Memo: The Next Industrial Revolution

We will need great leadership to navigate through the next industrial revolution.

The United States once led in the effort to digitize its economy. Today, we trail China by a factor of three. Our neglect may have damning consequences without a correction in our course. The direct-to-consumer industry can be myopic, even often worth ignoring. But studying DTC as a philosophy for modernization can be a competitive advantage for entire economies. For a moment, jettison words like luxe, digitally native, lifestyle, or even HENRY – they are symptoms of a shift. The focus here is on the core of that shift.

This has been attributed to Henry Ford, the fabled and complicated engineer, businessman, and founder of Ford Motors. It might as well have been spoken today:

If I had asked people what they wanted, they would have said faster horses.

The Model T was presented on October 1, 1908. The automobile had two selling points, one being affordability. At $825 (or $24,000 in today’s value), its affordability provided for its second selling point. The consummate salesman, Henry Ford was known for traveling from farm to farm to market the car to business-savvy citizens. The market consensus that he built around the need for his product transformed an economy over 12 years. Ford used the Model T to build a new, manufacturing-based economy out of one previously focused on laissez-faire policies.

With his emphasis on vertical integration of parts and assembly line manufacturing, Henry Ford was its king. At its peak, the Ford Motor Company factory in Michigan employed 40,000 workers under one big roof. [1]

Ford’s impact extended beyond his factories. Other industries began to duplicate his conveyor belt manufacturing strategy (including a number of his competitors). The result was a reinvigorated economy built around an emerging middle class. One company helped to mold a new class of American worker. Ford’s genius was the virtuous cycle that he created: products, factory, improved economy, more accessible products, denser factories, improved economy. In 1908, 10,000 cars were manufactured. By 1915, that number exceeded 470,000 per year and by 1920, that number surpassed 930,000 annually. Ford’s growth silenced the Luddites who believed that the economics of fair wages could not work at scale.

The move to cities and inventions that made clothing, communication and transportation more affordable and accessible to the masses changed the course of world history. Regardless of these questions, the Industrial Revolution had a transformative economic, social and cultural impact, and played an integral role in laying the foundations for modern society. [2]

We have a choice to make today: hold on to what was or move towards a future that makes more sense for the present. Right now, the American economy wants faster horses. Instead, we need the virtuous cycle of Ford’s Model T production: a proponent of “transformative economic, social, and cultural impact.” Generations later and scientists, political operatives, and every day citizens opposed another wave of American innovation. The Third Industrial Revolution brought electronics, computing power, biotechnology, and telecommunications to the forefront. And yes, even the internet. The culmination of these innovations was best represented by the space race.

The race to the moon may not have been wildly popular among scientists, random Americans, or black political activists, but it was hard to deny the power of the imagery returning from space. Our attention kept getting directed to the heavens—and our technology’s ability to propel humans there. It was pure there, and sublime, even if our rational selves could see we might be better off spending the money on urban infrastructure or cancer research or vocational training. Americans might not have supported the space program in real life, but they loved the one they saw on TV. [3]

Against the backdrop of racial unrest, political turmoil, and economic transition, the space race that we now venerate was widely opposed. Every generation’s revolution has its share of Luddites. John F. Kennedy addressed his opposition with a rousing speech on the grounds of Houston’s Rice University.

To be sure, we are behind, and will be behind for some time in manned flight. But we do not intend to stay behind, and in this decade, we shall make up and move ahead. [4]

Some 50 years apart, both eras required a collective revolution to accomplish their goals. And in both cases, they widely impacted American economic advantage. Nearly 400,000 people were employed by the U.S. Government to help Neil Armstrong land on the moon. The space program afforded us dozens of consumer innovations that we take for granted today [4]. Ford’s Model T and Kennedy’s space race were but two examples of public/private partnerships that revolutionized our society. We will need a great deal of inspiration to fuel the coming economic transition. The Second Industrial Revolution (2IR) mechanized society, providing the foundation for NASA. The Third Industrial Revolution (3IR) began to replace our analog society with a digital foundation for work, connectivity, and commerce.

