More than an iPhone Moment: Prepare for the Sixth Wave's Second Phase.

January 9th, 2007. San Francisco, California. 9:00 a.m. Pacific Standard Time (PST).

Steve Jobs stands on stage at the MacWorld conference and announces that Apple is releasing three revolutionary products – a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough internet communications device. He then revealed that these three products were, in fact, one device: the iPhone.

While the idea of the smartphone had been around since IBM launched the ‘Simon Personal Communicator’ in 1994, the invention was yet to transform into a real innovation. Even in 2007, when the iPhone launched, many smartphones were still seen by many as a gimmick. Many felt that this was a tool for teenagers and that no serious businessperson would ever need or want to use social media applications on their phones. RIM co-CEO Jim Balsillie famously said at the time that “there’s no chance that the iPhone is going to get any significant market share.” Replace the word ‘iPhone’ with ‘Blackberry Storm’, and he’d have been correct.?

Predictions are hard, especially about the future…

The Sixth Wave Rises

Just one month after the iPhone was launched, stock prices in China and the U.S. plummeted, leading to Alan Greenspan predicting a recession lie ahead. As we now know, this was somewhat of an understatement, as the collapse of high-risk subprime mortgages led to a Minsky moment that caused a global financial collapse and the end of the fifth Kondratiev wave. We then entered the transitional Winter phase between the fifth wave's collapse and the rise of the sixth, a period during which growth, innovation, and investment take a back seat to survival tactics such as cost-cutting and austerity.

Yet, as I detailed in my book Transition Point, 2007 was also the year that the key inventions that would shape the sixth wave’s first phase of creative destruction emerged. If you go to YouTube and watch the video of the iPhone launch, you will notice that the audience claps enthusiastically when Jobs announces a new widescreen iPod and phone, but the applause is much more muted for the announcement of a breakthrough internet communications device. Yet, it is the latter that ended up having the biggest impact, for a year after the financial crash, 3G made way for 4G, and the smartphone’s true potential emerged.

As we now know, the rate of exponential progression, driven by a combination of Moore’s Law, advances in mobile communication, Web 2.0, and the network effect, resulted in the smartphone becoming a ubiquitous device wholly intertwined with our everyday lives. As Arthur C. Clarke once declared, any sufficiently advanced technology is indistinguishable from magic, and smartphones would definitely fall into that category. This device has become our personal assistant and entertainer, one that many people interact with during every waking hour. It has been pivotal in moving us from an analog existence where work, retail, and leisure were all based around physical human interactions, to a digital, mobile one. We can now find out almost anything we want, be directed to any destination, and arrange everything from dinner to a date for the evening, all from a magic rectangle small enough to fit in our pockets.

But all this technological wonder comes attached with two unavoidable and universal truths. The first is that wherever there is great creation, destruction always follows, and the second is that new technologies are always double-edged swords that later unveil a series of unintended consequences, many of them not good.

In the first case, while the development of the 4G smartphone brought great convenience and connectivity, it also invoked the forces of creative destruction, for the apps it hosted replaced multiple physical businesses that used to employ thousands of people to produce everything from roadmaps to calculators, cameras and CD players.?

It is always important to remember the second truth about unintended consequences. Steve Jobs himself commented that "there are downsides to everything; there are unintended consequences to everything." And so it was with his company's most famous creation. While the 'interconnection of a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough internet communications device' connected the world, these magic rectangles also had less desirable outcomes. Our children are growing up with devices that provide a constant distraction, with side effects such as depression and technological addiction. People have lost the ability to be silent and still; the magic rectangles are always there to offer a continual stream of temporary but addictive dopamine hits. This constant need for dopamine distraction has created a shallowness in our ability to think, so while our machines are getting smarter, people are getting dumber, reversing the Flynn Effect that had seen IQs increase throughout most of the 20th Century.[i]? In the West, this decline has accelerated since 2009, the year smartphones reached the mass market.[ii]

The rise of the smartphone is an interesting case, as it constitutes perhaps the first technological leap of the sixth Kondratiev wave. The creation of a platform able to make the static, mobile. A platform that connects buyers with vendors, creators with consumers, and friends and colleagues with each other. What we have witnessed since Steve Jobs made his announcement is the establishment of a mobile digital foundation that has enabled the construction of something much more impactful. And in the forthcoming decade, we are likely to see other technological leaps that make the advent of the iPhone minor in comparison. I know that extraordinary claims require extraordinary evidence, so let me explain.

