Sometimes when I write about the shift from the consumer economy to the production economy, people assume that ‘production’ equals ‘manufacturing’ . That’s just not true. So I asked Mary Adams of I-Capital Advisors, and co-author of Intangible Capital, if she would write a guest post on “The Post-Industrial Production Economy.” She graciously agreed, and here it is.
In follow-up to Michael’s post on production vs. consumption economies, he asked me to take a crack at describing what the post-industrial production economy will look like. So here goes!
We live at the cusp between the industrial and the knowledge eras. In the U.S., the shift is already very much underway. But there is still much change to come, including in the production economy.
To understand what will happen, let’s first look at what happened during the industrial revolution. Yes, mass production and factories drove huge growth. But manufacturing was not the only part of the economy that was created or “industrial-ized.” Education was industrialized to provide large numbers of capable workers. Energy production was industrialized to provide cheap, available power for factories, homes and offices. Agriculture was industrialized to provide reliable, economical food sources. The change affected almost every corner of our society.
This industrialization process occurred under a number of very simple conditions or design constraints. Some of the most important included the availability of relatively cheap energy, the relative lack of importance placed by society on externalities (such as pollution and health risks), the availability of large workforces and continued returns available from mechanization that provides greater and greater returns on the work of employees.
These design constraints began to shift a long time ago in the U.S.For example, we have known for a long time that our patterns of energy and resource use were not sustainable. But rather than rebuilding or remaking our industrial economy, we chose to/had the opportunity to send much of it off shore. If you look at the rise of China in the last 20 years, you will see a replay of the industrialization process, not the end of it.
The Chinese also know that the model they are imitating is not sustainable. But the Chinese have an opportunity to use the model to quickly raise the level of living of their enormous population and generating enough wealth in time to simultaneously invent a new model. Or to follow whomever can invent the new model.
What will the new model look like? Moving into the knowledge era does not mean the rise of services and consumption and the decline of production. Humans will have the same needs to live. Housing, transportation, consumer goods, food, healthcare, education will all remain constants in our economy. These needs require a production sector. But this new production sector will be built under a new set of constraints.
Some of the design constraints for the post-industrial production model will be minimizing energy use (or creating alternative sources of energy), minimizing/eliminating waste, and maximizing health and wellness. Just as every corner of society was industrialized in the past, we can expect that every corner of the economy, including the production sector, will be “knowledge-ized,” that is, re-made using information technology and knowledge to drive efficiencies. In this scenario, cheap order-taking labor is less valuable than workers who can think on their feet and contribute to continuous innovation and improvement.
The solutions that will emerge in the knowledge economy will turn many industrial models on their head. The industrial economy was based on control of scarce resources and top down flows of knowledge. If I owned the factory, I told you what to do. The knowledge economy is based on leveraging a theoretically infinite resource (knowledge). I can’t own or control knowledge beyond a very limited set of circumstances so in the long run, I can’t tell you what to do. I need you to cooperate and collaborate with me.
The easiest place to see the implications of this top-down versus bottom-up dynamic is in the sphere of social media and IT-related projects where knowledge moves around the world constantly without a lot of top-down control.
But it’s also happening in the production economy and gives us hints of what the post-industrial production economy will look like:
- Boeing’s attempt to distribute an unprecedented amount of the design of its 787 jet to its suppliers (basically letting the suppliers tell Boeing the best way to innovate each individual part) http://findarticles.com/p/articles/mi_qa4143/is_200610/ai_n17194905/
- What Wired called the DIY revolution in How to Make Stuff http://www.wired.com/magazine/19-04/
- The related trend toward open source hardware such as Arduino. http://www.arduino.cc/
All these examples share the thread of bottom-up flow of knowledge and production. Here are a few more references on making things in the U.S. http://www.i-capitaladvisors.com/2011/04/23/making-things-and-the-future-of-the-u-s-economy/
As we move into this new kind of production economy, there will continue to be great tension between top-down, large-scale solutions and bottom-up, smaller-scale solutions. For example, do we need a national energy grid or neighborhood energy networks? Do we need large-scale, subsidized production of basic foods like corn and soy (like we have now) or smaller-scale local production of vegetables in urban gardens? Will the cost advantage remain with self-assembled furniture shipped halfway around the world or will it shift to self-designed and produced furniture closer to home? Is alternative energy (such as solar and wind) better driven by large-scale industrial production or smaller-scale bottom-up solutions? There are a lot of people betting on both models.
And, of course, the changing design constraints around energy, resource use, health and wellness will not only influence how things get done, they will create opportunities to innovate what gets built-in the form of new products. This is why there is so much attention on the current race to create sustainable energy production systems.
In the short run, we have to live in both worlds. We have to fight the cost competition from industrial China. But we can’t ignore the opportunities of the knowledge era. The future is in using knowledge to radically knowledge-ize every aspect of our lives and economy. Production has an exciting future.
Mary Adams is the co-author of Intangible Capital: Putting Knowledge to Work in the 21st Century Organization www.intangiblecapitalbook.com and creator of the IC Knowledge Center www.icknowledgecenter.com, a community of over 300 thought leaders in next generation management. She blogs at Smarter Companies www.i-capitaladvisors.com