Almost anyone who follows what is going on knows that our economy is going through a major structural change. The change involves the globalization of manufacturing, how markets are constructed, the impact of new and widespread communication technologies, the rapid increase of in the application of digital machines and the pressure to use renewable energy. In truth, we are at the beginning of the Third Industrial Revolution. The First Industrial Revolution was ushered in with the invention of the steam engine propelled by wood and coal. The Second by the automobile and with it the petroleum needed for gasoline. The Third Industrial Revolution will be based on our shift from fossil fuel energy. It will have a profound impact on everything we do and every way we manage our lives, our government, our planet and our culture.
The First Industrial Revolution, brought about the shift from cottage industries to factories, lasted about 100 years. Prior to the early 1800’s, cottage industries prevailed for centuries The shift to factories changed the way that goods were produced, where they were produced, how they were sold and who managed it. When the steam powered factories emerged, the folks who worked from their homes moved to where the factories were located. Usually this meant moving from the country to the city. This created a significant culture change.
The steam engine permitted the railroad to be developed, and this created new centers where the trains stopped to refuel and take on water. Subsequently, factories located at these centers. Since the railroads needed improved communication about conditions on the tracks ahead, the telegraph was rapidly installed. This led citizens who lived along the rail systems to have the most up to date information ever. These new factories and railroads and related equipment required a different skill set than the cottage industries. This meant that a better education system was needed which led to our public school system.
The Second Industrial Revolution involved the internal combustion engine which required a petrochemical fuel. This revolution is in its second century, and it will continue until we run out of the fossil fuel needed to drive it. The discovery of oil and how to get it was all that was needed for the automobile to really replace the horse. Auto travel on the crude dirt roads was especially difficult to travel in bad weather. This led to paving the roads, and in the 1950’s construction of the interstate highway system was undertaken. With that development motor transportation took off. In short order railroads felt the stress as semi-trailer trucks were found to be more versatile for hauling the nation’s goods than rail. Home owners no longer tied to the cities, moved to the suburbs with their new transportation vehicles. Consequently, the railroads lost both freight and passenger business. One by one the railroads went out of business. Finally the US government subsidized what was left under the name Amtrak.
For the farm it meant that larger and larger tractors could be used for tilling, planting and harvesting. For the family farm in the 1930’s a man following a horse drawn single plow on foot was the way a 50 to 100 acre farm was tilled. By contrast a tractor can pull ten or more plows. This in turn has led to ever larger farms and fewer and fewer farm hands. The country is dotted with barns left rotting as small 20 cow dairy farms were put out of business by huge farms with 1000 or more cows milked by machine 24 hours per day. In the early 1900’s, 40 out of 100 persons in the labor force were employed by farms. Today, the number is less than 2.
The shift from cottage industry and the horse for transportation required a different way to structure businesses and different ways to manage personnel, communicate, keep records and utilize capital. In the old days, a farmer or cottage industry entrepreneur could obtain capital via a loan from his local bank, and his employee was his apprentice. In the new industrial world, the capital for a railroad or a factory was so much larger that small local banks could not supply it. Similarly, the large number of employees in the factories required a major change in how to train and manage them. The result of the need to manage large numbers of people and huge amounts of capital required business to be restructured from the horizontal system of the cottage industry and small family farm to a vertical one. The larger the company grew the more clerical, secretarial personnel and supervision was required to keep track of the critical details of the businesses. As some businesses became more efficiently organized than others, they bought out smaller ones or merged making fewer and much larger companies until today there is a relatively small group of giant organizations in the major commercial fields from oil and gas production and distribution, to banks, to manufacturing, to healthcare and even education. Moreover, during the past three to four decades we have seen them become increasingly global in their outlook, planning, organization and marketing.