The Phases of Creative Destruction

The force driving all of our technological progress since the First Industrial Revolution is called K-waves, or Kondratiev waves, named after the Soviet economist Nikolai Kondratiev, the first person to recognise the fact that technological progress is cyclical, not linear. They are also called ‘Schumpeter’s Gales’ after the Austrian economist Joseph Schumpeter, who expanded on Kondratiev’s work by identifying that the driving force behind these waves is the investment of capital into innovations and their diffusion throughout society. Understanding these waves and their impact formed a large part of my research into Transition Point, research that I have continued since its publication.

As I detail in Transition Point, the upswing period contains most of the innovation output and lasts approximately 65 percent of each wave’s 40-50-year cycle, compared to the downswing’s 35%. The downswing is shorter because once the new technologies mature and demand flattens, corporate focus shifts away from high-risk innovation and towards efficiency and cost-cutting. Likewise, investors move away from these challenging industrial markets to the higher returns of financial products (e.g. sub-prime mortgages). Then boom, the wave collapses, and we enter a reset recession. Only in 2008/9 we didn’t reset, but instead bailed out the banks and the bankers, allowing bad businesses to remain and the new wave to build on a sea of debt, not investment.? Since COVID, this has only gotten much worse - but that’s another story for another day.

Scholars who have spent their lives understanding Kondratiev waves and the process of creative destruction, specifically Professor Carlota Perez from University College London, defined the upswing’s ‘spring’ and ‘summer’ period differently, naming them the ‘Installation’ and ‘Deployment’ phases. These two periods of creative destruction are separated by a very dangerous mid-point, one that Perez calls the Turning Point, and I refer to it as the Transition Period. ?

To summarise, the upswing contains two distinct phases of creative destruction, separated by a very disruptive transitional period (which we are currently living through).

• Phase One – Installation. New tools are invented, but they are primarily used to do existing things more efficiently.
• Turning Point / Transition Period – Market overinflation and the ‘mania’ bubble around the new technology collapses, leading to a period of stagflation plagued by social and geo-political unrest.
• Phase Two – Deployment. The new technologies cross the chasm into the mainstream and are used to do entirely new things in new ways, surpassing their initial predictions.

In Transition Point, I detail how the driving force behind the upswing period of each Kondratiev wave is major technological advancement in three primary areas – transportation, power generation, and communication. These developments connect and power our world in new ways, creating new industries, generating new levels of wealth, and causing a socio-economic paradigm shift. What I now realise better than when I wrote that book is that the development of these technologies in the upswing occurs in two phases, one where they are invented and played around with, and a later phase once their potential is understood. This can create a significant lag between an invention's creation and its true impact on the market. For example, the steam engine was invented in the late 18th Century, but it wasn’t until we figured out that this could be used to power the movement of carriages that a real transportation revolution happened. Likewise, the internal combustion engine was invented in the late 19th Century, but horsepower and walking remained the default mode of transport until Henry Ford developed the assembly line concept of mass production.

There are many reasons for this lag. Some are significant, such as the requirement for governments or wealthy entrepreneurs to invest in the infrastructure needed to enable the revolution to take place (e.g. lay down a railway network or electricity national grid), but others are simply the fact that we haven't understood the technology's true potential, unaware of the network effect or how a convergence with other technologies will unleash new capabilities.

Sixth Wave Phase One: Installation.

