TALLINN UNIVERSITY OF TECHNOLOGY

Faculty of Social Sciences

Ragnar Nurkse School of Innovation and Governance

Johanna Vallistu

The Digitized Manufacturing – A Revolution Waiting to

Happen

Essay for the Oslo University essay competition on innovation studies

Tallinn 2013

In Adolph Menzel’s painting The Iron Rolling Mill dating from 1875, a steamy factory-room

crowded with workers forging steel, carrying products and tumbling with machines is

depicted. Little did Menzel know that more than a century later the world would have

changed – in modern Western world one can hardly find greasy factories powered by masses

of worn-out workers. The simple job makers, immigrating to cities by thousands in seek of

jobs, fuelling the process of urbanization and triggering a great deal of societal changes.

Nowadays, little is left of the romantic sadness of the peak of the industrial revolution. The

painting would depict a boringly clean and light factory, with machines doing most of the job

and the workers distanced away behind computers.

The digitisation of manufacturing is a powerful innovation process that is rapidly making its

way in the world, but the consequences of which are still not fully grasped. Named “the third

industrial revolution” by The Economist (2012), the series of small innovations has triggered

global processes that can turn in one direction or the other. The rapid development has turned

around the fundamentals of our consumer-based view to the mass-production process and led

the redistribution process of manufacturing on a geographical level. Many questions can be

asked concerning the situation, with the first one being – how did we end up like this? Then –

what does it mean? How can it be explained from the point of view of social science theories,

such as developmental economics and techno-economic paradigms? What does it mean on a

global scale and what are the implications in several areas, such as employment, global

production networks, and economic development in third world countries? What is the future

of it all? This essay will take a look. The centrepiece of the discussion in the essay will be the

digitised or the computer-integrated manufacturing – a production process led by the

computers and where the human factor has been minimized. A specific look will be given to

the technology of 3D printing.

The industrial revolution that began in England in the end of 18th

century led the world to a

change. The new means of production using the aid of machines and increased productivity

brought the societies out of the Malthusian trap – the previously inevitable circular

relationship between the limited resources and the human population (Hoppe, 2013). What

happened next can be well summarized by the theory of technological revolutions, described

by Perez (2002), that looks at the development in five waves or surges, led by specific

technology or product. The surges start with the beginning of the industrial revolution

triggered by the opening of the Arkwright’s mill in Cromford in 1771 and are followed then

throughout the century by the age of steam and railways; age of steel, electricity and heavy

engineering – and spreading the industrialization elsewhere of the Western world (Perez,

2002).

The most interesting, however, are the two following waves – firstly, the age of oil, the

automobile and mass production. When Henry Ford started to use the assembly line approach

with its production of Ford Model T in the beginning of 20th

century, it revolutionized the

thinking of production – the more efficient means of production allowed to pay higher salaries

to employees and therefore pushed towards the creation of working middle-class (Batchelor,

1994). Thus, the welfare capitalism was founded and the model was soon followed all over

the world. The mass-production was further encouraged by the rise of deposable income after

the WWII in the middle-income families, led especially by the United States and the

Keynesian economics of heavy fiscal stimulus by the government (Ball & Bellamy, 2002). No

wonder, this was called the Golden Age of Capitalism - the needs and desires grew fast and so

did the list of common appliances that needed to belong to every household of the developed

Western world (Marglin & Schor, 1992).

Finally, the fifth surge described by Perez is that of the information and telecommunications

(2002). Having started with the announcement of the Intel’s microprocessor in 1971, this

wave of technological development has led us to the world we live in now – a world of

computers, mobile phones, e-governance, cloud-computing etc. These inventions have

thoroughly reshaped the social patterns in our society, created flexible work-arrangements,

and go deeply hand in hand with the concept of globalization. But what about production

arrangements – if Henry Ford were to walk into a factory now, would he feel at home? .

About a century after the Henry Ford’s great breakthrough, a concept of Post-Fordism is a

widely used term. This view can mainly be characterized by the shift from serving mass-

products to mass-consumers towards differentiating between market segments and targeting

them with specialized goods (Kumar, 1995). This also reflects a change of thought on the

societal level – a shift from mass to individual; a pursuit towards being different.

Still, what has really changed in a production process as such? While, putting simply, a

regular consumer is allowed to have more sophisticated desires, yet one can doubt whether the

essential principles of assembly line and mass production are much different than previously.

