China and the Third Industrial Revolution

Digital manufacturing

Just read a seriously thought provoking article in the Economist, The third industrial revolution: The digitization of manufacturing will transform the way goods are made—and change the politics of jobs too, the thesis of which is that we are on the cusp of a third industrial revolution. The first industrial revolution “began in Britain in the late 18th century, with the mechanization of the textile industry.” The “second industrial revolution came in the early 20th century, when Henry Ford mastered the moving assembly line and ushered in the age of mass production.” The third revolution “is under way” and it consists of manufacturing “going digital.”

The article then points out that this revolution — like those before it  — will be disruptive:

Like all revolutions, this one will be disruptive. Digital technology has already rocked the media and retailing industries, just as cotton mills crushed hand looms and the Model T put farriers out of work. Many people will look at the factories of the future and shudder. They will not be full of grimy machines manned by men in oily overalls. Many will be squeaky clean—and almost deserted. Some carmakers already produce twice as many vehicles per employee as they did only a decade or so ago. 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.

It then talks of how it will not only affect how things are made, it will also affect where things are made:

The revolution will affect not only how things are made, but where. Factories used to move to low-wage countries to curb labour costs. But labour costs are growing less and less important: a $499 first-generation iPad included only about $33 of manufacturing labour, of which the final assembly in China accounted for just $8. Offshore production is increasingly moving back to rich countries not because Chinese wages are rising, but because companies now want to be closer to their customers so that they can respond more quickly to changes in demand. And some products are so sophisticated that it helps to have the people who design them and the people who make them in the same place. The Boston Consulting Group reckons that in areas such as transport, computers, fabricated metals and machinery, 10-30% of the goods that America now imports from China could be made at home by 2020, boosting American output by $20 billion-55 billion a year.

So here are the big questions. Where will China fit in this next revolution? Will it thrive, flat-line or decline? In some respects, I think China has the potential to thrive as it is amazing at taking advantage of the latest manufacturing technologies. But will it create the newest technologies, and if it does not, will it be able to get access to them either by purchasing or licensing them?  Or will it be able to “steal” them? Do you even buy into this idea of a third revolution? If you do, when do you think it will occur and when will its results become known? And what will it mean for China and for US-China-EU relations and trade and relative wealth?

Go with it people. We really want your thoughts.

While going through the TSA security line at SeaTac Airport the other day, I heard two people talking about the above.  The person doing most of the talking was saying he had moved to Houston to work at a 3-D parts printing company. He went on to say he is an outdoors person and he really misses Seattle, but that he took the job because it is “so much the wave of the future.’ He then in one sentence did a great job explaining 3-D printing. He said that “unlike carving, where you start with a block and end up with a product, you start with nothing and you just keep layering until you have a product.” Is the fact I heard this just another indication of what is happening out there or is it just the equivalent of when you buy a Honda Accord, you start noticing that everyone else is driving a Honda Accord? Or is it all me just mistakenly hyping something that really isn’t going to make that big a difference?

10 responses to “China and the Third Industrial Revolution”

  1. What you describe has been going on in USA for 20 years.  This is why factory output is the same or higher with many fewer people.  Also why there are still jobs for college degree poeple, especially in any sort of technical skill, but not so much for those without.  My question is if China went this direction, wouldn’t it be counter-productive?  Where would they then employ all those factory workers?

  2. The problem China has is not economic, but social. Yes, continued economic growth is important, but more important is that the masses be employed. In a fully automated future, what will the masses do? What will keep them fat, dumb and happy? What will keep them from storming the Bastille?

  3. Way back when, futurists predicted that new technologies would usher in a new age of leisure, where the average person only had to work 20 or 30 hours a week and could devote the rest of their time to other interests. We now have the technologies but the outcome is quite the opposite- we actually have fewer employed people working more hours! While I buy into this idea of a disruptive third revolution, I’m not sure if it holds all the promise we’d hoped for in improving the lot of the human race.
    Economically, China will continue to thrive, whether it develops the latest technologies itself or steals them from other countries (probably a combination of both). With these advancements, China faces severe social, political and environmental obstacles which could turn the “third revolution” on its head and plunge China into a dark age. During the first two revolutions, we were able to separate the pursuit of wealth and innovation from its impacts to the Earth and society. We no longer have that luxury. China’s success will therefore depend on whether or not it is able to effectively tackle all of these challenges simultaneously. 
    In terms of when this third industrial revolution will occur, well, I think it has already begun. Moore’s law- which states that the number of transistors on a chip will double about every two years- is predicted to come to a halt around 2019. Whether or not it will lead to technological singularity is another question, but given these timelines (and stealing from the physicists and technologists who actually understand the mathematics behind what they’re talking about), I would say that initial results of this “third age” will become most evident around 2017-2020. Michio Kaku’s book, “Physics of the Future” covers this topic well.
    How will this impact US-China relations? Again, we have to go back to the fact that we are in the midst of an environmental crisis which threatens to wipe us all out if we don’t take swift action. As China’s wealth grows and the earth continues to heat up, resources will rapidly deplete. Given the decline of US power and the eruption of protest around the world, the West as a whole will become more involved in China’s affairs, which will of course increase friction between countries (“you had your cake, why can’t I eat mine now?”) I had once hoped that China would emerge as a beacon of hope in this absurd world, but I’ve since thrown this optimism out with the rest of my recyclables…
    Anyway, great post- it’s easy to go on and on about this topic. What I think is most important to keep in mind is that we can no longer silo discussions on technological and economic progress- a rise in GDP and productivity should no longer be the primary indicator to measure growth, stability, and the overall success of a country. 