Phase one of the current wave, the Kondratiev ‘Spring’ period (what Perez names the ‘Installation Phase’), transpired between 2010 – 2020. As you may recall, investors and the public grew increasingly excited about the potential of a series of new technologies, such as autonomous vehicles, drones, robotics, blockchain, cryptocurrencies, hyperloop, additive manufacturing, AI, and the IoT. However, these innovations nearly all failed to achieve their hype, falling into the trough of disillusionment as they had little impact on people’s lives, company profits, or a country’s GDP. Hence, the bubble around them burst, especially in 2020, when the population was distracted by a different type of viral phenomenon.

We can likewise see how the impact of these technologies on the three primary areas of power, transportation, and communication has also been primarily efficiency-focused rather than genuinely transformative:

• Transportation has seen the revitalisation and mass-market adoption of electric vehicles. However, while the power source has changed, the mode of transport still requires a human driver, looks the same, carries the same number of passengers, and travels on the same roads.
• The energy industry has seen a spectacular fall in the price of solar energy and an increase in the efficiency of solar panels, alongside a massive push for more widespread adoption of renewable energy sources such as wind and tidal. However, solar, water, and wind have been around for decades, and in the case of water and wind, centuries.
• Communication has had perhaps the most significant transformation, with 4G, video telecommunications, and smartphones enabling people to change how they shop, interact, and work.

This process of over-hyped expectations around a particular technology, followed by disappointment, then surprise as said technology results in a paradigm shift, is aptly defined by the late Roy Amara’s observation that; “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” A diagrammatic representation of Amara’s Law can be seen below, alongside the point we are at right now.

The ‘we are here’ arrow points to the fact that we are at the critical juncture between underestimating a technologies potential and being amazed by it. This is a transitional period; Perez's ‘turning point’.?

Sixth Wave Transition Period: Welcome to the Danger Zone

As Kondratiev noted a century ago, there appears to be a period between the spring and summer periods marked by social unrest and geo-political conflict. This danger emerges for numerous reasons. These include a collapse of the financial bubble around these technologies and tension between the countries and companies wedded to the old paradigm and those trying to make capital from the new. Unrest builds between those with only their labour to sell and those who have excess capital that enables them to invest in these new labour-saving ways of working and profit from the volatility. The result is job losses, wealth inequality, recession, inflation, strikes, social unrest, and conflict.

Luckily for us, we’ve seen none of these things in the current transitional period…?

Of course, the reality is we have seen all of these things – a crypto bubble collapse, significant job losses in the tech sector that had over-expanded during the boom, an economic recession, and a cost of living crisis caused by rising fuel prices, inflation, and rising interest rates which will inevitably lead to mass housing debt defaults, social unrest, strikes, mass anger at the rising income and wealth inequality, and geo-political conflict that has caused major supply chain issues and an energy crisis etc.

The transition period is, therefore, a time of great fragility:

• Our finances are fragile.?
• Our supply chains are fragile.
• Our energy and food supplies are fragile.
• Our economies are fragile.?
• Our peace is fragile.
• Our democracies are fragile.
• Our ecosystem is fragile.

Fun times indeed.?

From a personal perspective, it has been a fascinating experience to see the theories I wrote about in Transition Point play out as we progress through this period. But one thing that I have to keep reminding myself is that just because this period is new to us, does not mean it is new. In fact, baby boomers and Gen X have been through this before, experiencing the same fuel shocks, strikes, recession, social unrest and war throughout the 1970s and early 1980s. We survived that, and we should survive this as well.?

Phase Two: Deployment.

Assuming that we make it through this current transitional period, then a new phase of creative destruction awaits, one much more impactful and which should result in a new ‘Golden Age’ in the countries driving this technological revolution. As the unrest of the 1970s led to the boom years of the mid-to-late 1980s, so the second half of this decade should likewise lead to a period of great progress and prosperity. For example, the Bank of America predicts that AI will boost the world economy by $15.7 trillion in the next seven years.[iii]

The catalyst behind this golden age will be the realisation of the true potential of the technologies developed in the first phase. If we look once again at the three primary sectors of power, transport, and communication, we can see that the disappointment of the last decade will be replaced by something much more transformative in this second phase:

