The Mediocre Returns of Extraordinary Technologies

The printing press was one of the iconic disruptive technologies of the early modern world. Even most contemporary economies in what we call the ‘developing’ world would be unfeasible without widespread literacy and access to printed material. Contemporary levels of alphabetization would have appeared to people not that many generations ago as strange as a world where almost everybody has a PhD might look to us. The printing press made possible an explosion in the use of knowledge as an economic input, which in turn was one of the drivers behind the astounding rise in living standards during the last centuries. Quite simply, without the printing press there was no possibility of mass technical education, and hence no modern industries or armies, and no mass communication, and thus no modern politics or culture.

But for all of its undeniable power, the printing press wasn’t the source of large fortunes for the engineers, investors, and businessmen involved in this industry. Profits were made, yes, sometimes significant ones, but nothing quite proportional to the influence of the technology. The bulk of the benefits came to the organizations that leveraged this technology for their own ends like modern states, which would have been logistically impossible without the printing press, or the myriad business that cannot be conceived without a superbly well-educated (for pre-modern standards) source of workers and consumers.

The same pattern can be seen in many other technical advances, specially those that impacted society the most. Contraceptives, telecommunications, refrigeration: they are often overlooked foundations of the contemporary world, each of them enormously disruptive, yet none of them, over the long term, a gold mine of extraordinary returns.

One of the reasons for this disparity is the fact that technological advance quickly turns the cutting-edge into the well-known. Today’s closely guarded trade secret is tomorrow’s boring line of work, their basic principles described in an introductory physics text, and as the universe seems to provide many different ways to achieve the same effect, patents are of little use. Often patenting something only gives an extra incentive for someone else to find another, better way to do the same thing.

But a more basic reason is that, in a world that generally has few truly sustainable entry barriers — most of them being specific natural resources like fissionable material or fossil fuels — prices are driven by costs, not utility. Consider soap and cleaning materials in general, or drinkable water: Without them mortality would escalate and cities would be ravaged with regular epidemics, with terrible human and economic costs, and yet the profits obtained by these industries aren’t extraordinary at all.

There’s nothing guaranteeing that today and tomorrow’s disruptive technologies like the Internet, genetic engineering, or nanotechnology, won’t follow the same pattern, utterly changing the world but without profits at the same scale. We do not argue against investing in disruptive technologies, though. After all, they still offer a better chance of extraordinary results that non-disruptive technologies. And even if in the long term something like genetic medicine becomes as mundane as TV sets, that doesn’t mean that there aren’t very large sums of money to be made in that industry, specially in its early stages.

But always keep in mind that in most industries, no matter how advanced, you are selling tools to other people. They are the ones that will use the tools, and they are the ones most likely to reap the bulk of the benefits of them. And they should: they are the ones changing the world.