The End of an Era

This is one of a series of posts on The End of Jobs: Money, Meaning and Freedom Without the 9-to-5.

In The End of Jobs, Taylor Pearson writes about the seismic change in job growth since 2000. He presents an interesting theory: The past economic downturn wasn’t what you thought it was. He says we weren’t going through a global recession— we are transitioning between two distinct economic periods.

He cites a book called The Fourth Economy, where author and systems thinker Ron Davison organizes the last seven hundred years of Western History into three distinct economic periods: Agricultural (1300– 1700), Industrial (1700– 1900), and Knowledge (1900– 2000). If you look at these dates carefully, you’ll also see that the pace of change is doubling with each era. The Agricultural period lasted 400 years; the Industrial 200 years, but the Information Age only lasted 100.

Pearson says that the problem we’re facing is that many people have not recognized that we’ve entered a fourth economic period. That means we’re still investing in what worked in the previous period, and those investments are producing dramatically diminished returns.

Here’s how he breaks it down.

In any organization, system, or process, there is a single constraint that is holding it back – a primary constraint that, unless solved, will prevent success. If you have five people stuffing envelopes, producing 20 envelopes per minute, but only one addressing them, producing two per minute, the addresser becomes the constraint. No matter how many more envelopes you stuff every minute, you’ll never be able to ship more than two per minute, because addressing is the constraint. Adding more people addressing envelopes is the only way to ship more. Got it?

Taylor says the same theory of constraint is true in large and complex systems like economies. In the Agricultural period, land was the constraint. That meant that the biggest landowners were the wealthiest and most powerful men. They solved for that constraint to grow wealth.

In the Industrial Age, beginning about 1850, capital became the most important constraint. It was expensive to build factories and infrastructure to ship products. Europe was fighting several wars, which are also expensive. The Rothschild family became the richest in Europe by selling war bonds to countries like Prussia. Bankers became the most powerful people in the world, because they were the source of solving the capital constraint.

As corporations began to evolve and gain power (about 1900), the constraint wasn’t capital. Companies had enough capital, but they needed more knowledge to be able to expand. The early 20th century was an age of many technical advancements in science, engineering, medicine, and computing. As technology companies emerged, starting in the 1970s, CEOs supplanted bankers as the most powerful men in the world.

At the beginning of the 20th century, tech startups could generate billions in wealth with almost no capital investment. Facebook, conceived and built in Mark Zuckerberg’s dorm room at Harvard in 2004, is now worth $250 billion.

Pearson argues that we entered a new economic era in the early 2000s, one in which entrepreneurship is the primary constraint. Lots of people know lots about programming and technology; but only Steve Jobs created the iPhone. Only Zuckerberg envisioned Facebook. Amazon ate the retail book industry; Netflix ate Blockbuster within a few years of launching. Digital media is in the process of eating print.

Pearson says we’ve shifted from a world of complicated work to a world of complex and chaotic work, (see my previous post on the definitions here) where the skills needed to thrive cannot be taught in traditional schools.

Here’s the problem: we’re continuing to invest in knowledge under the mistaken assumption that it’s what’s needed for success. What is needed, says Pearson, is investment in entrepreneurship, which is the primary constraint of the new economic era.

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