• A transportation revolution will emerge once autonomous vehicles reach their safety tipping point and legislation finally allows them to be released into the market. This frees people from having to drive cars themselves, leading to transportation-on-demand service business models and an altering of the car ownership paradigm. VTOL (Vertical Take-Off and Landing) air transport will become a reality towards the end of the decade, creating new industries around clean, short-haul air transit. Logistics will be transformed as autonomous hydrogen-fueled trucks become a regular sight on the highways, allowing the truck – the asset – to be utilised continuously without the need for driver breaks. There will also be advancements in tube logistics and tunnel-based maglev transit systems, which will alleviate congested highways by moving freight transit underground. A good example of this is the 33-billion-euro Cargo Sous Terrain project in Switzerland, which other countries are following with interest.[iv]
• A clean power revolution is also reaching its tipping point. While solar, wind, and tidal energy will continue to be developed, the research into Small Modular Nuclear Reactors (SMR) and hydrogen power generation/storage will lead to both becoming viable energy options, and the dream of nuclear fusion will finally become a reality. Fusion has gone from a constant joke about always being 40 years away to a very credible reality, especially after US scientists achieved the goal of using fusion to emit more power than it received for the second time in August 2023.[v]
• A new type of communications revolution will occur when 5G and 6G enable smart sensors to be added to everything, leading to the promised Internet of Everything. Quantum computing will enable the processing of the vast amount of data that these devices capture and transmit, providing a new level of interconnectivity and integration that will enable a real-time digital twin of towns and cities. The insights that will emerge will enable the redesign of everything from our transit systems to the provision of power and utilities. Likewise, blockchain is currently residing in the trough of disillusionment, but there is little doubt that by the end of the decade, it will be the underlying technology that monitors goods movement, ensures provenance, and handles the transfer of ownership.

However, this new golden age will not be limited to these sectors. The technologies of the sixth wave are increasingly general-purpose rather than specific, creating transformations in multiple industries. Robotics is an excellent example. Industrial robots have been around since the 1960s, but they were expensive, dumb, and dangerous, limited to a single task in a single place, and as a result, only made sense in high-volume, high-value industries such as automotive production. However, in the sixth wave’s first phase, a new breed of collaborative, multi-purpose, intelligent robotics emerged. Much excitement was also generated due to the constant stream of videos from Boston Dynamics demonstrating their robots going for runs, doing parkour, and dancing to rock-and-roll tracks. Yet the robot revolution hasn’t happened; humanoid robots haven’t achieved anything meaningful or had any real impact on measures such as corporate profits or GDP. Robotics has fallen foul of the first part of Amara’s Law – being underwhelming.

But the forthcoming second phase will see the materialisation of the other component of Amara’s Law; the bit where we realise we underestimated their impact. This year has already seen a number of significant robotic developments and investment announcements. Tesla has attracted most of the press with its Optimus robot, but there have been other systems unveiled this year that appear to be nearer commercial deployment. Figure announced $700m Series A funding for its Figure 01 robot[vi], Sanctuary AI received $100m in funding for its General-Purpose Robot called Phoenix, which they claim started its first commercial gig back in May[vii], and in August, Apptronik announced that its general-purpose humanoid robot called Apollo is near market-readiness and is able to undertake multiple tasks in numerous fields ranging from warehouse work to social care[viii]. Amara’s Law in practice.

We are seeing the same phenomena in manufacturing as well. Technologies such as additive manufacturing have created great excitement but, to date, have been mostly used to recreate the same items in new ways, replacing subtractive manufacturing with a (sometimes) more efficient alternative. But the real revolution will come when we combine additive with AI and robotics to completely rethink and redesign items from the ground up. And in that last comment lies perhaps the most significant advancement of the sixth wave: Artificial Intelligence. AI development was stuck in the doldrums throughout the 1990s and 2000s, going through a period of low interest and low investment called the ‘AI Winter’. Then, in the first phase of this wave, we steadily witnessed a series of AI milestones being passed by companies such as Deepmind and OpenAI.?

