James Watt through production line manufacturing to the early 1970s, were an anomaly, the result of what he terms economic low-hanging fruit. We are now left with a high-tech ‘great stagnation’ where productivity growth has slowed and median incomes have stalled or even declined. It can be argued this flattening of innovation-driven productivity growth is the reason for our current economic predicament. We have substituted financial engineering for real engineering and invested in property rather than productivity.

Investment in unproductive assets such as property can never generate true prosperity, with only returns based on the economics of scarcity. But the fact that leading up to the crash of 2008 significant capital was invested in property rather than innovation does beg the question of why capital could not find a more productive home. Where was the equivalent of Watt’s steam engine that transformed agrarian scarcity into industrial abundance?

In order to restart growth, productivity needs to improve significantly both in production and in public services. This will require renewed investment in basic science, more risk taking and experimentation and putting resources into transforming production, rather than just attempting to stimulate growth through consumption. Fortunately, the beginning of such productivity growth can be seen emerging from the laboratory. But to generate accelerated growth we will need to recreate the conditions of the late 19th century when the accumulation of serendipitous discoveries in energy conversion, physics and chemistry led to a blizzard of new important innovations.

For example, 3D printing is to become an efficient new technology for additive manufacturing as an alternative to the wasteful subtractive manufacturing of traditional machine tools such as lathes. Like an inkjet printer, a print head builds up products layer at a time by adding and heating powdered plastic or metal. Doing more with less is the definition of productivity. This process can shortcut the machine shop and allow digital designers to manufacture products directly, allowing low cost mass customisation.

Elsewhere, robots look set to escape from production lines and permeate more deeply into society, liberating humans from danger and drudgery. Taiwanese electronics giant Foxconn are set to employ nearly one million dexterous production robots by 2014, while even now mobile robots are quietly moving into NHS hospitals to transport waste, food and linen.

In principle the labour freed by innovation should be available for even more productive tasks, in the same way that labour freed from the land found employment in the booming urban factories of the industrial revolution. But in a modern economy this will need serious improvements in educational attainment if we are to avoid the social fallout from Schumpeter’s waves of creative destruction.

To drive productivity we need to substitute energy for labour and materials. Current policy is deliberately choosing expensive renewable energy, partly on the basis of job creation. This ignores the reality that labour is a cost, and that costs will not evaporate but will be passed on to consumers and industry.

Aside from next generation robots and radically new means of manufacturing, future information systems might just lead to their own step change in productivity. Economist Robert Solow bemoaned that computing could be seen everywhere other than productivity statistics. But perhaps we’re too harsh on digital communications and expected too much too soon.

The web has transformed the publishing and music industries, but costs have not yet fallen dramatically for consumers even although the marginal cost of each extra electronic copy of an mp3 file or e-book is vanishingly small. This is arguably down to controlling corporations hanging on to economic models based on scarcity rather than digital abundance. But connecting innovators directly in a rich digital matrix could allow an escape from the traditional corporate pyramid. Seamless and effortless information systems could ultimately become the equivalent of the 19th century railways, connecting people and their ideas in a network of growing prosperity.

It’s clear that in the developed economies we need a new direction of historical travel and a coherent vision of a better future, and not just the promise of better smart phones. The alternative to debt reduction through a future of long-term austerity is growth and genuine jobs and prosperity based on step changes in productivity, not debt-fuelled consumption. If we truly value innovation and recognise that it is central to productivity and so growth, then just perhaps Tyler Cowan’s ‘great stagnation’ can flipped into a ‘great acceleration’.

Colin McInnes is Professor of Engineering Science at the University of Strathclyde


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