What is the leap in technology

Leo Mattes

In the first few posts I first derived a utopia for maximum prosperity and then gave further explanations for maximum productivity. Other important articles deal with the properties of path dependencies and the properties of technology curves.

In the previous posts we have already covered a few properties of technological leaps. Technological leaps lead to a change in the value chain. Can they also become the cause of major economic crises as a result? I pursue this question in this post.

What is an economic crisis?

I define an economic crisis as a state of the economy in which many participants can no longer pay their debts and credits. This can be either private individuals or companies. The repayment of debt is a problem for many participants because the income is too low or the costs are too high.

If the general conditions of a company change, this can be due to the following reasons:

  • The cost of making the product or service is too high and uncompetitive
  • High margins cannot be demanded due to high competitive pressure
  • The market for the product or service has shrunk and demand is falling

In summary, it can be said that the cash flows no longer flow through the company that got into the crisis.

However, competitive disadvantages and cost pressures are normal and nothing special in a market. Constant process optimization and orientation towards the competition increase productivity and lower costs, so that competitiveness is restored.

A technological leap now has the following properties:

  • Higher productivity or performance level
  • Change in value chains / change in cash flows
  • New technology requires different knowledge than the old technology

If we now compare the problems of the company and the characteristics of technological leaps, we will see that technological leaps are the trigger for corporate crises.

The problem that arises is this:

The company that brings the new technology to market has many years of experience in development and production. This also applies to changes or adjustments to previous business models.

However, the company developing the old technology has no experience developing the new technology. The new value chains must first be painstakingly built from the beginning.

Likewise, the new technology is much more productive and efficient, so that far fewer resources are required to provide the same performance.

So it is not easy to compensate for the competitive disadvantage.

"Every society needs a means of communication, a source of energy and some form of mobility in order to function." - Jeremy Rifkin in The Zero Marginal Cost Society

An overview of the previous industrial revolutions and their basic technologies can be found here in the article on the Energy Transport Information Matrix.

Now I come back to the economic crisis. What has to happen that not just one company but many companies get into a crisis at the same time?

The answer is simple. A Structural change, which is based on the changes in basic technologies and the flows of energy, information, transport and money, means that many value chains change fairly quickly. Bad investments have to be written off and assets decline. Corporate bankruptcies are on the rise, and with them unemployment. This means that many private individuals can no longer repay their loans. However, the workforce cannot simply be integrated into the new, up-and-coming value chains, because they do not yet have the necessary know-how. In addition, the new value chains are more productive than the old value chains - otherwise they would not have prevailed - which means that overall fewer staff are required to carry out the value-adding activities. In addition, a structural change is always accompanied by interests in power and a loss of power, which is why it is fought against by the ruling structure as far as possible and often does not prevail fastest where the companies of the ruling structure are located.

Historical insert:

With the introduction of assembly line production in 1913, Ford brought about a radical upheaval in the emerging auto industry, [1] highways emerged, the oil industry emerged. In 1923, the development of the first automatic remote dialing system began in Germany. [2] 1923 is also considered to be the birth of German broadcasting. [3]

Transport: From the railroad to the automobile

“The railway companies were not interested in the competition from increasing individual motorized traffic. Possibly it was they, along with the lobby of the horse-drawn vehicle operators who enforced the Red Flag Act or Locomotive Act in England, a series of laws that came into force in 1865 and, among other things, stipulated that every automobile had to be preceded by a man who entered The horn blew and a red flag waved. "[4]

Energy: from coal and steam power to oil

“In 1922 the highest number of employees in the Ruhr mining industry was reached with 576,644 employees. In the 1920s, particularly in the crisis years of 1925 and 1931, many unprofitable collieries were shut down. ”[5]

Information: from newspapers and telegraphs to the radio and telephone

“The 1920s were a high point in newspaper history: because radio was still in its infancy and television was still a long way from being ready for the market, newspapers enjoyed a kind of monopoly as mass media. The heyday of newspapers was before the introduction and spread of radio. ”[6]

The Great Depression followed in 1929.

However, as technological leaps bring us to maximum prosperity in the long term due to productivity growth, these structural crises are necessary, even if they initially mean economic uncertainty for many companies and private individuals.

I am happy if I was able to inspire you with this post and if you subscribe to my newsletter so that you do not miss any more posts.

Best Regards

Leo Mattes

[1] Ford

[2] History of the telephone network

[3] History of Radio

[4] History of the Automobile

[5] Ruhr mining

[6] History of the newspaper