In 2016, Deepmind’s AlphaGo did something that wasn’t supposed to happen until the latter part of the 21st Century,? by beating grandmaster Lee Sedol at the world’s most strategic game, Go. Then, just 12 months later a new version called AlphaGo Zero taught itself Go without any human input and destroyed the original AlphaGo 100-0. It then learnt chess without any human input and took just 4 hours to develop entirely new, non-human strategies that its used to thrash Stockfish, the world’s best chess computer. This ‘zero human input’ learning capability was then incorporated into a more general-purpose AI called MuZero. Meanwhile, OpenAI developed a system that played the MOBA game Dota2, beating all professional human teams and winning The International, again by using new, non-human strategies. These developments seem like ancient history now, given the constant stream of posts on AI and claims of special insights from influencers, but just five years ago this was a monumental achievement that highlighted that machines freed from human biases and knowledge performed better than those where humans had added their input.

The COVID years caused AI to slip into the background once again, but in December 2022, everything changed with the launch of OpenAI’s Large Language Model (LLM) Generative AI system called ChatGPT.

A New iPhone Moment?

If Steve Jobs were to announce it, he’d probably announce ChatGPT as ‘A chatbot. A text generator. A breakthrough intelligent search engine.’ And as per the iPhone launch, people would probably whoop at the chatbot and text generator and be less impressed with the search engine bit. This was another technological paradigm shift, the first commercially available version of a general-purpose AI. For the first time, people had access to a system where they could ask it almost anything and get a relatively accurate, human-like response. Yet one thing that does differ from the iPhone is the rate of diffusion: 1.39 million iPhones were sold in 2007 and 11.63 million in 2008, whereas it took ChatGPT just five days to reach 1 million users and just six weeks to reach 100 million.

This is just the start. We have already seen a large number of other LLMs appear, and generative AI has been embedded into search engines such as Bing, enabling a radically enhanced search experience. It is now capable of creating content in almost any style and tone, writing code in various programming languages, error-checking content, comparing legislation, etc. Its general-purpose capability is a technological tipping point, a platform upon which many of the sixth wave’s second-phase technologies will be built. And this has already started, with numerous companies in the legal, finance and retail sectors already developing their own LLMs and generative AI systems.

Phase Two is Coming: Are you ready?

What we are seeing with ChatGPT and other LLM / generative AI tools is the start of the second phase of creative destruction. Progress in the various fields of artificial intelligence is going to accelerate and converge with robotics, edge computing, additive manufacturing, autonomous transportation and quantum computing, creating whole new industries in the same way steam engines converged with the steel and iron industry to create the textile industries and enable the railway and steamship revolutions. There is also another factor that we need to take into consideration in phase two – what futurist Ray Kurzweil calls ‘The Law of Accelerating Returns’. This law basically highlights whenever a technology approaches some kind of a barrier, a new technology will be invented that enables us to cross that barrier, causing a paradigm shift. Which is what we have seen with the smartphone, and again with generative AI. Kurzweil believes that these paradigm shifts will become increasingly common, leading to "technological change so rapid and profound it represents a rupture in the fabric of human history". Effectively, these new technologies are laying the foundations for the next, and as a result, things will never again be as slow as they are right now.?

?But we must not forget the two universal truths of technological change that I highlighted earlier. Firstly, we must remember that the creation of the new always results in the destruction of the old. The impact of AI and the other sixth-wave technologies of robotics, autonomous vehicles, drones, etc. has yet to be felt; but it will be soon. Industries will be disrupted, jobs will be lost, and skills will be made redundant. We do not know exactly what jobs, industries, and skills, but they will be numerous, for the scale of the second phase is enormous. Unlike previous waves, these new disruptive, mostly digital technologies are not limited to one specific industry – but all of them. What happens to manual labour in a world where intelligent humanoid robots become commonplace and can work 24/7 for the cost of electricity without a break? What happens to the millions of Uber, cab, and truck drivers when autonomous vehicles become commonplace? Plus, it is not just the manual workers at risk – in this wave, the so-called ‘professional’, creative white-collar jobs are more at risk than tradesmen and manual workers. When a machine can research and write articles in seconds, program code in multiple languages, and enter vast volumes of data accurately, what happens to the workers who rely on this for a source of income?