It may be interesting to review the various energy sources that have been historically available. Prior to the invention of the steam engine, horse, mules, oxen and even people provided the energy for moving things. People lighted their homes with candles or whale oil. Their homes were mostly heated with wood. The steam for the steam engine developed by James Watt in 1769 was generated by burning wood and later coal. This invention more than anything else permitted the development of the First Industrial Revolution. The first fuel for the internal combustion engine was ethanol. The leading fuel for lighting was "camphene" (sometimes simply called "burning fluid"). It was a blend of high-proof ethyl alcohol with 20 to 50 percent turpentine to color the flame and a few drops of camphor oil to mask the turpentine smell. Alcohol was an important mainstay for distilleries, and many sold between 35 and 80 percent of their product to the fuel market. In the 30 or 40 years before oil drilling began in Titusville, Pennsylvania in 1858, crude oil found on the earth’s surface was being distilled to produce products for lighting. This included gasoline, but its high volatility and risk of explosion prevented it from being used for lighting. Gradually; however. it was evaluated as a fuel for the internal combustion engine, but it took many years before such giants as Henry Ford became convinced it was a better fuel than ethanol.
The electric light bulb discovered by Thomas Edison in 1879 changed lighting forever. But it was the discovery of alternating current that permitted the fantastic expansion of the use of electricity for all uses. It wasn’t long before steam engines in factories were replaced by electric motors. The turbines to generate the electricity were originally powered by water via dams such as Hoover Dam, or waterfalls such as Niagara Falls. By 1884 electricity could be generated anywhere by using steam to run the turbines. The original fuel for these steam electric plants was coal; then some plants shifted to oil and even to natural gas. All three are employed to this day, and now nuclear energy has been added as a source of steam.
We have been living in the Second Industrial Revolution for more than a century, and it has made possible the globalization of manufacturing and marketing which in turn has made possible the fabulous increase of the size and lifestyle of the planet’s middle class. Amazingly, most of this occurred in the last quarter of the twentieth century, and the expansion continues despite the rise of the oil price from about $3 per barrel 35 years ago to about $ 105 today.
However, what will undoubtedly limit the life of the Second Industrial Revolution is the supply of fossil fuel. The amount of fossil fuel consumed at this time is about equal to the current supply, and it is generally agreed that new discoveries will not satisfy the rising global demand. In fact, the supply is expected to decline. This will cause a rise in price. Therefore, at some point in the near future, non-fossil fuel sources of energy will become economically competitive. These sources include, solar, wind, geothermal, ocean currents, hydroelectric and nuclear.
The Third Industrial Revolution, which is in its infancy, is based on two inescapable driving forces: (1) the diminishing supply of fossil fuels and (2) the Internet. A new book entitled “The Third Industrial Revolution, How Lateral Power is Transforming Energy” by Jeremy Rifkin, describes how Internet technology and renewable energy are merging to create the Third Industrial Revolution. The book cites numerous examples of “green” electrical energy applications that are being developed world-wide, and according to Rifkin, some are even economically viable now. Rifkin feels that we must accelerate this change by adding government laws and regulations to convert our use of fossil fuels to renewable sources in order to avoid the catastrophic climate change our use of fossil fuel is allegedly having.
Rifkin’s basic concept is that hundreds of millions of persons on the planet will produce solar energy in their homes, offices and commercial facilities and then share information about supplies with others via an energy internet, similar to the way information is created and shared online. The idea is that solar panels will be placed upon virtually every building. Wind mills will appear where there is wind and available land. Geothermal and ocean currents will also be tapped. The organization of these new energy sources will most likely be controlled locally. For example, it will probably be common from time to time for a building owner to generate more solar electricity than needed for his own building. That person will want to sell the excess. The Internet, already in existence and worldwide, will be the communication mechanism for information about the excess availability of electricity. One can even imagine selling electricity to a neighbor via e-bay or some such mechanism. Thus, you can see that the supply and marketing of electricity will not likely be carried out by major international organizations but by individuals and local communities. This structure will be horizontal rather than the vertical. And it will probably be the pattern world-wide.
