Industrial TFP Shifts:
From Mechanical to Electrical
to IT-Powered Manufacturing
A Historical Perspective on the Current Paradox
of Market Failure or Slow Technology Diffusion
Toward Smart Manufacturing
Similarities between the big shifts to
Electric-Powered Factories in the 1920’s and
IT-Powered Smart Manufacturing today
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Stanford Economist Paul David in his seminal paper provides lessons
learned from the last TFP shift as a result of Industrial Electrification:
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Early Twentieth Century Productivity Growth Dynamics: An Inquiry
Into The Economic History Of “Our Ignorance” Stanford/Oxford Press
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Rockwell Automation also has a deep understanding of this historic shift
because company founders invented the first electric motor control in 1903.
Even though it was essential to the second industrial revolution, the
founders seriously struggled to stay in business selling electric motor
controls to manufacturers until newly constructed “all electric factories”
finally started increasing sales in the early 1920’s.
Era’s of Industrial Total Factor Productivity (TFP)
 1820 – 1870 Mechanical-powered manufacturing
 Steam engines were the first general purpose engines driving
industrial machines
 Although pioneered in the 1700’s, TFP finally started in the
1820’s with nearly 50 percent technology diffusion
 1920 – 1970 Electrical-powered manufacturing
 Electric motors replaced steam engines as the second general
purpose engine driving industrial machines
 They created an additive TFP effect as electric motors enabled
the first assembly lines and more efficient production processes
 2020 - ???? IT-powered manufacturing
 Will networked microprocessors and computing power replace
the electric motor as the 21st century general purpose engine ?
 Will IT drive the next big industrial TFP shift?
It seems like every 100 years, a major technology shift comes along that launches a new
era in industrial total factor productivity (TFP) like a rising tide lifting all ships (factories)
Industrial Electrification: Slow
Diffusion
 1900:
95% of all factory machines
were still steam engine and belt driven
two decades after Edison’s first electric
power system started.
 Only in the 1920s did electricity (as a
measure of mechanical to electric
motor conversions) move beyond 50%
diffusion in factory electrification.
 TFP impact finally started more
than four decades after the first
central power plant.
 Dr. David attributes this long delay to
the unprofitability of replacing still
serviceable steam-engine driven
manufacturing plants.
 Conflicts between the AC power
standard already popular in homes
and businesses and the preferred
industrial DC motor also became
important after the long delay.
Electrification Productivity Gains
For the first 40 years, the original group drive system – consisting of belts
and shaft equipment powered by steam engines – remained in place as
available capacity. This mitigated any TFP gains of early pilot projects
which simply replaced a steam-engine group drive with a single large
electric-motor group drive.
Key Breakthrough: Efficiency Gains Of Multiple Electric Motor Drives
1) Lighter construction of new factories
2) One-story buildings (versus multi-story factories efficient with steam
engine powered group drives)
3) Flexible configuration of assembly lines & machine placement
4) Partial shut downs and maintenance by turning off a unitary electric
motor versus entire factories driven by a single large steam engine
 Electrification of factories laid the groundwork for innovation in many
industries and fields, but innovation gains came from specific applications.
 Although many people had this vision early on, there were barriers to
implementation. Industrial engineers and factory workers needed to learn
how to use and apply electric motors and this new electrical technology.
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Lessons Learned from History?
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As Dr. David describes in his economic analysis, the full benefits of
electrification would be reaped by constructing a new kind of factory,
whereas the persistence of durable industrial facilities, embodying older
power generation and transmission equipment, had some perverse
consequences for average capital productivity that are worth noticing.
Industries that enjoyed the most rapid expansion in the early twentieth
century – tobacco, fabricated metals, automotive, and electrical
machinery itself – could afford the construction of new, “all-electric”
plants along the lines recommended by progressive industrial engineers
or Vice Presidents of Electricity – a title in vogue at the time.
More widespread opportunities to embody best-practice manufacturing
applications of electric power awaited the further physical depreciation
of durable factory structures, the locational obsolescence of older-vintage
industrial plants sited in urban core areas, and ultimately, the
development of a general fixed capital formation boom in the
expansionary macroeconomic climate of the 1920’s.
Can New Factories Constructed in Emerging Economies More Economically Justify
Investments in Smart Manufacturing Technology Than Old Industrial Plant Retrofits?
Questions that Need Answers
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Does this help us understand the slow technology diffusion
and lagged total factor productivity effects of IT-powered
manufacturing today?
2000: 95% of all factory machines were still driven by
standalone electric motors without a microprocessor
connected to a computer network driving IT-power. What is
the percentage today?
When will IT-powered microprocessor diffusion reach 50% in
manufacturing processes and start the long-term Total Factor
Productivity impact?
What role should the government play in stimulating
technological diffusion to accelerate TFP benefits?
Can A Smart Manufacturing Public-Private Partnership Coalition
Can Best Address These Important Questions?