Technological progress slows down

The fairy tale of rapid progress

This text excerpt is taken from the current print edition of Technology Review. The magazine will be available from May 24th, 2017 in well-stocked newsagents and in the heise shop.

The walls full of post-its, in between tables where young people sit, who only introduce themselves by their first name, thoughtfully put together Lego pieces and emphasize that they have no boss and great ideas: this is how the technology group Bosch presents its so-called disruption teams on YouTube. The Swabian family company has been around for 125 years - but as with many German companies, there is great fear of missing the boat, of being left behind by these dreaded start-ups with their dangerous ideas. The disruption teams should keep an eye on these impending changes - and ideally do them themselves. The first step is to imitate start-ups. Be faster because the world is turning faster.

Rapid technological change, according to the message, can turn life inside out and sweep companies away at any time. Just look how Kodak has fared. The shift towards digital photography has completely pushed the film manufacturer out of the market. Just look at how Apple's iPhone changed the way it created value. The word disruption was only mentioned five times in the German media in 2011, and 205 times in 2015, the media research institute Prime Research found out on behalf of the “FAZ”. Handelsblatt publisher Gabor Steingart makes it clear at a discussion event: “The present will not last, it will perish.” The “Spiegel” dedicated an entire cover story to the topic “What the rapid digital progress demands of people”. And the consulting firm KPMG is of the opinion that “the business world is currently being shaken by new, disruptive technologies”.

But the observation has a catch: it lacks the evidence. Technological change is by no means taking place faster than it used to be. In lectures on the subject of disruption, two factors in particular come up again and again. First: how old are the examples given. Digital photography became a mass phenomenon in 2003, and the first iPhone hit the market in 2007. Both of these turned industries upside down. But if progress accelerates at this rate, shouldn't there be examples that are less than ten years old? Second, that the coup seldom came overnight. As early as 1992, ten years before the breakthrough in the mass market, all well-known manufacturers presented digital cameras at the Photokina. Amazon has been around since 1994, but it wasn't until well over a decade later that it emerged as a real threat to retailers. Google has existed since 1997, has been making a profit from advertising since 2001 - and since then publishers have known that important parts of their business model are being attacked. Nevertheless, they still exist in 2017. It is therefore reasonable to doubt whether we are really living in a time of rapid technological developments. What's more, the claim obscures a problem that is much more fundamental.

The economy

Let's start with the economy. How long does it take for innovations to catch on? Economists use the time it takes for 50 percent of all households to be equipped with a new technology: This enables them to compare different technologies and the speed at which they are spreading. If we really live in the fastest times, the current innovations should prevail faster than those in earlier times. But: Nothing, as David Moschella, scientific director of the "Leading Edge Forum", an IT research and consulting company, shows. He collected these figures for the USA. “Both the radio and the television reached this 50 percent limit faster than the computer or mobile phone,” says Moschella. The television set was first sold in 1939, and nine years later it was to be found in every second US household. The radio even spread in eight years (1922 to 1930). The mobile phone, on the other hand, took 15 years (1980 to 1995) and the computer 17 years (1976 to 1993). It is more difficult for Germany to find comparable figures. But those who do exist suggest a similar conclusion (see graph on page 33).

Also the US economist Robert J. Gordon finds no evidence of massive technical innovations. In his book "The Rise and Fall of American Growth" he shows this using total factor productivity, an economic measure that depicts technical progress. While productivity means what a worker produces in a certain period of time, everything that causes an increase in productivity accumulates in total factor productivity - beyond labor and capital. This remaining additional productivity, which at first glance is inexplicable, offers itself as a measure of technical progress. From 1920 to 1970 it rose by an average of 1.89 percent per year, but between 2004 and 2014 it only increased by 0.4 percent. Gordon's conclusion: Technical progress has even slowed down permanently.

Even the start-up culture does not seem to have the claimed influence. In the United States, the proportion of firms that are younger than one year has almost halved between 1978 and 2011. Those who are successful are often bought up and integrated by the big ones. "It has become increasingly beneficial to be an established provider and less beneficial to act as a newcomer," write economists Ian Hathaway and Robert Litan in a study by the Brookings Institution.

Can the development at least be measured by the increased number of bankruptcies or takeovers of companies? At the German Institute for Economic Research DIW, this question is met with a shrug. Both start-up rates and company insolvencies are currently tending to decline. "All indicators on structural change point to a normal situation," says economics professor Martin Gornig.

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