The new industrial revolution – all is explained

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By Peter Marsh

On a visit to Seoul to take part in discussions on 21st century manufacturing, I was faced with a number of questions about the ideas in my book “The New industrial Revolution: Consumers, Globalisation and the End of Mass Production”. I gave three lectures, two of them at events organised by the Korean Development Institute and the Korea Information Society Development Institute, and the third to a group of students taught by Prof Keun Lee, a prominent Korean economist at Seoul National University. Prof Lee is an authority on industrial policy and “economic catch-up” – how developing nations can close the gap in living standards and incomes with the richer parts of the world. He brought his students to a meeting that I addressed at the Seoul Science and Technology Policy Institute. In these three events, by far the toughest set of questions came from Prof Lee’s students, some of whom are pictured with me here. Here is an edited version of questions and answers from the encounter with the students – along with extracts from other conversations I had in Seoul. (You can see here the slides from the STEPI lecture.)

peter KDI event speaking korea high res

Can you summarise what you mean by the “new industrial revolution”?

Over the past 300 years, manufacturing industry has provided the world with the tools for most of its economic growth. There have been four previous industrial revolutions, starting with the changes in late 18th century England driven by advances in areas such as textile engineering and steam power. Subsequent revolutions were about shifts in communications capabilities led by advances such as railways; new science-based disciplines including chemicals and electricity generation; and the post-World War Two development of the electronic computer. The new industrial revolution is the fifth in the series. It is the first to have an impact on most countries, as opposed to the relatively few in the better off part of the world – “the west”.

The fifth industrial revolution has been triggered by a set of converging trends that alter how manufacturers organise and compete. The changes include increasing ability to combine technologies including electronics, biotech and novel materials; greater opportunities for customisation of products; and the growing use of global information pathways and supply networks. There will be more options for businesses to merge making products with operating services, demonstrate environmental awareness and work as “virtual manufacturers”, creating the technology behind products but leaving fabrication to others. “Distributed” manufacturing, involving many players scattered around the world, will be in greater evidence. At the same time, there will be more opportunities for small “clusters” of businesses in the same city of region to share ideas, suppliers and technologies. The winners from the new industrial revolution will feature both big and small companies. They will be based in both rich and relatively poor countries. The businesses that succeed in this era will understand the new forces at work and use them to their advantage.

I’m not convinced that these changes justify the term “revolution”; wouldn’t it be more accurate to describe what’s happening as an “evolution” or a set of emerging trends?

A book called “The New Set of Industrial Trends” wouldn’t attract many readers. Regarding “revolution”, some economic historians dislike the term being applied even to the set of changes in the UK at the end of the 18th century that everyone else is quite happy to label as the first Industrial Revolution. The economists in this camp see the changes back then as no more than an evolution: part of a gradual set of advances starting in medieval times. Such thinking seems perverse. I think the shifts in behaviour and organisation we are seeing now adds up something profound. So I believe to apply the term “revolution” is accurate. The changes now will be just as powerful as those in the first revolution.

 

 

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Isn’t it far-fetched to say (as you do in the title of your book) that we have reached the “end of mass production”?

I’ve exaggerated a bit.  It’s true mass production hasn’t died out. Such items as mobile phones and continue to be made in very large production volumes where the design is unchanged. But everywhere you look, including in mobile phones, the size of individual production runs is falling. Variation is becoming a bigger part of manufacturing strategies. The mind-set of companies is shifting increasingly towards building into production routines multiple design changes to cater for shifts in technology and customer needs.

In view of the above points, I still think you could have thought of a better title for your book.

I had the title in my mind for about 10 years before the book came out. Over this period I couldn’t think of a better title – and neither could anyone else I spoke to. I still think the title is pretty good. Just recently I’ve been trying to focus on the idea that the new industrial revolution is about the “3 Cs”: it stimulates connections, creativity and customisation and facilitates the convergence between all three. Discussing the 3 Cs – or maybe even 4 Cs – seems an appealing way to get the message across. So perhaps now I could imagine an alternative title which mentions the “C words” in some catchy way.

Few countries imagine they will expand employment in manufacturing; much of the emphasis in growth strategies has shifted to services. Aren’t all the big opportunities in manufacturing behind us?

