Originally published September 1991. Published on KurzweilAI.net August 6, 2001.

The industrial revolution of the last two centuries--the first Industrial Revolution--was characterized by machines that extended, multiplied, and leveraged our physical capabilities. With these new machines, humans could manipulate objects for which our muscles alone were inadequate and carry out physical tasks at previously unachievable speeds. As a result, the world during this period was hungry for natural resources and labor. Mao's postulate that "power comes from the barrel of a gun" was true when he said it. Through physical coercion, one could control natural resources and compel people to labor. While not providing the happiest or most productive of workers, it worked well enough.

The second industrial revolution, the one that is now in progress, is based on machines that extend, multiply, and leverage our mental abilities. A remarkable aspect of this new technology is that it uses almost no natural resources. Silicon chips use infinitesimal amounts of sand and other readily available materials. They use insignificant amounts of electricity. As electronics, computers, and other forms of technology (bioengineering, for example) grow smaller and smaller, the material resources used are becoming an inconsequential portion of their value. Indeed, software uses virtually no resources at all. The value of such technology lies primarily in the knowledge governing the design of the hardware, software, and databases that constitute our intelligent machines, and in the ability to continue advancing these designs.

Today, even manufacturing is dominated by its knowledge content, not by natural resources or labor. One has only to tour modern factories with their delicately programmed robotic assemblers and material handlers to recognize the increasing dominance of knowledge as a cornerstone of wealth. This decreasing importance of material resources has allowed Japan, a country very poor in natural resources but rich in knowledge and expertise, to prosper. While the first Industrial Revolution increased the demand for and the value of natural resources the second industrial revolution is doing the opposite.

In the case of computer software, it is apparent that one is paying for the knowledge inherent in the design and not for the raw materials represented by the floppy disk and user's manual. What is sometimes less apparent is that the same economic model holds for most computer hardware as well. An advanced chip generally costs no more to produce than a floppy disk. As with a software program, the bulk of the cost of a chip is neither raw materials nor manufacturing labor, but rather what accountants call amortization of development, and what philosophers call knowledge.

It is estimated that raw materials comprise less than two percent of the value of chips (which is about the same estimate as for software) and less than five percent of the value of computers. As our computers become more powerful, the percentage of their value accounted for by raw materials continues to diminish, approaching zero.

Raw materials approaching zero

It is interesting to note that the same (inverse exponential) trend holds for most other categories of products. Raw materials comprise about 20 percent of the value of musical instruments (down from about 60 percent ten years ago) with this figure continuing to rapidly decline as acoustic musical instrument technology is being replaced with digital electronic technology. Just last year we reached the halfway point in the transformation of musical instruments from the 19th-century acoustic technology to the digital electronics of the late 20th century: more than half of musical instrument industry revenues are now from electronic products. If we look at the typical electronic musical instrument (a digital home keyboard, for example), it is basically a computer with at least 90 percent of its value based on its knowledge content. By the end of this decade, more than 90 percent of all musical instrument industry revenues are expected to be based on this type of technology.

George Gilder (author of Wealth and Poverty and Microcosm) estimates that the cost of raw materials for automobiles is now down to 40 percent of total costs. Again, this figure will continue to decline with the increasing use of computers and electronics as well as the replacement of expensive and relatively simple body materials such as steel with inexpensive yet relatively complex alternative materials such as new high-tech plastics.

Such routine products as tables and chairs have a rapidly increasing knowledge content through the use of new materials and automated manufacturing methods that use little or no labor. Increasingly, the value of a manufactured product is its design and the software controlling its automated manufacturing process, both forms of knowledge.

The software of life

This inexorable trend toward knowledge as the principal component of wealth affects even commodities. We are now beginning to master the ability to grow produce without soil. This will offer the opportunity to build factories that can create in large volume anything that grows. Since it will be possible to easily control pests in such an environment, insecticides and other chemicals will not be needed. Bioengineering will create the gene-altered vegetable, fruit, and Brain species that can obtain their sustenance from a nutrient-enriched water. The same techniques will create varieties that provide optimal nutrition, taste, and other desirable properties. The process of cultivation and harvesting will be, of course, fully automated. Thus the value of such produce will consist of the genetic blueprints for these crops, the programming that controls this automated process and energy. The first two are clearly dominated by knowledge. The latter we will discuss in a moment .

