Information Technology: The Third Wave

By Elliot, Robert K. | The CPA Journal, November 1992 | Go to article overview

Information Technology: The Third Wave


Elliot, Robert K., The CPA Journal


Information technology (IT) is changing everything. It represents a new, post-industrial model of wealth creation that is replacing the industrial model and is profoundly changing the way business is done. Because of these changes in business, the decisions that management must make are very different from former decisions.

IT IS THE DRIVER

Alvin Toffler's image of the "third wave" is a good model for considering economic changes. He notes, in his book The Third Wave that until about 8000 B.C., the dominant mode of life was foraging, fishing, hunting, and herding. You caught what you ate and you ate what you caught. But, about 10,000 years ago, agriculture was developed, and became the first major new wealth-creating technology. Agriculture had momentous implications for civilization, as formerly nomadic people became bound to the land they were cultivating. This led to requirements for defense, government, and laws. It is our first example of enormous social and economic changes flowing from the introduction of a new technology.

The agricultural model of wealth creation was dominant for about 10 millennia, until the second great wave of new technology occurred--industry--exploiting the discovery that energy could be harnessed to amplify human labor in the factory. Far more raw material could be converted to finished goods than with manual labor alone. Industrialization also had huge implications for civilization, as the cities, where the factories were located, became more densely populated, and marketplaces developed for the exchange of increasingly specialized products. This is our second example of profound social and economic changes flowing from the introduction of a new technology.

The industrial model was dominant for a much shorter time, until it began to be replaced by the third great wave of change--the information revolution. This can be dated to the 1950's, with the invention of the transistor and the installation of the first commercial computer (although the first computers used vacuum tubes, the happy marriage of computing and semi-conductors was prompt). In the third wave, the engine that drives the system is not physical labor, as it is in agriculture; not machines, as it is in industry; but information. As with prior waves of technological change, we can expect important social and economic changes, and we can already see the dim outlines. These include the increase in economic power of those countries that can make the most effective use of knowledge-workers. They also include accelerating the demise of the socialist economies, which could only hang on during the relatively slower rates of change in the industrial era. The information age demands the rapid adaptation that a free market thrives on, and the socialist systems were too phlegmatic--governmentally and managerially--to adapt.

These three great waves of change have characteristic technologies in several dimensions (Figure 2). (Figure 2 omitted)

There are characteristic information technologies for each wave. The IT for the first wave was writing, which was developed to keep accounting records. (If you sent a camel-load of spices to Damascus, you had to have some way of knowing that the camel driver was not misappropriating the cargo, so you needed a bill of lading, etc.)

The IT underlying the second wave was movable-type printing, which was developed by Gutenberg around 1450, although the onset of the industrial age did not occur for several centuries thereafter. The development of movable type was a necessary (although not sufficient) condition for the industrial revolution. For the first time, knowledge could come out of the monastic libraries, where it had been locked up in unique, handwritten books. With the invention of moveable type, books could be mass produced. Thus, information could be widely diffused, permitting the development of modern science and technology.

The IT for the third wave is the digital computer, making possible fast, inexpensive information storage and processing. …

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