History Predicts the
Next Economic Boom

Based on the comments of Brian Arthur, Santa Fe Institute during a radio broadcast sponsored by The Commonwealth Club of California and Business 2.0

Four major technological and economic revolutions have preceded our present information revolution:

1. The Industrial Revolution, where factory and mill systems were brought in
2. A British revolution in railways in the early and mid-1800's
3. The late 1800's brought the invention of steel and the electrification of factories, and
4. Mass production and the automobile were evolved in the 1st half of the 20th century

Each revolution grew in phases:

First, there was a fairly primitive set of technologies. For instance, the early railways introduced in Britain were still carriages drawn on rails by horses.

Ten years or so later, there was a massive interest in this new technology. Inventors and promoters joined the fray and the press started talking about the impact of the new ideas on the economy. Investors stepped-up and very quickly, little branch lines were being put in everywhere. "Scrip" shares were being sold in alleyways and there was a massive investment spree.

Following this investment mania there was a crash. Then, understandably, people looked for scapegoats.

But, interestingly, in the Railway revolution and all the others, the revolution DID NOT die after the crash. The technology did not come to a halt. Instead, it transformed to a massive build-out of the technology. That's when the railways really started to take off in Britain, and 10 years later in the United States with even greater investments. The initial technology that overexcited everybody and then crashed became a driver of the economy, and brought huge amounts of prosperity and growth as it entered its "golden age."

As the technology runs its course, it matures. The investments have already taken place and foreign competition steps in.

What's the key?

In the period where there's huge excitement about a new economy, new things happening, a mania, and a crash, things don't stop there.

While there isn't as much massive investment and huge manias, there is a very sober time, a time of build-out, a time of businesses saying, "Yes, let's get serious about this technology." Large companies start to take over, and it's a time of quiet but huge buildup and always of prosperity.

"This is the time we're entering now with respect to the information revolution. We've had our mania; we've had our crash. The base technologies are in place. The next 5, 10, 15 years will be periods of buildup and a new period of prosperity and growth for the U.S. economy based upon information technology itself."

W. Brian Arthur is Citibank Professor at the Santa Fe Institute. From 1983 to 1996 he was Dean and Virginia Morrison Professor of Economics and Population Studies at Stanford University. He holds a Ph.D. from Berkeley in Operations Research, and has other degrees in economics, engineering and mathematics. He pioneered the modern study of positive feedbacks or increasing returns in the economy--in particular their role in magnifying small, random events in the economy. His ideas have come much to the public eye with the recent legal case of the US Department of Justice vs. Microsoft. His work on increasing returns won him a Guggenheim Fellowship in 1987 and the Schumpeter Prize in Economics in 1990.