  4. But if the manufacturers shift their production capacity back to the US, then how about the Chinese consumers? After all, an increasing portion of the final goods will flow to the end consumers in China.

  5. The lesson
    of Solyndra comes to mind…
    The article
    paints a rosy picture of technicians(if they weren’t out of work already) working in squeaky clean lounge comfortably
    sipping latte monitoring machines performing their magic.
    Well, big
    and fast manufacturing machines are also very dumb and will remain dumb until it is economically and technologically feasible to make them “smart”. These machines
    requires humans to actively intervene to ensure it is not spewing batches of
    misaligned widgets.
    “Enabling” machine to make decisions on their own sounds wonderful but also very engineering intensive(read: expensive), and the cost of doing so exponentially increases (not linearly) as you leaves more decisions to the machine.
    The same old evolution they has persisted for the last hundred years will continue. Who has been running these machines lately? The Chinese. Who will these
    wonderful new automatic factory equipment be designed for? The customers of
    these machines, of course: the Chinese factories. If the Chinese worker can’t
    run your wonderful machine, nobody else will buys your machines.
    That’s why
    Applied Materials is setting up camp in Xian. No stealing necessary.
    I guess the
    question would be whether the technology to make them dumb machines “smart” has
    arrived at last, heralding the so-called revolution? I am not holding my breath.
    The “innovation
    monopoly” America has doesn’t give it the competitive leeway to avoid making
    difficult choices. The world is moving towards increasing commoditization, that
    includes innovation.

    • The difference between the new generation of manufacturing technologies and the previous generations of devices is that the actual manufacturing equipment will no longer be engineering intensive. The rapid prototyping process should be able to replace the traditional “manufacturing” process.
      For example, consider 3D printing.
      The current process for building a plastic part usually requires an artist to design the actual look, then you might pass it off to the modeling team to work up rough clay prototypes, then it’s passed off to CAD/engineering team to make the 3D models, then you might pass it off to the prototyping team, eventually you pay to build the TOOL that you’ll actually do your molding with, then you start running your injection molding process. Repeat that for all of your components. Then send to final assembly where humans actually snap the parts together.
      Once the 3D print process is mature, the artist will pass off his ideas to the CAD/engineering team, and then they will print it – fully assembled. Once 3D print cost drops, the process for building one unit or one million units could be the same 3D printer.
      We are not there yet – but we are on the way. The IT based manufacturing paradigm is to manufacturing as analog devices are to digital. All of the rules will be recalculated. 

  6. taken more generally, what does china have to the new-paradigm world that is manifesting itself this decade .. apart from good subways?
    heart and consciousness are the qualities that will be rewarded, as the old paradigm falls apart, globally

  7. China is attempting to move worker from rural to mid-sized urban. So, what is the tech/skill mix that will absorb the most works. There are many unemployed with medium to med-low skill levels which maybe helped by tech manufacturing. It will not be an easy fix/fit and unemployment will be a problem. There is also the dilemma of capital in place vs rising wages and modern capital which only the best educated can operate. India may benefit. 

  8. “some products are so sophisticated that it helps to have the people who
    design them and the people who make them in the same place. The Boston
    Consulting Group reckons that in areas such as transport, computers,
    fabricated metals and machinery”
    Our company recently made this move. We’re an American company with
    R&D in California. Formerly our manufacturing was based in
    Singapore. For a variety of reasons, last year we built a large
    manufacturing facility in the United States, are are now able to adjust
    more quickly to changes in demand, to increase manufacturing volume, and
    to make running changes resulting in overall higher quality products.
    Putting Engineering and Manufacturing in the same building saves everyone time.
    Unfortunately, in many situations the issue is not economics, but regulation.
    For example, my last company manufactured [among other tings] footwear.
    When we went public, a big portion of the proceeds was used to invest in
    a highly automated factory that would allow us to produce footwear in
    the united states using highly automated processes – mitigating higher
    labor costs.
    The particular glue that made for shoes that didn’t fall apart was not
    approved for use in the US (don’t recall if it was
    local/regional/national regulation). The result, like everyone else at
    the time, we moved footwear manufacturing to China.

  9. China has already went through this revolution once, it was the phone.  
    In the 80’s and even into the early 90’s phones were rare.  Most people were served by neighborhood phone “stations”, where you can place calls.  When you received a call, it meant a runner came to your home and told you, while the caller would call back in 10 to 15 minutes.  Getting a land line meant a huge expense (relative to income), and stacks of paperwork and red tape.  
    When China got connected in the last 10 to 20 years, many people skipped the land line completely and went directly to cell phones.  
    Why did I tell that story?  Because it will happen again in computing and automation.  China has  along way to go in terms of manufacturing high precision (and thus high value) goods.  And if they were to catch up, the investment would be pretty much the same as any other country, you can save a little on energy or leases and manpower, but the equipment is still going to be imported from Germany or wherever.  
    But software and automation are different, a good programmer only needs the right tools (a few thousand dollars) and the right culture in order to create the same quality or better code as in the US or anywhere.  
    Now, that is way oversimplifying it, because the same educational culture and attitude just doesn’t exist in China.  Only people who love what they do can become world class.  People (parents and kids) only want to get educated so they can make money, they can care less about what they are really doing.  Contrast this with western culture, where hobbies and interests are valued and supported.  
    This is the same reason healthcare standards in the US have declined, because thousands of doctors go to medical school in order to make money, not in order to cure people. 
    When China fixes this, China will be pretty much unstoppable.  But it will take two to three generations before we see this culture and attitude on a wide scale.  
    The same goes for India, the software industry has a long way to go until it is world class.  

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