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Consumer Surplus and Unemployment

On Saturday night, August 28, 1830, farm laborers destroyed a threshing machine in Elham Valley, 69 miles southeast of London. By the third week of October, they had destroyed over 100 threshing machines in East Kent alone. They were protesting low wages and unemployment. “Swing Riots” quickly spread to almost every county south of the Scottish border.

William Cobbett, a middle class conservative turned radical, sympathized with the farm laborers and would face charges of seditious libel in 1831 for his pamphlet Rural War in support of the riots. He conducted his own defense and won. The following year Oldham would elect him to Parliament. He described himself as a defender of traditional rural values.

It was only 73 years earlier, in 1758 and 440 miles north of Kent in East Lothian, that Andrew Meikle, a Scottish millwright, invented the threshing machine for separating grain from stalks and husks. Before this, farm laborers separated grain by hand with flails, which accounted for at least one fourth of all agricultural labor. With the threshing machine, the Rotherham plough, and the Norfolk four-course rotation, tenant farming became a profitable business.

The enclosure of the commons and the end of open fields followed. While this might seem like a typical case of profit over people, please note that these technical advances allowed England’s population to exceed 5.5 million for the first time in history. This Agricultural Revolution enabled not only the Industrial Revolution but also the growth of the British population to 8.7 million by 1800 and 41.6 million by 1901.

Sixty-seven years after William Shockley invented the transistor and only 25 years after the release of Mosaic by Sir Tim Berners-Lee, we find ourselves amid a Digital Revolution. We have not felt the full impact of these innovations. While we struggle with technological unemployment, we should be careful not to dismiss political concerns as Luddite fallacy.

Technological Unemployment

Technological unemployment may be temporary, but to those who suffer displacement it probably doesn’t feel that way. Riots may seem unlikely, but political maneuvers are almost certain. Technologists must address neo-Luddite tendencies. For technologists to win, the Information Age must be different.

Scarcity ruled past economies. Technology introduces the promise of plenty, but scarcity inevitably works its way into the business model. Artificial scarcity is the typical response. The enclosure of the commons, for example, enabled the exchange of land that led to increases in productivity and population. While the Agricultural Revolution was necessary for the greater good, analogies with the Digital Revolution, in this case, are weak.

How should technologists respond? Artificial scarcity is a poor choice. Consumers can see through it, and even if government grants you monopoly rights, consumers will defy both you and the government. For the technologist to be successful going forward, you will need to create consumer surplus. Consumer surplus is the one measure that will keep you ahead of the game.

Companies that create consumer surplus are profitable. Unlike the past, large investments in land, labor, or capital are not necessary. You only need to exercise the powers of your mind. The biggest opportunities will come to those entrepreneurs who effectively address market and government failures.

What can neo-Luddites and old-line industry do to keep up? In the past, you may have been rewarded for hoarding resources; land, know-how, capital. That day has passed. Perhaps you have a strange sense that times are different now. The tricks of the trade don’t work as well as they once did or you have a paranoid feeling that your competitors are lurking behind every corner.

You’re not far off. Today, it isn’t what you know; it’s a matter of how fast you learn, and the fastest way to learn is to share what you know. For old-line industry to reinvent itself, it must open the doors wide and find creative ways to partner with technology providers both within the value stream and across product categories. It’s the only way to stay relevant.

Today we are amid a Digital Revolution. It’s like the Agricultural Revolution, especially in its impact on jobs and income distribution. We could allow feelings of envy or pride to overshadow, but who wins in that case? Instead we should look forward to a new pattern that will lead us out of the current impasse. As Mark Twain said, history doesn’t repeat itself, but it does rhyme.

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