Why did Germany or Saudi Arabia become rich? Is there a possibility that they can suffer from the withering of their wealth? Of course! Among many other factors, technology dynamics holds the key. Firms and nations grow and wither due to the uprising and also the decay of technologies. Hence, there should be clear attention to technology dynamics to predict the unfolding future and prepare for it. Here are few examples.
The invention of the automobile—making Saudi Arabia and Germany rich
The invention of the internal combustion engine (ICE) led to the beginning of the 2nd industrial revolution. Among others, Carl Benz and Nicolaus Otto of Germany were at the forefront. The invention of the modern internal combustion engine by Nicolaus Otto took place in 1886, while Carl Benz was applying for an automobile patent on January 29, 1886. Subsequently, Carl Benz got a patent for his “vehicle powered by a gas engine”—giving birth to automobiles. Since then, Germans have been at the vanguard in refining design and manufacturing internal combustion engines and cars. This journey started creating jobs, building firms, and making Germany prosperous. Over the more than 100 years, these two inventions to Germany’s economy have been remarkable. In the recent past, directly automobile makers generated close to $500 billion in revenue, which was 25% of German’s $4 trillion GDP.
Soon after the invention of the automobile by Carl Benz, innovators and investors of the rest of Europe and America jumped into the race of building the automobile industry. At a later part, Japan and also India joined the league. As a result, the demand for petroleum to fuel the growing fleet of automobiles started increasing. Hence, petroleum reserve under the sand of Saudi desert became very valuable. Subsequently, the development of oil fields and supply of crude to the international market make once poor Saudi Arabia, among many other oil supplying countries, rich.
Over the last 140 years, these two inventions—ICE and automobiles—made a tremendous contribution to firms’ and nations’ growth. Even in the absence of democracy, Saudi people enjoyed the growing quality of life due to the increasing demand for oil. But the progression of battery, electric vehicle, and renewable energy technologies are posing a threat to past growth.
Technology progression and job migration sheds light on why firms and nations grow and wither due to technology
Over the last 100 years, there has been significant progress in job division and production role analysis. Along with it, there has been progress in developing machine capability in taking over the codified knowledge and skill roles in the production. Consequentially, the need for earned capability has been diminishing. In producing many of the products, there is mostly a need for human workers’ innate abilities. Hence, unskilled labor of developing countries became eligible for factory jobs producing products to be sold in the advanced world. Such development led to the migration of factory jobs from advanced countries to less developed ones. As a result, workers in advanced countries suffered from job loss, while creating factory jobs in developing countries.
But further technology progression is leading to the possibility of reverse factory job migration. The continued human role migration to machines, even requiring innate abilities, has been diminishing the labor content in producing each unit of output. Once labor content reaches to a critical minimum, economics does not support offshoring, raising the reshoring issue. Such a reality demands us to keep analyzing why do firms and Nations grow and wither due to technology dynamics.
Japan’s uprising from technology dynamics
We are often bewildered by the uprising of Japan from the ash of World War II. One of the key factors of this uprising has been Sony’s early entry to refine and leverage Transistor technology. Just right after the war, Transistor was invented in 1947 by Bell labs. And Sony did not waste time. It took the license of refinement and production of Transistor in 1952. Sony’s relentless journey of perfecting this technology had led to innovation success stories in radio, TV and other consumer electronics. Even such successes cause disruption to iconic American firms like RCA. Sony’s journey continued to the refinement of the image sensor and digital camera innovation, making America’s icon, Kodak, bankrupt.
Sony’s journey not only created isolated firm-level success. Other Japanese companies, starting from Canon, Toshiba, NEC and others, followed Sony’s path. Moreover, Sony demonstrated the model of technology refinement through scientific discovery, leading to winning Nobel Prize by one of its team members. It perfected the model of creating innovation success stories out of the strategy of changing mature technology core by emerging ones. Subsequently, it created a large cluster of semiconductor research, capital machinery development for high precision manufacturing, semiconductor component manufacturing, and end-user level product innovation.
In the absence of the invention of Transistor and Sony’s disruptive innovation model of exploiting the potential, Japan’s uprising as an economic miracle could have been quite different.
Electric vehicles underscore the reality—firms and nations grow and wither due to technology dynamics
Although the automobile has made Saudi Arabia rich and created more than 35 million jobs in India, the change of this vital invention’s technology core is posing a threat. Once the electric vehicle becomes a better alternative to gasoline-powered ones, oil demand will evaporate, and labor-intensive jobs in making automobiles will also sharply fall. But the uprising of the battery-powered electric vehicle is fueling the growth of new firms and nations. For example, as opposed to Germany or America, China and Japan are at the forefront of battery innovation. Instead of Saudi Arabia, some African and South American countries will profit from the demand of metals to make batteries. On the other hand, electric vehicles will require less than 50 percent of labor than gasoline counterparts. Hence, India’s hard-earned competitive advantage out of labor will disappear.
The reality that firms and nations grow and wither due to technology dynamics has been gaining traction day by day. Hence, every firm and country should have a strong capacity to monitor technology, assess implications, predict the likely unfolding future, and make alignment accordingly. Without it, any amount of hard work and investment runs the risk of producing a sub-optimal return.