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05.05.15

The Flat White Powered Second Machine Age

General Purpose Technology (GPT) is an example of economic jargon that fails to trip off tongues. These are technologies that accelerate the trajectory of economic progress by spreading across economies. Quarry Bank Mill, now a National Trust property near Manchester and a lovely place to spend Mother’s Day, gives an insight into the power of steam as a GPT in the first industrial revolution. Electricity was another GPT in the second industrial revolution laterin the 19th century. Together these revolutions gave us the first machine age.

Subsequent GPT dearth is thought by some economists, such as Robert Gordon, to be the underlying cause of declining GDP growth rates across the western world. Gordon sees the innovation gains of technology as being finite. Our slowing growth is, therefore, the consequence of the innovation gains of steam and electricity being exhausted, and no new GPT coming along to replace them.

Two other authors, Erik Brynjolfsson and Andrew McAfee are more optimistic, however. They argue that digital technologies are heralding a second machine age, and they do not see innovation as necessarily finite. The relevant jargon to this positivity is ‘recombinant growth’. On this view, the gains of innovation are potentially limitless as they do not depend on a pervasive GPT from which low hanging fruit can be pruned. But rather upon recombining existing innovations to create new innovations. For example, none of the elements that make up web technology, Brynjolfsson and McAfee note, “was particularly novel. Their combination was revolutionary”.

On this account of innovation, the constraint on economic growth is not GPT absence or exhaustion, but limited capacity for developing new combinations of past innovations to create new innovation. The power of Information and Communication Technology (ICT) partly exists in raising this capacity. They quote Eric Raymond, the open source software advocate: “given enough eyeballs, all bugs are shallow”. (Meaning, the more people are looking at a problem, the quicker it will be fixed.) They recast this into a general take on innovation: “With more eyeballs, more powerful combinations can be found”. ICT’s innovative force is in increasing the number of eyeballs able to assess problems and recombine past innovations in ways that correct them.

If the innovative power of ICT exists in getting more eyeballs looking at problems, and sight of these problems depends only on an internet connection, we should expect businesses created as a consequence of new innovation to be as evenly dispersed as internet connections. Yet, Douglas McWilliams in his new book on the Flat White Economy (FWE) notes that one postcode in East London has been responsible for 32,000 new businesses in the past two years – more than Manchester and Newcastle put together. Maybe some eyeballs are better than others? Maybe the power of recombination applies not only to past innovation, but to eyeballs themselves? East London has brought many people together in combinations that recombine past ideas to create new solutions more rapidly than these individuals would be likely to achieve either in isolation, or via the more remote connection of the internet.

Nearly half of the GVA generated by the sectors that the DCMS define as the creative industries comes from a sector – IT, software and computer services – intimately involved with the second machine age. The fundamental ingredient connecting this age with the FWE is not caffeine but mixing. “Work is mixed with play,” McWilliams. “Living is mixed with working. The coffee bar is mixed with the home and the office”. If work and life are so intermingled, we want to work where our liveswill be most fun. East London’s fun depends on output from other parts of the creative industries:music, film, theatre, architecture.

ICT may be a necessary condition of economic success but matching East London’s cultural vibrancy may be a sufficient one. Proximity to this offering may now be as important as proximity to the River Bollin was to Quarry Bank. While Gordon, Brynjolfsson and McAfee disagree on whether ICT constitutes a GPT, the Flat White Economy suggests, in any case, it may be cultural vitality that gives localities marginal economic advantage.