Faster than a speeding train: the emerging technology

In the space of six months, a number of Australia’s paper millionaires have been reduced to paper paupers as a result of the collapse in Internet-driven technology stocks. John Wilkinson looks at the precedent for this calamity and argues that we have only reached the midpoint in an ongoing revolution.

Anyone seeking an analogy for where we are at in the technology revolution need only to look at the British railways of the 1800s.

The boom in railway building, where fortunes were made and lost in a matter of a few months has some valid comparisons to the technology boom of the last couple of years.

However, the growth of technology and the reason for the IT demand stretches back further than the Iron Horse. It is a continuing demand by business to achieve greater profitability and efficiency by using the latest technology available.

The first industrial revolution in the UK is neatly described in the history books as running from 1760 to 1830. But the steam-powered factory system didn't really happen until the 1870s, although the use of technology ( steam, railways, canals or boats ( happened from the early 1700s.

According to Lewis Seaman, a former chief examiner in history at the London University Examination Board, the industrial revolution was a solution to a long-standing problem.

"The industrial revolution was a solution, through commercial and technological innovation, of the hitherto unsolved riddle of how to avoid the problems of a community whose population dramatically outgrew the supply of cultivable land," he says.

In the past, nationalities like the Danes and Saxons simply went and invaded a new country when they ran out of land.

By the 1700 this solution was no longer available. The new solution was to create factories for the unemployed to work in. These had to be efficient to achieve the economies of scale.

This is not too different to business practice in the financial services industry. The use of technology to improve efficiency and mergers and takeovers creates the economies of scale to be able to afford the new technology.

The problems of 17th century development was the shortage of raw materials. Wood was scare, so the alternative was coal. To move the coal to the factories there had to be efficient ways of moving large quantities of the raw material and that was by sea or navigable river. This was the catalyst for the communications revolution that is still happening today.

The first step was to widen and deepen rivers to make them acceptable for coal carrying barges. This lead to the first technology boom ( the canal age. In the second half of the 1700s, canals were built across Britain, often at considerable cost, but they were at the forefront of civil engineering of the day. The canal crossing the Pennines, the mountainous spine down the centre of northern England, cost far more than the original astronomical estimate of £320,000. And yet the day of the canal lasted less than 50 years as technology advanced.

What replaced canals, was a mixture of road and rail.

Roads, using the same civil engineering talent as canals, improved at the same time. Improved roads cut a day off the journey from London to Birmingham, a distance less than Melbourne to Albury.

With the discovery of how to use steam as a means of motive power, the next step in the communications revolution was in place. Steam was used to power the mills and eventually to replace the horse and barge as a means of locomotion.

The creation of the railway network in Britain was due to the monopoly the canal system had on general transport. The canal operators were charging high rates and providing poor service and this lead a group of dissatisfied Liverpool merchants to plan the world's first steam operated common-user railway in 1825.

The newfound wealth of the industrial revolution funded the growth of railways. In the thirty years after 1830, nearly 16,000 kilometres of railway track was laid in Britain. And that figure doubled by 1900.

In the 1850s, railways construction absorbed half of Britains investment finance. It had a labour force of 250,000 men, used millions of bricks and tones of gunpowder for blasting. The demand for vast quantities of coal and iron to power this railway boom lead to additional fortunes being made in those industries.

In a Frank Russell research paper comparing this growth to the technology boom, analyst Scott Donald says attracting capital to railway companies was not difficult in those heady days.

"In most cases a deposit of 5 per cent was all that investors required," he says.

"As a result, the 1840s construction boom in the UK attracted £700 million, roughly 10 times the total annual imports for the country at that time. In the US, where the boom was a few years later in coming, railroads accounted for $800 million of the $1,500 million worth of securities outstanding in 1856."

While the main line railway companies flourished, many small start-up operations floundered due to lack of traffic.

Technology of the railways continued to improve, with diesels and electric locomotives replacing steam as the operating economics came into play.

The rule of the railway declined after the Second World War as car ownership grew.

And the arrival of the aeroplane, which became a viable people-mover from the twenties. It took the sixties for the operating economics to bring down fares to enable the masses to fly from continent to continent.

Both cars and aviation attracted investment although it was no easier picking the winners here, either. In the car industry, Ford has remained a winner globally, but major manufacturers in the past like Dodge and Morris have faded. In some instances a wrong model out of step with markets provided fatal.

The history of the Rover car company in the UK is a good example.

It started life as a bicycle manufacturer in 1877, but switched to cars in the early 1900s.

It enjoyed a steady position in the luxury car market for many years, but by the sixties the company found that being an independent car manufacturer has hard, so it merged with the Leyland Motor Corporation in 1967 to gain economies of scale.

Leyland merged with Standard and Triumph in 1961 as part of the rationalisation of an overcrowded British motor industry. Further rationalisation occurred in 1968 when Leyland, now incorporating Rover merged with British Motor Holdings. This had been formed out of a merger between Jaguar, Austin and Morris.

The newly merged operation had 40 per cent of the British car market, but a number of poorly received cars ? remember the P-76? ? during the seventies left the group ailing. An attempt o improve the image, British Leyland was renamed Rover.

Rover maintained limited production of cars, having worked on joint venture with Honda. Honda were cars re-badged by Rover in UK and Rover cars were re-badged Honda in Japan, but the agreement fell apart and in 1988 Rover was bought by British Aerospace when the British Government sold its majority shareholding.

British Aerospace sold Rover to BMW in 1994 and the German company sold the British car manufacturer to a private consortium in March this year. Rover now has 6 per cent market share in the UK. It would have been hard in the thirties to have picked which mass British car manufacturer would have been the survivor.

It was the same in the aviation industry. Boeing, manufacturer of the Jumbo Jet was a military aircraft manufacturer which diversified in civil airliners in the fifties. Today it is the world's largest manufacturer.

Douglas, which made the DC-3, DC-9 and DC-10 airliners, was seen as the global manufacturer of airliners in the sixties. A couple of years ago it was taken over by Boeing. Airbus Industries, the European consortium, wasn't even around 30 years ago, yet it is now a serious competitor to Boeing with a market share of about 45 per cent.

Many innovative companies in aviation have gone bust, taking their investor's funds with them, yet it would have been almost impossible to have picked the winners 50 years ago due to the technological changes.

Frank Russel's Scott Donald says a few technologies have the power to revolutionise economies, although the Internet has the most potential.

"Everybody agrees that paradigm-changing technology creates new wealth across the economy, promoting new winners and consigning others to the trash heap of history along the way," he says.

"There are few today who doubt that the Internet - and the personal computing technology that makes it accessible to a large portion of the community - has changed the way companies will compete and how individuals will live."

Donald admits, however, that exactly who will be the winners and losers is hard to predict on a contemporary basis. Future generations will know who they are, but they will have the benefit of hindsight.