John Pientka

Looking to 2018 and the Future: Do You Think We Are Entering a 4th Turn or 5th Wave?

2018 and the Future

Wow! 2017 sure was something. Looking ahead do you see darkness – the 4th turn – or the light – the 5th wave. Your view may depend on your digital awareness. Surprised? Read on.

What a roller coaster the last year has been. Hammered by natural disasters, ugly politics, deteriorating race/immigrant relations, and revelations of sexual harassment; its no wonder the globe looks pretty beat up. Nature and society seems to be in perpetual crises. You may not like his politics but the recently discredited Stephen K. Bannon’s belief in the view of “The Fourth Turning – An American Prophecy” by Neil Howe and William Strauss looks disturbingly accurate.

The premise is pretty straightforward (excerpt from Wikipedia): “Every 80 years American history has been marked by a crisis, or ‘fourth turning’, that destroyed an old order and created a new one. According to the authors, the Fourth Turning is a “Crisis”. This is an era of destruction, often involving war, in which institutional life is destroyed and rebuilt in response to a perceived threat to the nation’s survival.”

Events appear to fulfill the prophecy. Afghanistan is America’s longest war. The Syrian conflict drags bloodily on, seeming without end. Traditional institutions are crumbling. In the EU we saw Brexit, Catalonia and the rise of the Right. In the U.S. Trump became president, the Senate trashes it’s long hallowed rules and Congress overall appears to be deadlocked on virtually every topic.

Depressed? There may be hope of more than a relentless turning of the generational wheel leading to dark times. It’s nuanced and digital. The economist Carlota Perez, just a few years after The Fourth Turning, published her own landmark analysis: “Technological Revolutions and Financial Capital”.

From Good Reads: “She presents a novel interpretation of the good and bad times in the economy, taking a long-term perspective and linking technology and finance in an original and convincing way… Carlota Perez explains why each technological revolution gives rise to a paradigm shift and a “New Economy” and how these “opportunity explosions”, focused on specific industries, also lead to the recurrence of financial bubbles and crises. These findings are illustrated with examples from the past two centuries: the industrial revolution, the age of steam and railways, the age of steel and electricity, the emergence of mass production and automobiles, and the current information revolution/knowledge society.”

Let’s face it – right alongside the litany of woes we just chronicled there seems to be a golden age of science and technology. Successful gene editing, miracle cancer cures, “seeing” black holes and gravity waves, driverless cars, robot assistants, quantum computing – the list just goes on, and on, and on. Something is happening and if you subscribe to Carlota Perez we should be entering a New Economy with a cornucopia of plenty. But I doubt any of you would say that is where we are.

So, what is going on – has Perez missed the mark? From WSJ: “Perhaps our current technologies, advanced and exciting as they might be aren’t as transformative as the technologies from the period between 1870 and 1970, when we experienced high productivity growth and a rising standard of living. Some have argued, most prominently Northwestern University economist Robert Gordon that over the past few decades there’s been a fundamental decline in innovation and productivity. “We wanted flying cars – instead we got 140 characters,” is how PayPal cofounder Peter Thiel succinctly described his belief that we’re no longer solving big problems. But, it’s not just flying cars that have eluded us. So have fusion energy, supersonic commercial travel and space exploration.”

MIT professor Erik Brynjolfsson, MIT PhD candidate Daniel Rock and University of Chicago professor Chad Syverson tackle this confusing paradox in a new working paper from the National Bureau of Economic Research (NBER): “Artificial Intelligences and the Modern Productivity Paradox”. They claim there is reason for optimism. They argue that the technologies we are developing are so transformative that their impact on productivity and our society is lagging from the historical average.

Perez wrote that each technological cycle takes about 60 years. Our present digital revolution is the 5th cycle in history. Each cycle is composed of two different periods lasting about 30 years each. The first is an “installation” period when new tech emerges from the lab; entrepreneurs and investors go wild trying to harness and leverage it, eventually leading to a bubble and a crash.

After the crash comes “deployment”. Institutions come to terms with the new technologies and their new economic paradigms. These become increasing absorbed and widespread leading to productivity and prosperity rising. We are 45 years into the 5th cycle and over 15 years from the crash of the dotcom bubble but – we’re not seeing any joy yet!

The NBER paper points the way. We’re still in a long in-between period, where multiple, overlapping technologies are continuing to emerge from R&D labs into the marketplace, but because of their profound transformative nature, their full deployment is still ahead of us.

OK, do the NBER authors predict when we will see the economic impact? No, of course not – they’re academics. They do however suggest a number of historical analogies that might be applicable. Here’s my bet based upon the electrification of America. Interestingly, even though there seemed to be electric motors and devices everywhere in the 1920’s productivity went flat from 1924 to 1932. Look at the graph below from the NBER paper. The bottom scale maps electricity and top is IT.

Productivity took off: growing almost 29% in the next eight years, even in the Great Depression. What happened? New ways of working and organizing needed to be created to truly take advantage of the new technology. My guess is that our own eight years are over and we are at the upturn.

By John Pientka

John Pientka

John is currently the principal of Pientka and Associates which specializes in IT and Cloud Computing.

Over the years John has been vice president at CGI Federal, where he lead their cloud computing division. He founded and served as CEO of GigEpath, which provided communication solutions to major corporations. He has also served as president of British Telecom’s outsourcing arm Syncordia, vice president and general manager of a division at Motorola.

John has earned his M.B.A. from Harvard University as well as a bachelor’s degree from the State University in Buffalo, New York.

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