It’s important to distinguish between growth in manufacturing output and manufacturing jobs. I see plenty of opportunity, in most countries, for manufacturing output to rise. I don’t pretend that manufacturing will create lots of jobs directly.  But there are several reasons why governments should be interested in manufacturing when framing economic policy. First, the new sorts of manufacturing I envisage will stimulate new ideas, specifically in technology. Many of these will feed into other areas of the world economy. Second, even though we won’t see a return to the large numbers of manufacturing jobs  in developed nations 20 years ago, within the manufacturing sector, some jobs will be created. They will be in research, design and marketing, as well as in the more traditional manual or craft-based areas of manufacturing. Most of these jobs will be well paid and valuable. Third, service employment will be stimulated as a result of the wealth created in the “new manufacturing”. Some of these service jobs will be created within manufacturing enterprises – such as through aero-engine makers also employing people to maintain the products. As a result it will be harder to distinguish between companies in manufacturing or services; many will become hybrids of the two. On the issue of services, trying to expand services isn’t by itself much of an industrial policy. Governments should be keen in particular to stimulate growth in high-value business services, in technical fields such as architecture, design and engineering, as well as in fields such as law and finance.

A robot assembles robots

Are you concerned by prospects of mass joblessness as a result of “smart” automation and robotics?

I can appreciate worries about certain jobs being threatened by some powerful technological shifts that may be on the horizon. To take just one example, if driverless vehicles start to appear in the next 20 years, the distribution industry would need far fewer workers. It’s not going to be easy to cope with some of the changes. But the parts of the world that emerge in the best shape over this period – both in terms of economic strength and being decent places to live for the majority of their populations – will be the ones that handle the challenges of the new industrial revolution most cleverly.

In your analysis of the four previous industrial revolutions, you associate with each one some specific technology or “breakthrough” product. You don’t do this for the fifth revolution. Isn’t this a weakness in your argument?

You’re right:  it’s easy to sum up the first revolution by discussing the steam engine, more efficient textile machines and so on. It’s much the same for the other revolutions: railways and the telegraph in the second revolution; new chemistry and mass steel production in the third; computers and semiconductors in the fourth. But always present in these revolutions, as well as technical changes, were shifts in organisational behaviour and global connections. These changes were important in the past, as they are now. In the fifth revolution, there’s no single technology or group of technologies for us to focus on. Instead we must think about how engineers and managers are “blending” or combining technologies in a range of fields, from genetic modification to software and electronics. Also crucial is a huge change in the way the world works. This is the first revolution where a big group of countries has the potential to benefit. About 150 nations have at least the chance to join in the current changes. In the first four revolutions, no more than about 30 were able to participate. I think people will just have to accept that the fifth revolution is harder to explain than the first four. The world has become more complex. You can’t nowadays boil everything down to a few simple ideas.

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Which products sum up for you the fifth industrial revolution?

I’d mention the desk-top chemical or biotech synthesiser, 3D printing machines, smart robots and environmental sensors. But if we discuss virtually every product made anywhere – from cars and washing machines to clothes and furniture – you can see elements of the fifth industrial revolution at work.

Most of your examples of companies implementing the ideas of the new revolution are from the rich world. Don’t you think the changes you describe – rather than benefiting everyone – will benefit mainly the most developed countries?

Let’s divide the roughly 200 nations of the world into the top 50 according to living standards and GDP/person, a “middle-income” group of about 100, and the 50 or so which are the poorest. I agree the bottom 50 will most likely continue to struggle. But there will be plenty of opportunity for the “middle 100”. They will have the chance to develop and use technology in the new “blended” manner and participate in the materials-based supply chains and information networks that are becoming more important. Companies that use at least some of the ideas of the new revolution will have the chance to do well in these countries. The example of China – where manufacturers such as Sany, Huawei and Haier have shot to prominence in the past decade – shows this to be true. Many other countries regarded as “developing” have new manufacturing champions, often using the ideas of the new revolution.

Maseru-E garments production Lesotho - ironing

 

Should not the least developed nations take advantage of potential moves into “mass production” – which you seem to think is rather old fashioned – rather than spend too much time thinking about “mass-customised” goods?

I’d say to countries that have the chance to move from into mass production industries – in sectors such as food or garments production – that this is an opportunity they should examine.  It’s a way to gain experience in manufacturing and to stimulate jobs. But the nations that move in this direction have to be aware of the global trends. If the businesses these countries attract base their operations purely on mass production, it won’t be long before they are threatened by rivals who can do the same thing better, perhaps by cutting costs or organising more efficient ways to reach customers.

What should South Korea do in preparing for the fifth revolution?

