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Monday, March 11, 1996

After computers, what?

Many people have wondered how best to describe the 20th century, which comes to a close in less than five years. I would call it a "century of innovations." After all, essential parts of our daily lives -- from automobiles to the countless array of electronic appliances -- are all products of the 20th century. Actually, it is thanks to an endless stream of innovative products and innovation in the production process that the 20th-century economy has been able to grow in a sustained fashion. In this sense, we may also call the 20th century a "century of growth."

In 1798, Robert Malthus wrote his landmark essay, "On the Principle of Population." In it, he argued that population increases in a geometric ratio while the food supply only increases in an arithmetic ratio, so food shortages pose a constant check to large population increases.

The world's population at the end of the 18th century was estimated at 900 million. A century later, in 1901, it stood at an estimated 1.6 billion. In other words, the global population increased by less than 80 percent during the 19th century, or a mere 0.6 percent per year. At such a paltry rate of increase, the food crisis predicted by Malthus never materialized.

In the 20th century, the global population exploded at a breathtaking rate. By 1950 it had risen to 2.5 billion. That brought the annual growth rate in the first half of the century to 0.9 percent. As world population has been projected to rise to 6.1 billion by the end of the century, the growth rate has doubled to 1.8 percent. Still no food shortage is imminent.

It has become fashionable to pooh-pooh the Malthusian prophecy. Malthus was dead wrong, many say. Was he? True, Malthus made a number of false assumptions, the most glaring of which is that innovation was not taken into account. Without the increases in food supply made possible by advances in agricultural technology and without the expansion in the job market that came with industrialization, the world could hardly hold, say, more than 2 billion people. But innovation has come in leaps and bounds, at a speed never thought possible. As a result, the size of the population the world can hold has vastly expanded, and the consequence is a sharp increase in the actual population.

According to United Nations figures, the world's population is now estimated to increase beyond 10 billion by 2050. If the barrage of innovations we witnessed in this century continues, the Earth's capacity to house and feed more people will expand and there is no doubt that the world's population will go past the 10 billion mark.

Innovation has its limits when it comes to one specific industry, however: electric appliances or computers. The time will come when the speed of innovation will slow down as it matures. With that, its function as an engine of economic growth vanishes.

More specifically, the time will come when the art of manufacturing technology will reach a stage of near perfection and demand will flatten out as the product in question will have already found its way to most consumers. It would not be an exaggeration to say that we are now witnessing such a maturing stage in regard to consumer goods like automobiles, home appliances, computers and many electronic gadgets that make office work less tedious. If that is the case, what lies ahead in the 21st century? What will become the new "fountainhead of innovation" as we move toward the new millennium?

The most likely candidate, I think, is the information and communications industry. Consider the mobile telephone. The demand for all types of mobile phones is rising sharply, and the pace is likely to outstrip that of all other manufactured goods. Multimedia equipment, too, is likely to witness a major boom in a few years, and innovations of all types will follow. Telephones which allow speakers to see each other on a television screen may become yet another hit product in the future. In short, innovation in the information and communications industry will most likely serve as a new driving force of economic growth down the road.

But the question now is: When will the information and communications industry reach maturity? I believe this industry will peak between 2015 and 2020. Without elaborating on the basis for this prediction, history has shown that the process of maturation for similar industries usually takes between 20 and 25 years.

Logically, the next question is: What will follow once innovation in the information and communications industry dries up? Many people may point to biotechnology. We must remember, however, that to drive the economy, an innovative industry must be of a kind that involves mass production and mass consumption, an industry with a big product line. Does biotechnology fit the bill? No matter how we stretch our imagination, biotechnology is not an industry conducive to mass production and mass consumption. Thus, it is not a reliable candidate to serve as a locomotive for economic growth.

I must confess that I see nothing beyond the information and communications industry as a new fountainhead of innovation. What about the energy and environment industry? I have little idea whether an industry that involves mainly investment in plant and equipment can continue to drive an entire economy. Some say our economic future lies with computer software. This is a more difficult call in so far as economic locomotion traditionally comes from industries that are based on the fabrication of things. Today's U.S. economy is based on computer software, and we apparently are seeing, though still hazily, the economy of the future basically driven by the computer software business.

If a new source of innovation is not found in time to replace the information and communications industry, the 21st century may well head into a "century of stagnation" once the innovative power in that industry is consumed.

Takamitsu Sawa, professor of economics at Kyoto University, is director of the university's Economic Research Institute.

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