China and the Third Industrial Revolution

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?