SPEAKER_01: Amazing, fascinating stories of inventions, ideas and innovations. Yes, this is the podcast about the things that have helped to shape our lives. Podcasts from the BBC World Service are supported by advertising.
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SPEAKER_00: For investors in Boo.com, Webfan and eToys, the bursting of the dot com bubble came as a bit of a shock. Companies such as these raised vast sums on the promise that the World Wide Web would change everything. Then in the spring of 2000, stock markets collapsed. Some economists had long been skeptical about the promise of computers. In 1987, we didn't have the web, but spreadsheets and databases were appearing in every workplace and having, it seemed, no impact whatsoever. The leading thinker on economic growth, Robert Solow, quipped, you can see the computer age everywhere but in the productivity statistics. It's not easy to track the overall economic impact of innovation, but the best measure we have is something called total factor productivity. When it's growing, that means the economy is somehow squeezing more output out of inputs such as machinery, human labor and education. In the 1980s, when Robert Solow was writing, it was growing at the slowest rate for decades, lower even than during the Great Depression. Technology seemed to be booming, but productivity was almost stagnant. Economists called it the productivity paradox. But what might explain it? For a hint, rewind 100 years. Another remarkable new technology was proving disappointing. Electricity. Some corporations were investing in electric dynamos and motors and installing them in the workplace. Yet the surge in productivity would not come. The potential for electricity seemed clear. Thomas Edison and Joseph Swan independently invented usable light bulbs in the late 1870s. In 1881, Edison built electricity generating stations at Pearl Street in Manhattan and Hoburn in London. Things moved quickly. Within a year, he was selling electricity as a commodity. A year later, the first electric motors were used to drive manufacturing machinery. And yet, by 1900, less than 5% of mechanical drive power in American factories was coming from electric motors. Most factories were still in the age of steam. A steam-powered factory must have been awe-inspiring. The mechanical power came from a single massive steam engine. The engine turned a central steel drive shaft that ran along the length of the factory. Sometimes it would run outside and into a second building. Subsidiary shafts connected via belts and gears drove hammers and punches and presses and looms. Sometimes the belts would transfer power vertically through a hole in the ceiling to a second floor or a third. Expensive belt towers enclosed them to prevent fires from spreading through the gaps. Everything was continually lubricated by thousands of drip oilers. Steam engines rarely stopped. If a single machine in the factory needed to run, the coal fires needed to be fed. The cogs whirred and the shafts span and the belts churned up the grease and the dust and there was always the risk that a worker might snag a sleeve or bootlace and be dragged into the relentless, all-embracing machine. Some factory owners experimented by replacing a steam engine with an electric motor, drawing clean and modern power from a nearby generating station. After such a big investment, they tended to be disappointed with the cost savings. Why? The answer was that to take advantage of electricity, factory owners had to think in a very different way. They could of course use an electric motor in the same way as they used steam engines. It would slot right into their old systems. But electric motors could do much more. Electricity allowed power to be delivered exactly where and when it was needed. Small steam engines were hopelessly inefficient, but small electric motors worked just fine. So a factory could contain several smaller motors, each driving a small driveshaft, or as the technology developed, every workbench would have its own machine tool with its own little electric motor. Power wasn't transmitted through a single massive spinning driveshaft, but through wires. A factory powered by steam needed to be sturdy enough to carry huge steel driveshafts. A factory powered by electricity could be light and airy. Steam powered factories had to be arranged on the logic of the driveshaft. Electricity meant you could arrange factories on the logic of a production line. Old factories were dark and dense, packed around the shafts. New factories could spread out, with wings and windows to bring natural light and air. In the old factories, the steam engine set the pace. In the new factories, workers could set the pace. Factories could be cleaner and safer. They could be more efficient, because machines only needed to run when they were being used. But you couldn't get these results simply by ripping out the steam engine and replacing it with an electric motor. You needed to change everything. The architecture, the production process. And because workers had more autonomy and flexibility, you even had to change the way they were recruited, trained and paid. Factory owners hesitated, for understandable reasons. Of course they didn't want to scrap their existing capital. But maybe too, they simply struggled to think through the implications of a world where everything needed to adapt to the new technology. In the end, change happened. It was unavoidable. Maine's electricity became cheaper and more reliable. American workers became more expensive, thanks to a series of new laws that limited immigration from a war-torn Europe. Average wages soared, and hiring workers became less about quantity and more about quality. Trained workers could use the autonomy that electricity gave them. And as more factory owners figured out how to make the most of electric motors, new ideas about manufacturing spread. Come the 1920s, productivity in American manufacturing soared in a way never seen before or since. You'd think that that sort of leap forward must be explained by a new technology. But no. Paul David, an economic historian, gives much of the credit to the fact that manufacturers finally figured out how to use technology that was nearly half a century old. They had to work out how to change their architecture, their logistics and their personnel to take advantage of the electric motor. And it took about 50 years. Which puts Robert Solow's quip about computers and productivity in a new light. By the year 2000, about 50 years after the first computer programme, productivity was picking up a bit. Two economists, Eric Brunjolfsson and Lauren Hitt, published research showing that many companies had invested in computers for little or no reward. But others had reaped big benefits. What explained the difference was whether the companies had been willing to reorganise to take advantage of what computers had to offer. That often meant decentralising, outsourcing, streamlining supply chains and offering more choice to customers. You couldn't just take your old systems and add better computers. You needed to do things differently. The thing about a revolutionary technology is that it changes everything. That's why we call it revolutionary. And changing everything takes time and imagination and courage. And sometimes just a lot of hard work.
SPEAKER_03: Paul David's essay, The Computer and the Dynamo, was published in American Economic Review in 1990. For a full list of our sources, please see bbcworldservice.com slash 50 things.
