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It Takes A Lot More Than A Big Idea To Change The World

2016 June 19
by Greg Satell

In 1882, just three years after he had almost literally shocked the world with his revolutionary lighting system, Thomas Edison opened his Pearl Street Station, the first commercial electrical distribution plant in the United States. By 1884 it was already servicing over 500 homes.

Up till that point, electric light was mostly a curiosity. While a few of the mighty elite could afford to install generators in their homes—J.P.Morgan was one of the very first—it was out of the reach of most people. Electrical transmission changed all that and in the ensuing years much of the country wired up.

Still, as Paul David explained in his paper, The Dynamo and the Computer, electricity didn’t have a measurable impact on the economy until the early 1920’s—40 years later, when we finally knew enough about the new technology and learned how to unleash its potential. The story of how that happened shows why it takes more than a single idea to change the world.

Increasing Efficiency

The first version of any innovation is always inefficient and Edison’s power station was no different. While electrical lighting had a clear qualitative advantage over gas lighting—it was brighter, cleaner and much safer than gas lighting—getting costs down was a problem from the start. Running copper wires under city streets, for example, was very expensive.

So Edison was constantly tinkering with his power station and distribution system to increase efficiency. Yet as he did, George Westinghouse acquired the rights to Nikola Tesla’s patent for a competing system that ran on AC current and could transmit power farther and cheaper, using newly designed transformers.

That’s what began the famous war of the currents. In the ensuing years, Edison and Westinghouse fought a vicious battle for supremacy in power distribution and both worked feverishly to hone their operations, improve quality and lower costs. In the end, Edison was forced by investors to merge with Thomson Houston to form the General Electric company.

Yet as the battle was raging, prices dropped precipitously and distribution vastly improved. Soon power was being transported hundreds of miles from large scale power plants to homes and businesses. This increased scale and reduced costs further. By 1910, electric power was available to just about any business that wanted it.

Overcoming Switching Costs

Electricity did not progress in a vacuum. There were many thousands of factories running on ordinary steam engines at the time. So as electrical power became available, they needed to find a financially viable way to adopt it. Certainly, they couldn’t just tear down their factories and start over because they now had an electric wire attached to their building.

Factories at the time were very different, in both form and function, from what we have come to expect today. They were multistoried buildings organized around a massive central steam engine. The engine would drive a single shaft which would then turn a number of belts running at the same speed. These belts, in turn would drive the machines attended by the workers.

So the most obvious solution would be to replace the steam engine with a modern electrical motor. But this would only make sense if the benefits would outweigh the costs of junking the old engine and installing a new electrical motor. Often, they did not, and adoption for many years was fairly slow.

When new factories were built, however, the calculation was a little bit different. In those cases, the owners of the factory would only need to pay for the electrical motor plus the difference between electrical and steam power. As the technology became cheaper, that became an easier decision to make and soon most new factories were using electrical power.

Establishing A New Learning Curve

It took some time, but eventually it became clear that factories could be designed quite differently. First, instead of one large motor, smaller ones could be designed to work with each machine. This was not only more efficient, it obviated the need to build braces to support a huge shaft running through the building. Factory construction costs were cut dramatically.

Also, because each machine had its own motor, the entire factory didn’t need to stop if one machine broke down or needed maintenance. It also became clear that machines didn’t need to be operated so close together. Single story factories soon became the norm, reducing construction costs further.

But perhaps the most important change was how factories were arranged. Now managers were free to design workspaces that optimized each task and were able to experiment and improve production processes. They also began to  share information amongst themselves about what methods and techniques worked best.

The increase in technical information and expertise created a need for more highly trained workers who could make decisions and take responsibility. Firms that adopted new practices faster expanded output, while those that clung to the old ways went out of business, increasing the overall efficiency across the economy.

Integrating Complementary Technologies

As Robert Gordon shows in his book, The Rise and Fall of American Growth, once the productivity surge hit in the 1920’s, it would continue for a half century. As it turned out, more efficient factories were just the start. The impact from the complementary technologies to come would be even greater.

For example, household appliances vastly reduced the backbreaking work that needed to be done in the home, allowing women to enter the workforce. Air conditioners opened up the American south to industrialization. Refrigeration greatly reduced spoilage and improved diets. It also allowed farms to ship their produce across the country. Radio—and later television—transformed information flow, as did telephones.

By 1940, 60 years after Edison opened his Pearl Street Station—and more than a century after Michael Faraday first invented the dynamo and the electric motor—the revolution was complete. Households had access to the same basic conveniences that we do today. Six years later, the first digital computer—The ENIAC—was built and a new revolution began.

We tend to think of innovation as a single event, but that’s never true. While Edison gained fame and fortune for his inventions—and rightly so—there were countless others, from factory architects, managers and accountants to workers themselves who helped created the revolution that electricity made possible.

It seems that whenever we go searching for gods, what we find are ecosystems.

– Greg

4 Responses
  1. June 19, 2016

    Well.. Yes, but…. I think you are obviously correct, but I think there is a change in marketing from then that makes adoption far more rapid. Look how long it took from the first PCs to the Internet. Yes, microprocessor development took a couple decades, but when it could be marketed, it exploded. I don’t think they had quite that attitude at the time of Edison and Tesla. Also, I don’t think they had the same ideas of creative destruction that can make business change so rapid now. Also, systems are bigger and there is more competition. A lot of financial result can occur based on small changes in efficiency.

    No, you’re both wrong. Yes, change can occur incrementally as technology develops, perhaps even more rapidly in this day and age, but that is an awfully techno-centric view. In history, change has occurred when there was disruption. You both would no doubt focus on the process of the development, integration and growth of automation, but then you would miss the more important changes that will result from the disruptions it causes. Sure there is huge pressure for adoption of self driving trucks, including cost, safety and aging drivers, but looking only at the technology misses the social disruption which is more significant. That represents 1.3 million middle class paying jobs. No, they are not going to be retrained like drovers and teamsters were when trucks became adopted. They will have been replaced.
    Ya know, you are both hopeless. I bet you think automation primarily presents economic issues and would never recognize the human issues of lost identity… and there is more to it than that. Besides you keep talking about change, but the techno-weenies don’t know what the big disruptions will be and they will dwarf the incremental effects of your machines. Don’t be too proud of this technological ecology you’ve constructed. The ability to change the tools humans use is insignificant next to the power of life itself.

    Greg Satell Reply:

    Thanks for sharing Michael.

  2. Robin Solis permalink
    June 19, 2016

    “The first version of any innovation is always inefficient”..
    Hiya Greg. Hey! From experience I know that this is not always a hard and fast rule. I mean, sure, while you are building and testing a thing, you work with it until it’s a good enough product to launch. But the first iteration of the product: V.1, can be more elegant and efficient, faster, and less expensive than the incumbent/s it is replacing.

    Greg Satell Reply:

    Very True. Thanks Robin!

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