I saw this diagram in a macroeconomics class about TFP (total factor productivity). It’s a little dated (1999) but it paints the history of innovation pretty well. The first wave was the transition to new manufacturing processes, going from hand production to machine production. In the second wave of innovation, entrepreneurs such as John D. Rockefeller and Andrew Carnegie drove oil and steel to every corner of industry. In the third wave, Thomas Edison and Henry Ford built on their predecessor’s success by introducing electricity and the Model T vehicle to the average consumer. As an aviation enthusiast, my personal favorite is the fourth wave, when Joe Sutter gave us the Boeing 747, connecting the Americas to Asia and Europe. And lastly, the fifth wave gave us innovations like the internet and AWS, connecting us to people and information like never before. The part I found most interesting is in the next diagram.
This chart shows the change in labor productivity, measured in output per hour. As expected, dips in the line are commonly associated with a recession; the early 1980s energy crisis caused labor productivity improvement to drop to near zero. In the 1950s through 1960s, America was fresh out of WWII and productivity growth levels were high. In the late 1990s and early 2000s, the internet helped productivity growth surge but since the mid 2000s, productivity growth has slowly declined. In fact, that trend is consistent around the world. Even as technology continues to improve industries, why is productivity growth down?
Peter Thiel once said, “We were promised flying cars, and instead what we got was 140 characters.” Yes, it is 280 characters now and to be fair, I see the value of Twitter; I use it every day (shameless plug, follow me at @AlexLee611). But perhaps Thiel was onto something; productivity growth is down because today’s innovations are simply less groundbreaking. TFP growth is a key component of long-term GDP growth, which leads me to think of venture investing as a proxy for potential innovation and TFP growth.
To take a page from Julian Counihan’s blog on Common Sense in Technology Cycles, the next wave of technological innovations (think AI-applications, wearables, drones, additive manufacturing, autonomous driving, clean energy), will need more upfront capital and building new infrastructure for these technologies to thrive. Investing in new platforms and industrial technologies could create a surge in productivity growth much like what we had with the internet but we are going to have to shift our investment patterns to support its development. Participating in the development of these new technologies will require us to be educated in hardware and industrial tech. Reading science blogs, talking to engineers, and attending seminars are all effective ways to learn how the technology works. Plus, the total addressable market in manufacturing and transportation is massive and will always exist as long as we need to build and move stuff. Industrial technology has the potential to change the way we build and transport people and materials.
I’ve been in venture capital for 9 months and in New York for 3 months. In this short time, I’ve been fortunate to have spoken with dozens of passionate founders and many very smart venture capitalists. I’ve seen some of the coolest ideas over the past three months; people working on exoskeleton technology, 3D printing food, military airborne surveillance drones, new materials for manufacturing, and electric airplanes.
Personally, I love learning about and working with new hardware tech. Maybe it comes from growing up on LEGO’s (still the best Christmas gift) and designing airplanes at Boeing for 5 years. Despite the regulatory challenges, I see a future with flying cars. I believe we can have neuro exoskeletons that will help disabled people walk. With the right political support, we could achieve a 100% electric grid, powering residential buildings, manufacturing plants and transportation vehicles. We’ll be able to 3D print anything, from simple drawers to complex jet engines, I am bullish on a future with autonomous cars with a perfect safety record; coming from Hong Kong, it shocks me that 16-year-olds are handed keys and a license to use a 4,000 lb machine with top speed above 100 mph. America was built on industrial advances and I believe modern day technology can help us continue innovating in areas of manufacturing and transportation.
If you have any questions or thoughts, please comment. Or if you are working on anything in supply chain, manufacturing, or transportation, shoot me a note at alex@schematicventures.com