The idea is that new electrical energies will be interconnected by grids, and if more electricity is created than needed, it can be converted to hydrogen via the electrolysis of water. Now, electrolysis would only be viable as a means to “store” electricity during the times when the sun or wind would produce more electricity than the grid could use. The hydrogen fuel can also be used to produce electricity later when the wind does not blow or the sun does not shine, or it can be used for fuel to propel vehicles. These ideas are not pie-in-the sky dreams; the technology has been demonstrated, and in some cases commercial installations exist. However, few if any such installations can compete at the current price of fossil fuel without government subsidies.
This new paradigm, called the Third Industrial Revolution, provides a pattern for how we will transition from fossil fuel based energy to non-fossil fuel energy. But it is going to present the global economy with enormous challenges, both good and bad. For example, we are most certainly going to require more nuclear energy to supply electricity and probably to propel our trains and machinery to till our fields. This would be a logical extension of our current use of nuclear power to transport our submarines and ships. But we will have to learn how to use breeder reactors safely and find suitable means for the reuse or safe permanent disposal of the nuclear waste.
It is hard to predict exactly the price of fossil fuel at which point these non-fossil fuel base energies become viable alternatives. What is certain is that when the fossil supplies are depleted, the equivalent price will be infinite. At that point any source of energy becomes economically viable. The trick is to determine just what course of action governments and industry should follow to have the right technologies in place when the supply and/or price of fossil materials become a major problem.
Unfortunately for such a sound planning path, the environmentalists cannot wait! They argue and are convinced that man-made global warming exists, will cause catastrophic climate change and is caused by fossil fuel consumption. They want to stop its use by taxing and regulating it out of existence immediately. They are willing, in fact eager, to upset our life style and supporting businesses right now by artificially increasing the cost of fossil fuel energy. Regulations to cause such an event would have an horrific impact on the global economy. It would be much better to allow the supply versus demand formula to provide the incentive to replace fossil fuel. This would permit a more gradual change which could more realistically be accommodated by the market. What is important to be sure that we do now is to properly fund the required research to develop the new energy technologies so we have them available in time.
Based on the predicted future decline of fossil fuel supplies, it is clear that we will enter the Third Industrial Revolution whether we want to or not! The question is what kind of world will it be? Both of the prior Industrial Revolutions brought major changes in energy sources, having to learn how to use new technologies and new locations of commercial operations. These changes caused major economic and cultural upheavals as populations had to relocate. We are already seeing some of these same factors at play as we enter the Third Industrial Revolution.
The impact on global food supplies and prices caused by the prohibitive high cost of petroleum may be the greatest problem society will have to face. Currently, ethanol and bio-fuels are proudly added to the list of renewable fuels. But when we do not have or can’t afford petrochemical fertilizers or fuel to till, plant, harvest and process corn and other vegetation required to produce these fuels, food prices will doubtless skyrocket. This will cause a huge change in lifestyle. Amazingly no one is talking or writing about this despite the fact that the population of the planet has just reached seven billion, and the forecast is that we will add another billion within the next 15 years.
In summary, the concept of the “Third Industrial Revolution” provides a realistic vision of how we might cope with the diminishing supplies of fossil fuel and a template upon which to plan for the time when supplies of fossil fuels are inadequate for the global demand. However, there are lots of questions yet to be answered. In addition we probably don’t have all of the required technology to make the transition practicable. Therefore, Rifkin’s belief that we must force this now with government intervention is wrong and not useful. Government can be a helpful partner, but unfortunately it has a history of intervening in markets with deleterious consequences. One thing is certain, this next transition will be equally as complex if not much more complex and significant than the first two Industrial Revolutions. The economic and sociological impact of these radical changes will be immense and will affect every segment of the global society. A major question will be whether we have adequate food supplies. We have time to make the transition in an orderly fashion using market forces to help make the decisions each of us will have to make. However, we had better begin the planning phase now before it is too late. Finally, we have made this kind of transition twice before and have that experience to draw upon. We will be up to the task!
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