?This leads me to the second truth - the Law of Unintended Consequences. When the iPhone was launched, we had no idea how this tool would end up being used, or what impact it would have. We didn’t realise it would lead to technological addiction and an inability to concentrate. We didn’t foresee a generation addicted to the rush of constant dopamine hits acquired by scrolling a Chinese app that featured 20-second videos of people dancing and spouting rubbish. We didn’t anticipate that the apps this tool hosted would be linked to accelerating levels of depression and suicide amongst the young. But here we are.

So, I can’t help but wonder what the unintended consequences will be of this new wave of technology, especially as development and diffusion speed up leaving little time to assess their impact and long-term ramifications:

• How will our education system adapt to a world where people have access to machines that can answer any question and write text on any subject and in any style?
• What happens when we realise that AI is increasingly being taught on a dataset created by other AI systems?
• What happens when most creative content we consume is AI-created, and we can’t tell the difference? When you are unsure whether the face on the screen you are talking to is real or just made up of pixels?
• What happens to the medical professions when machines are updated daily on the latest scientific research and can predict illnesses better than doctors?
• What happens to our capitalist society when most people find they cannot compete against intelligent systems and humanoid robots that complete complex work without the need for breaks, healthcare or pay? Will there be protests when these machines not only handle dull, dirty and dangerous jobs but all rules-based repetitive roles?
• Will people be happy to adapt to a life of leisure and consumption rather than creation, or will the loss of purpose lead to depression, vice, and social unrest?
• When machines write their own code, how can we stop it from self-improving and causing a ‘hard take-off’ super intelligence explosion that leads to the technology singularity?
• What will be the unintended consequences of handing over control of our national defence to autonomous, quantum-powered AI?
• Etc.

These are huge questions: ones that we will have to discover an answer for relatively quickly if we are to enter another golden age unscathed. As Edward O. Wilson once declared, “The real problem of humanity is that we have Palaeolithic emotions, medieval institutions and godlike technology. And it is terrifically dangerous, and it is now approaching a point of crisis overall.”

Resilience is not Enough

Stepping back from these existential challenges and narrowing our focus to the business world, one urgent question is how companies survive the disruption of the current transition period and learn to thrive in the coming second phase. How do they ensure they become part of the second phase’s creation and not fall victim to its destructive forces?

The disruption since 2020 has seen the primary concern of business professionals move from efficiency to discussions of resilience and risk management. However, we need to do more than ensure we can withstand these disruptive forces – we need to learn how to evolve and thrive.

To survive a time of great fragility, we need to become anti-fragile.

In my next article, I will expand on the mindset, strategies, and structures needed for companies and individuals to become anti-fragile.

(I will also be talking on this topic at Cranfield School of Management's 'Agile Supply Chain Research Club' on Sept 20).

[i] https://www.nbcnews.com/think/opinion/iq-rates-are-dropping-many-developed-countries-doesn-t-bode-ncna1008576

[ii] https://www.popularmechanics.com/science/a43469569/american-iq-scores-decline-reverse-flynn-effect/

[iii] https://markets.businessinsider.com/news/stocks/artificial-intelligence-ai-chatgpt-iphone-moment-bank-america-bofa-markets-2023-3

[iv] https://edition.cnn.com/2023/08/07/travel/self-driving-underground-pods-switzerland-cargo-sous-terrain/index.html

[v] https://www.reuters.com/business/energy/us-scientists-repeat-fusion-power-breakthrough-ft-2023-08-06/

[vi] https://www.figure.ai/

[vii] https://sanctuary.ai/resources/news/sanctuary-ai-deploys-first-humanoid-general-purpose-robot-commercially/

[viii] https://apptronik.com/

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