The timeframe of America’s Gilded Age [1865-1800] is generally accepted as being between the Civil War [1861-65] and the turn of the twentieth century. The era built upon pirated technical advances made during Britain’s industrial revolution [1790-1830]. The first of which involved British emigrant Samuel Slater and his knowledge of textiles. U.S. railroads and steel mills would also benefit from knowledge imported in the minds of men from Britain.
During the Gilded Age fortunes of great enormity were made and lost in textiles, meatpacking, railroads, steel mills, coal and oil, and farm machinery. These industrial foundations enabled the era that followed of mass production, electrification, and telephony. Similarly, the technical advances of the early twentieth century laid the foundations for today’s information economy. An industrial wave, also known as a cycle, can be viewed in four succinct stages:
– The first is the time taken by businesses to embed new technologies defined by invention into products and services. During this phase businesses will “push” new technologies [think of computers without internet connectivity] for which there is a limited market.
– The second phase involves the emergence of “pull” demand for new products and services [think of manually installed software] as markets [aggregations of people and organizations] begin to experience the economic/social benefits of new technologies.
– The third phase involves the intra-wave emergence of new push technologies and services [think of the emergence of the internet] which creates opportunity for a second round of players to captain their industry segments [think Amazon, Google, Facebook and others].
– The fourth phase is the decline of the industrial period first defined by invention [think of non-internet connected computers and installing software manually]. The early industry leaders [think Microsoft and before them IBM] are forced to re-invent themselves or exit.
The end of an industry wave does not mean that the industry disappears. Textiles continue to be manufactured, people continue to catch trains, and automobiles will continue to be manufactured. The next generation of robotically assembled, perhaps printed, cars will be fuelled by a mix of energy sources, be made with smarter environmentally efficient materials, and communicate. To compete, old industries employ labor-replacing new technologies.
Three factors evidenced over time are seen here to link the decline of an industrial wave to Schumpeter’s waves of Creative Destruction that depict new industries emerging from the ashes of the old. One, the capitulation by firms to union demands for higher wages to stall the defection of technically proficient workers to new industries. Two, the inability of an outgoing industry to raise private financial capital prompting mergers and/or bailouts. Three, social unrest from workers left behind.
Of the three factors identified in, the union unrest at Andrew Carnegie’s Homestead plant in 1892 preceded an intra-wave (third phase) switch of demand for steel from rail to high-rise building construction. Not unlike coal, which has traversed three industrial waves, steel then found demand in the new industrial era of automobiles. So too has petroleum; initially refined for kerosene lighting, then as fuel for transportation, and then plastics. What we repeatedly see is one industrial wave laying the employment foundations for the next.
The crash of the old industries, which define the wave-like depiction of industrial progress by economists, only reaches its nadir without finance. At the end of the textile wave of factory production, U.S. banks had shifted from providing commercial loans to underwriting bonds to finance construction of the railroads. This was before the creation of the Federal Reserve. With the Federal Reserve, there were end-of-wave bailouts railroads during the Great Depression and automobile companies at the onset of the Global Financial Crisis.
At the time of writing there is no prospect of the Federal Reserve being required to bailout today’s highly profitable information communication technology (ICT) behemoths. We are now in the third phase of the ICT wave.