The establishment of the Third Industrial Revolution infrastructure will necessitate the active engagement of virtually every commercial sector, spur commercial innovations, promote small and midsize enterprises, and employ millions of workers over the next 40 years. […] The alternative—staying entrenched in the sunset of the Second Industrial Revolution with fewer economic opportunities, a slowing of GDP, diminishing productivity, rising unemployment and an ever-more polluted environment—is unthinkable, and would set humanity on a long-term course of economic contraction and decline in the quality of life of its citizenry. [5]

We now need to mobilize our Fourth Industrial Revolution. The Brookings Institute defines the 4IR as “characterized by the fusion of the digital, biological, and physical worlds, as well as the growing utilization of new technologies such as artificial intelligence, cloud computing, robotics, 3D printing, the Internet of Things, and advanced wireless technologies, among others.”

Like Ford’s manufacturing symbolized the 2IR and Kennedy’s space race represented the 3IR, the fourth should represent the DTC-fication of the economy. And we are woefully behind.

The Next Revolution: DTC-fication

Though commonly attributed to brands like Warby Parker, Harry’s, Away, or Outdoor Voices, the DTC philosophy applies to a number of industries to include telehealth, travel, education, work, and sports training. But one of the greatest examples of our reservations towards adopting a DTC economy isn’t in retail or health. It’s in film, perhaps the foremost leading indicator in the shift towards individualism and direct consumer relationships. If you’ve wondered why more new films aren’t on your Apple TV, it’s not for a lack of inventory.

A recent article by The Verge argued that director Christopher Nolan should release his latest blockbuster “Tenet” online. A combination of tradition, ego, and misaligned economic incentive is preventing this from happening.

It’s not clear what exactly is driving Nolan’s ambition here: a simple love of cinema? A chance back in the spotlight as a directorial auteur? Or an issue of pride, a desire to have his film specifically save the entire institution of cinema? It’s certainly not money: it’s obvious to nearly everyone that if Tenet does manage to open on August 12th (its current planned release date), then Warner Bros. — and Nolan himself, who reportedly is set to earn 20 percent of the first dollar gross — will likely miss out on millions compared to what they’d make by waiting for a safer, more stable release period. [6]

The result is two-pronged: a continued shortage of new films and a failed opportunity to move Americans away from the dependency on physical retail. With many of the largest American companies shifting towards “work from home” models for the longer term and schools shifting to distance learning, retail and entertainment is primed to shift towards the home.

But the American economy wants faster horses. Our dependency on malls, physical theaters, schools, and office buildings will further hinder the eradication of a virus that has crippled consumer confidence. In doing so, we are failing to take advantage of this era’s industrial revolution. In retail forums and on Twitter, today’s Luddites will suggest that an eCommerce-driven economy is unsustainable. They’ll cite math that doesn’t yet exist. They’ll fail to consider that we have an industry where broadband access and efficient package delivery has yet to reach rural America and last-mile delivery avoids poorer neighborhoods. We’re in the infancy of all of this. And yet, you’ll find them lauding the economics of physical retail and decrying the economics of third-party logistics. It’s an alarming cognitive dissonance shouted from horseback or yelled as they point towards the moon.

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Update: 2020 store closures.By @GoldmanSachs: pic.twitter.com/KCrOucA46o

Of the nearly 160 million workers in America, 29 million [7] are employed by the retail industry. This is an industry that is shedding jobs, real estate, and market share at an historic rate. Without intervention, we will be left in an unenviable position. We need business leaders who are as focused on the digitization of the American retail economy as Elon Musk and Jeff Bezos are on commercializing space travel.

It will require top-down inspiration akin to Kennedy’s space race speech that began: “We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard.” And most importantly, it will require a period of reinvestment into physical redevelopment (dead malls to warehousing), career retraining (retail workers to warehouse workers), and new opportunity (last-mile delivery training for the underemployed).

To move forward without these emphases means that we’ve elected horses over cars, grounding over space, and the retail economy that existed during Ford and Kennedy’s lifetimes. Every revolution has its share of Luddites. But in the end, they always take part in the economies that their laggard-like opposition failed to prevent.

Like the manufacturing and computer ages, DTC-fication will achieve economies of scale that will inspire a stronger consumer confidence and newer opportunity. And to think, it may all begin with a film director who finally eschews the industry control of the physical theater industry for a modern means of distribution. Perhaps with a large enough example, the rest of the industry (and its adjacency peers) will follow suit.

By Web Smith | Art: Alex Remy |Editor: Hilary Milnes | About 2PM