Waiting for the Third Industrial Revolution

Edward B. Barbier

A recent cover article of The Economist proclaimed that the world economy, and especially the United States, is on the verge of a “Third Industrial Revolution”.  The First Industrial Revolution occurred in the late 18^th century in Great Britain, with the mechanization of the textile industry and the birth of factory production.  The Second Industrial Revolution began in the early 20^th century, when Henry Ford introduced mass production through assembly line manufacturing.

According to The Economist, the Third Industrial Revolution is already happening, again principally in the US, through the rise of digital manufacturing.  This process essentially involves de-centralizing the factory system and replacing mass production with mass customization.  The key to this latest wave in manufacturing innovation is the convergence of a number of sophisticated technologies, including advanced software and computing capabilities, web-based services, new and more lightweight materials, nanotechnologies and robotics, and above all, three-dimensional (3-D) printing.

The Economist gives two examples of how the industrial world will change as a result: “An engineer working in the middle of a desert who finds he lacks a certain tool no longer has to have it delivered from the nearest city.  He can simply download the design and print it….Most jobs will not be on the factory floor but in the offices nearby, which will be full of designers, engineers, IT specialists, logistics experts, marketing staff and other professionals.  The manufacturing jobs of the future will require more skills.  Many dull, repetitive tasks will become obsolete: you no longer need riveters when a product has no rivets.”

Whether you are fascinated or repelled by this vision of the (near) future, there is no need to get too excited.  Digital manufacturing is unlikely on its own to produce a Third Industrial Revolution.  Innovations in production are necessary for generating major economic revolutions, but they are the proximate and not the underlying cause of such changes.

In my book, Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation, I examine how the availability and abundance of natural resources has influenced economic development in key eras of world history.  Since the agricultural transition over 12,000 years ago, a critical driving force behind global economic development has been the response of society to the scarcity of key natural resources, such as land, forests, fish, fossil fuels and minerals.  Increasing scarcity raises the cost of exploiting existing natural resources and creates incentives in all economies to innovate and conserve.  Those economies that have developed the know-how and technologies to make use of the new sources of abundant natural resources have emerged as the new global economic empires and dominant powers.

For example, the Industrial Revolution in Britain in the 18^th century could not have taken place without the development of steam power based on exploiting a new source of energy – coal.  The previous source of energy, fuelwood, charcoal and other biomass fuels and the land available to grow them, could simply not have powered the industrial factory system.  Similarly, the US mass production system developed in the early 20^th century was only made possible through the discoveries and development of petroleum and natural gas in the late 19^th century.  These new fossil fuels, and the consequent development of both the internal combustion engine, advanced turbines and the centralized power generation system, enabled the mass production and transportation system that has been the hallmark of the world economy for the past century.

In fact, from the perspective of natural resource exploitation, not much has changed since fossil fuels became the strategic resource defining economic development since the 1750s.  There is no denying that digital manufacturing is having an impact today on industrial processes and consumption, and will continue to do so in the future.  But this development is just one more example of how natural resource scarcity’s impact on economies was changed by the (only) Industrial Revolution.

For example, before the Industrial Revolution (ca. 1775), finding and exploiting new frontiers of land and natural resources were fundamental to successful economic development and seen as an important objective of conquering and occupying new lands, monopolizing trade links, and colonizing and populating other regions of the world.  However, since the Industrial Revolution and certainly over the last century, supplies of strategic raw material, mineral and energy commodities have become so cheaply available through global trade that natural resource scarcity is no longer viewed as an economic constraint.  Technological applications to land, fisheries, forests and other natural resource endowments have become sufficiently productive and routine that we believe that human ingenuity and innovations can overcome any resource scarcity problem.

However, this current situation is not sustainable.  If there is going to be a new Industrial Revolution, it will occur not because of digital manufacturing but because of the rise of a new, and seemingly daunting, resource scarcity problem.

Today, we are on the verge of a new era, the “Age of Ecological Scarcity”. For the first time in history, fossil fuel energy and raw material use, environmental degradation and pollution may be occurring on such an unprecedented scale that the resulting consequences in terms of global warming, ecological scarcity and energy insecurity are generating worldwide impacts. If humankind is to succeed in overcoming these global problems, we need to find the next “new frontiers” of natural resources and adapt economic development accordingly. This will require developing low-carbon sources of energy, processes of production and technological innovation that require less environmental degradation and pollution. It will also mean instigating institutional changes, creating global carbon and environmental markets, and implementing new policies to foster a new era of “sustainable” economic development.  Digital manufacturing may be an outcome of this process, but it will not be the main driver.

History has shown that such changes in response to scarcity have occurred before, and those economies that have instigated the transformation first have emerged as leaders.  The question remains, however, who will be the winners and losers in the Age of Ecological Scarcity through instigating the next Industrial Revolution of this new Age?

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