Instead, walking into a modern factory, let’s say the one producing parts for iPhone, Ford

would probably be amazed how much work is done by machines and not humans. If he at all

would bother to spend time on travelling to China.

The concept of globalization cannot be overlooked in this discussion. The modern “Post-

Fordist” era or the fifth surge of Perez is characterized by multinational corporations, often

bigger than the GDPs of small nation states by their turnovers. A modern car is not produced

in one factory – instead, the global commodity chains characterize this process, where one

part may be produced in Malaysia and the other in USA.

Globalization is a two-sided coin. On the one hand the moving of factories to “less developed

countries” has created millions of jobs along with the opportunity to struggle out of poverty.

Opening the factories abroad means also exporting the know-how and the technology, train

specialists who might then open their own factories and start their own production. On the

other hand, the jobs have often been created by laying off people in the closed factories in

countries, where the wages are relatively higher. Besides, the news report regularly on the

poor working conditions of workers in these relocated factories leading people to question the

true face of capitalism and blaming companies for exploitation of poor law enforcement. Let

us have a look at theory.

Erik S. Reinert claims that understanding the economic development in the third world lies in

looking at the patterns of colonialism and understanding why the colonized countries stayed

poor and the mother countries became rich. Without the presence of the “diversified

increasing returns sectors” the countries are likely to remain similar to colonies that were

exporting raw materials. As such, transferring technology common to the previous surges,

such as production of house appliances, will not help the countries, often half willingly

pushed towards joining free trade systems, in the long term. At the same time, it is naïve to

suggest specializing in the high-tech industries without the necessary preconditions, such as

the needed infrastructure or the knowledge (Reinert, 2004)

This is further explained by the Morgenthau Plans, which describes the vicious circle of

poverty that starts with being engaged with the production of technologically mature products,

is fuelled by different factors such as population growth and no increase in real wages, and

finally leads to relatively lower competitive advantage than in other countries (Reinert, 2003).

In principle it means that adopting the factories might not always leave the country better-off,

even if it gives employment opportunities to many.

More importantly, in the end of 1990’s Kiely studied the interrelations of the terms “Post-

Fordism” and “globalization”, as they have been strongly associated through time. He finds

that the theories of Post-Fordism imply rather “increasing localization of production, as

companies locate close to suppliers and final markets” (Kiely, 1998). At the same time, the

global hierarchies are increasing and one can assume that the uneven development will further

continue, according to Kiely. Even before him, the use of Post-Fordism had been studied by

Rustin, who claimed, than in reality, different modes had been used and probably will be

used, making it difficult to interpret their real share and implications (Rustin, 1989).

According to this, the digitization of production is a step further in the Post-Fordist type of

world. The computer-integrated manufacturing allows for mass-customization of products,

emphasizing further the individualism and pursuit of satisfying the consumer’s needs to the

detail. Unlike claimed by Kiely, a strong link with the globalization can also be seen –

however, it is a reversed one. Along with the increasing amount of computerized production,

the relative proportion of the labour cost in the production decreases. The less it matters

where one produces their goods. There are already signs of large companies bringing their

factories back from abroad.

With the labour cost share diminishing in the general production process, the companies have

decreasing incentives to produce abroad. With the cultural differences, varying labour laws

and fast increase in the workers’ wages, an extra risk to producing abroad is added. Not to

mention the low flexibility to the changing demand of the products. The manufacturers are

starting to see near-home production advantages once again: the closeness of the engineers

and product designers to the manufacturing process that allows making quick changes

The reasons of relocating the factories again are clear cut – if a company only has their

production abroad, with other departments, such as design, engineering and marketing –

together in one place, the new relocation brings the final product closer to these core

competencies and gives the company more flexibility in adjusting to the changed conditions

and demands from their consumers. This is strongly greeted by the local governments and

potential employees, who will get a wider choice in the job market. With changing the

production process and cutting the importance of labour, there are less new jobs created, but

these are the ones with higher skills needed. This is a win-win situation for everyone in the

home-base, but what about the places that are left behind?