South Korea has made huge leaps in the past 30 years. It’s now the 5th biggest country in manufacturing output – behind China, the US, Japan and Germany. But many Koreans are worried that it’s losing ground – especially with regard to its neighbours China and Japan. The concerns centre on the economic strength of the former and what’s perceived as the technology lead of the latter. It seems to me that South Korea has the potential to do well from the new revolution. It needs to react more strongly to the messages about the power of putting together technology. It needs to do more to encourage a global way of thinking,  and create a cadre of mid-sized manufacturers (offering added technical services as well as products ) that are clever and nimble enough to prosper. I like the ideas that I’ve seen from the Korean government of trying to stimulate so-called “hidden champions” in manufacturing. I’d want to see more evidence, however, that these companies are active on a global basis. Many of them simply seem to have interesting technologies but don’t have much hope of becoming an international force. If this is the case, they may stay hidden for a long time.

More specifically what should Samsung do?

Samsung has earned enormous respect for its progress in devising new technologies and products. In a short time it’s become an international leader in electronics. I think it’s worried however by the rapid rise of expanding Chinese competitors such as Xiaomi. I think the best thing that could happen is for Samsung to break itself up into smaller units. They would have more freedom and could pursue new technologies and markets free from the encumbrance of a big company mentality.

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What do you think about the ultimate “green” argument related to manufacturing: that there is too much production of goods that aren’t very useful?

We’ve all heard about some people buying dozens of pairs of shoes  they hardly wear. There’s lots of evidence of companies making frivolous household gadgets (such as whipped cream dispensers) where it’s hard to say there’s a pressing need. I find it hard to become concerned. If people are rich enough to spend money on what I might regard as a usefulness item, I don’t see there’s a reason for me or anyone else to intervene. Around the world there are many more examples of people who under-consume – they are short of basic items – than who over-consume. But I agree there’s a case in developed countries for cutting back on the amount of food that’s wasted or thrown away by supermarkets because the food can’t be sold. That seems scandalous. It’s up to the supermarkets to sort this out.

Gearless mill driveDo you think there’s something special about manufacturing that makes it a more desirable form of economic activity than everything else?

I don’t like the argument that manufacturing is a “special” part of the economy. This can lead to the idea that manufacturing should be aided because it’s more useful than everything else. I think it’s wrong to try to engineer an economy by fine tuning the amount of any specific sector that is required or not required. But it’s important to remember that manufacturing has some useful characteristics. It creates products that are vital for everyday life and which otherwise countries would need to import. It is a source of new ideas and technologies that can influence other sectors. A country that wants to be an economic force in the future – as well as being a good place to live – should have a decent manufacturing sector, in the same way as it needs to have good newspapers, theatres and novelists.

Gearless mill driveSaphon Tunisia wind turbine

 

What are the prospects for “green manufacturing”?

The potential is good. It’s possible to change production processes so items can be made with a lower environmental impact than using conventional methods. Also new products can be made that – when in use – lead to a smaller amount of environmental damage than previous generations of the same items. Examples here range from more energy efficient car engines to (in the area of energy production) novel solar collectors. The companies that have pursued strategies based on green manufacturing have frequently done well commercially partly because more consumers are becoming ecologically aware. Sometimes the products simply work better than the items they’ve replaced.

What’s your view of 3D printing?

The immediate impact on manufacturing of 3D printing – or “additive manufacturing” – isn’t going to be huge. The process is useful in certain areas of industry such as making personalised jewellery or surgical implants. But the high current costs of creating products using 3D printing will limit its use for some time in large industries such as automotive or aerospace. A positive aspect to 3D printing is that it’s perceived as an exciting technology that’s created more interest in manufacturing, especially among young people

What’s the best example of a factory or company that illustrates the features of the fifth industrial revolution?

A company I’m always impressed by is Trumpf, based near Stuttgart in Germany. Trumpf is the world’s biggest maker of laser cutting machines, used in a range of sectors from traffic lights to medical equipment. The company is great at using and developing technology. It’s among the leading producers of specialised lasers as well as being good at other disciplines including sensors, machine automation and new materials. It organises its global supply chains and information networks sensibly, but still depends on an important group of suppliers based close to its headquarters in Southern Germany. It’s used its technical capability to edge out into other business fields notably medical equipment. There are many other companies that (even if they are not always aware of it) organise themselves on the basis of what will work in the new industrial revolution. I will mention just one – Holovis in the UK. The company has developed some amazing machines for depicting – in a “virtual way” products or even groups of buildings in three dimensions on the scale of large rooms. The company has put together ideas in fields such as light sources, display screens and animation to create products being used in industries including design, training and entertainment.

By |November 11th, 2014|Categories: Observations, Opinion|0 Comments

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