Key to this landless revolution in agriculture is bioengineering. We are only now beginning to feel the impact of bioengineering, a technology of momentous potential--both promising and perilous. By tinkering with the fundamental structure of life, we have the ability to create new materials and new life forms that can cure (or cause) disease, enhance (or spoil) our environment, and otherwise transform our lives. This technology is clearly knowledge based: we are making programming changes in the software of life.

In mastering bioengineering, the first order of business is to understand the program that evolution has already written. While a master programmer, evolution forgot to document her code. The human genome project, a multibillion-dollar federally supported effort, will write it all down (at least the human version). The result--six billion bits needed for the genetic definition of a human being--will fit on a couple of compact discs. Understanding it is another matter for it is written in a dense machine language with few Rosetta stones available.

It may seem odd to extol the declining importance and value of natural resources when the attention of the world was recently riveted on a crisis centering on the availability and price of a quintessential material resource, oil. In response, I would point out that the second industrial revolution is a gradual process and, while some industries have been almost totally revolutionized in the relative balance of material and intellectual resources, energy is somewhat earlier in this process. For some reason, the energy industry has been firmly stuck in the first Industrial Revolution.

But it is not hard to see how we can ultimately replace oil with intellect. For example, with suitable innovations, we could eventually power our cars with electricity rather than gasoline. And we could go on to produce the electricity through new methods that do not involve the irreversible consumption of material resources. Ideas for achieving this range from the controversial breeder reactor to more benign solar and geothermal power. One has to wonder why the energy industry has been so resistant to entering the second industrial revolution.

The fortunate truth

The most significant political development of the post-World War 11 era--the collapse of Communism--is a byproduct of the exigencies of the second industrial revolution. It is a fortunate truth of human nature that creativity and innovation cannot be forced. To create knowledge, people need the free exchange of information and ideas. They need free access to the world's accumulated knowledge bases. A society that restricts access to copiers and typewriters for fear of the dissemination of uncontrolled knowledge will certainly fear the much more powerful communication technologies of PCs, FAX machines, Email, local area networks, telecommunication databases, electronic bulletin boards, and all of the multifarious methods of instantaneous electronic communication.

Controlled societies have been faced with a fundamental dilemma. If they provide their engineers and professionals in all disciplines with advanced workstation technology, they are opening the floodgates to free communication by methods far more powerful than the copiers they have traditionally banned. On the other hand, if they fail to do so, they become increasingly ineffectual. The Soviet Union is already on a par with the more backward Third World countries economically. It has been a superpower only in the military sphere, and with the increasing reliance of military strategy on intelligent weapons, this type of power has dissipated as well.

Innovation requires more than just computer workstations and electronic communication technologies. It also requires an atmosphere of tolerance for new and unorthodox ideas, the encouragement of risk taking, and the ability to share ideas and knowledge. A society run entirely by government bureaucracies is not in a position to provide the incentives and environment needed for entrepreneurship and the rapid development of new skills and technologies.

The navigators of knowledge

With knowledge as a component of wealth gradually asymptoting to 100 percent, we need to put the proper priority on the question of how to promote innovation, which is the creation of knowledge that has economic value. Clearly, libraries have a crucial role to play here. A library is a repository of a society's knowledge. For the past several hundred years, the primary medium for storing our knowledge has been books. In recent decades, we have supplemented books with other media: recordings, movies, and most recently electronic databases. Libraries have adjusted to each of these innovations and many offer information in diverse forms.

Early in the next century, computerized knowledge navigators will help us to explore the increasingly complex knowledge that our libraries contain. Professor Marvin Minsky of MIT contemplates a future conversation between two readers of LJ: "Can you imagine that they used to have libraries where the books didn't talk to each other?" We'll talk more about the library of the future in an upcoming column.

The age of knowledge is the culmination of a process of automation that began with the automation of the English textile industry more than two and a half centuries ago. John Kay's flying shuttle and the myriad machines that followed have gradually transformed the nature of work, by successively automating jobs at the lower rungs of the skill ladder while at the same time opening up new opportunities at the top of the ladder. With knowledge firmly implanted as the foundation of wealth and power in the late 20th and early 21st century, nurturing knowledge--its creation and dissemination--will be the cornerstone of our security.

Perhaps the most beneficial attribute of the age of knowledge is the decentralization of power. Knowledge does not simply foster wealth and power, in the age of knowledge it is wealth and power. By increasing our ability to master knowledge, we can each shape our individual destiny.

Reprinted with permission from Library Journal, September 1991. Copyright © 1991, Reed Elsevier, USA

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