There is no clear answer to this question. Theoretically, the industries leaving are those where

there is potential to upgrading the production process to the point where the labour costs are

insignificant in relation to the gains of moving nearer to other departments and end clients. It

means essentially the high-tech industries, those of the “fifth surge” of the theory of techno-

economic paradigms (Perez, 2002). The moving is often encouraged by the rising wages of

the workers in the country previously known for their cheap labour. As such, if no effort had

been made in the country to move from labour-dependent production towards higher

productivity and innovation, the country risks middle income trap – a situation where a

country is not able to compete in foreign markets (The Economist, 2011)

Especially in the light of recent economic crisis, the worry of jobs may make it seem as if we

were doomed: the computers are taking over production, the factories are moving away from

countries where the jobs are needed the most. In the back of our heads the people are starting

to wonder whether the jobless world really is a utopia. A high number of people working on

non-traditional jobs – freelance project managers, independent contractors etc – seem to

confirm this understanding of a change to be. Some consolation can be found from the

developmental economics and Schumpeter who say that this is just the way things work.

In industrial production, from time to time, the shift in equilibrium can be seen with the

development and adoption of new technologies. According to Schumpeter’s theory of creative

destruction the innovative activities and outputs of entrepreneurs are the forces behind

sustaining economic growth (Schumpeter, 1942). According to this theory, the unstable state

of economy, along with vanishing jobs in different sectors is part of natural development

process of the economy:

“The opening up of new markets, foreign or domestic, and the organizational

development from the craft shop to such concerns as U.S. Steel illustrate the

same process of industrial mutation—if I may use that biological term—that

incessantly revolutionizes the economic structure from within, incessantly

destroying the old one, incessantly creating a new one. This process of Creative

Destruction is the essential fact about capitalism.” (Schumpeter, 1942)

The evolutionary perspective proposed by Schumpeter was radical to his time, but is not

surprising nowadays. The new macroeconomic equilibrium that had been created as a result

of a successful innovation also brings along new societal equilibriums. While the invention of

cars created fuzz among the horse-owners for a while, the shift was gradual and now there are

few people thinking of using a horse instead of a car.

As Dosi and Nelson point out, referring to a rich flow of literature arguments, the , “/…/ the

patterns of growth of modern economies – with both their secular increase in per capita

productivity and incomes and their fluctuations and discontinuities – are deeply shaped by the

underlying patterns of technological and organizational evolution”. The influencing factors

are also interrelated among each other, and the evolution of technologies and industries are

fuelled by knowledge flows.” (Dosi & Nelson, 2009). These theories are further supported by

that of techno-economic paradigms

Having already acquainted with the technology surges theory of Perez (2002), we can see that

this is just a small fraction of the whole picture, once we look at the theory of techno-

economic paradigms in general. The full theory of techno-economic paradigms states that

there is a specific way in which the surges happen and that these follow a specific trajectory

of the innovation, on which the surge is based. Each of the surges is divided roughly in two –

the installation phase and the deployment phase. The installation phase is characterized by

discovering the new innovation and overinvestment in the new technology, which leads to a

crisis. In the second half, if the positive scenario realizes, the crisis recedes and the true

benefits are reaped from the innovation. Towards the maturity of the technology, a new surge

will start to emerge and finally take over (Perez, 2009)

According to the TEP theory of Perez, we are currently at the turning point – the fifth surge

has passed the installation phase and reached a crisis, but ahead of us lies the installation

period of the technology. The digitalized production is a far reaching result of what started in

the 1970’s with the invention of the microchip. The people have had their fun with computer

games and mobile phones, now the technology is getting more and more serious. The

invention of the 3D printer is a good example of this. It promises to employ totally new ways

of production, a fully customizable batch of products. The technology is often seen not only

as an opportunity of designing and ordering a new pair of shoes that nobody else has, but a

breakthrough for medicine, biotech and nanotechnology. Who knows – maybe the new

leading technology and surge will emerge among one of these?

Perez calls this period the golden age, but warns that if the lessons from the crisis have not

been learned, the period might become the gilded age (Perez, 2009). What it means in reality,

is that while the financial capital led the development towards the crisis, the production

capital should lead the way afterwards. A smart respecialization encouraged by the guidance

of governments should help in that. As for now, there still looms a threat of being stuck on the

losses of the financial crisis and refusing to move further to the future – especially if it

threatens to offer even less jobs than the current situation and thus weaken the political capital

of those in power. The current situation could thus be called the “golden age challenge” for

the governments.

Another question is whether the digitization of manufacturing will diffuse and will it become

disruptive to the current production modes. While no-one really argues that the large mass-

production has been digitized, a more interesting case would be to look at 3D orienting. With

the technology becoming increasingly available, there is a lot of discussion on the future of

3D printing; nonetheless, it has yet to prove its success. In theory, a customer might have a

dream of never visiting a shop again and printing everything needed at home – or sending a

vision of a very special new pair of jewellery to print by a company owning a 3D printer, but

in reality these are currently only rare cases.

The 3D printing, also called additive manufacturing, is the production of a solid object

according to the digital model. Instead of traditional production methods, such as cutting and

welding the objects – the technology uses adding layers of material on each other until the

desired shape has been reached. While in traditional mass-production methods it is important

to thrive towards economies of scale, to make up for the costs of setting up the assembly line

and acquiring the machinery and materials for the specific products, the 3D printer can

produce items of any shape.

With the first machine designed already in the 1970’s, the technology has only recently

started to spread in wider context. It is now used as a tool for creating specific designs,

prototypes, medical tools, but also for everyday items. The supporting software technology is

also spreading fast by developing mobile applications and open software for the design of the

products that can easily be downloaded from the internet. By now, the first hundred-dollar

additive manufacturing machines have emerged, and the future for the technology looks

promising. In recent times, the newspapers, such as The Economist (2012) have widely

promoted the new future of the technology and the book about 3D printing describes the trend

(Barnatt, 2013). At the same time, it cannot be really said that the technology would have

spread widely. Whether this will happen can be analyzed using the theories of the technology

diffusion.

A thorough theory on the factors influencing the adoption decision, the adoption stages and

diffusion of the technology was created by Rogers and was first published already in 1962

(2003). This explains well how technologies spread in the society and disentangle this process

to the tiniest decision factor of an individual. Although simplified and criticized by some, the

theory offers a great framework for analysing the potential of the diffusion of 3D printing.

The theory describes five stages of the adoption process on the consumer level: knowledge,

persuasion, decision, implementation, and confirmation. In addition, the consumers are

divided in different sets according to how prone they are to start using the technology.

According to this, the innovators and early adopters are already there – these are the people

who adopt the innovation together with their risks or consider some of the risks. Along the 3D

printing technology these are mostly the small companies in design and art area and scientists

that see the advantages of prototyping. The rest of the customers - early majority, late

majority, and laggards – are yet to be convinced on the need of using this technology.

The social interactions and influences also have a great role in the diffusion of the product, as

suggested by Peres, Muller and Mahajan (2010). This is especially true in the case of this type

of new technology that requires a certain level of technological ability among different actors

associated. The end consumers should feel comfortable with choosing the designs among

those richly available in the internet and companies that will offer the service should have

some technological focus and opportunities. Thus, it will largely depend also on the

technological infrastructure, such as general internet coverage in the country etc.

When speaking of digitisation of manufacturing in general, there is no doubt that where

possible, the mass production will be replaced with machines in time. The 3D printing is still

too newly discovered to make conclusions of its future employment. If the technology proves

successful, it will likely be employed first in the tech-savy countries using innovative

technologies to their advantage, such as Estonia and elsewhere, and follow to others once they

are technologically ready.

Another option, and more likely so, is that it will stay a specialist technology used primarily

for prototyping and thus has already found its niche. In the distant future, if there are

economic reasons for that, it might be used also in mass-production as a main technology, but

stay away from the private-consumer market. The reason of it is very easy – the simple human

mind wants to get by easily and going to the shop to buy things is much easier than figuring

out a special design each time something is needed. This indicates that it would be more of a

technology-push than a demand-pull, by a theory that explains innovation development

(Martin, 1994).

Another issue is the role of the governments both here and there. There will be strong

reluctance towards change, as is also forecasted by The Economist (2012). The jobs need to

be kept in every country and some large producers might be reluctant to see change even on

the smaller scale. At the same time, reminding ourselves of the Schumpeter and the theory of

techno-economic paradigms, we can say that the change will come anyway. And in the end,

the countries that are better off, are those that went along in the first row. If the way is right.

Whether the way really is right is early to tell. The 3D printing might replace the previous

manufacturing technologies, but this only is not enough. To revolutionize the technology, the

system of production has to change and the extra services have to become available, too –

such as a sufficient amount of digitized product samples ready to be printed and a solid

network of supporting goods and services, such as materials, printing-houses etc. The

readiness for all of this might be there, but is there a critical mass of people waiting for the

breakthrough?

In Monet’s painting Impression: Sunrise dating from 1873, an early-morning view to the

harbour of Le Havre is depicted – a few fishermen boats in front of a silhouette of a busy

industrial harbour with smoking chimneys and cranes. Above all, a beautiful yellow morning

sun has risen. If we were to go back there now, we would have to admit that on the outside it

is all the same. Things have changed on the inside.

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