I am a big fan of Industrial Revolution. I read books about Industrial Revolution with passion. I found out that most of the industries have to go through the following growth stages to reach its peak. The first stage is commercialization, next is industrialization and third is democratization.

In the beginning most of the resources were not commercialized and were held by Kings and Queens. There was not much opportunity to create business out of the natural resources. Science and technology was not developed to an extent to start industries. People were able to get resources they needed freely from the kingdom. No one paid for getting water from river or stream. Public property was really for public. Some kingdoms charged tax from people to access these resources or maintain them. These taxes again were used for collective public gains not for private gains.

When the kingdom states became nation states the new forms of government were invented. In early stages of the nation states the resources were owned by government much like kingdom and most of the enterprises were owned by the government. The main goal of state owned enterprises was not to build massive industrial empires. Their main goal was to promote self-sufficiency and security. Countries wanted to be less dependent on exports and imports. These industries did not operate at their peak potential because their vision and goal was not market but masses. Often state owned enterprises were used to promote employment and reduce poverty.

I am from India and when I was growing up in the 1980s most of the businesses were state owned. In India the state owned enterprises had main goal of self-sufficiency. For example: We had agricultural revolution to food self-sufficiency. One of the key scientists behind the agricultural revolution in India was Mr. M. S. Swaminathan. We had white revolution anchored by Mr. Verghese Kurien which promoted self-sufficiency in milk and other dairy products.

“The future belongs to the countries which have more grains and not guns”M.S Swaminathan

If you talk to any Indian entrepreneur who did business in 1980 they would complain about the “License Raj” system. Most of the people underestimated Nehru’s vision and reason behind having “License Raj”. I will explain that in detail when I write about Jawaharlal Nehru. The main reason Nehru went for such system is to make sure that no company gains monopoly, to prevent the formation of cartel capitalism and promote local entrepreneurship.

When government commercialized the industries and allowed private players to start companies in various industrial sectors the economy started to grow but still it didn’t reach its peak potential. Commercialization can be considered as the first phase of any industrial sector. Unless a sector is commercialized it will not reach it peak potential. Even in capitalistic countries like USA not all industries were commercialized quickly. One notable example was that Internet was commercialized in USA only in 1995 even though it was invented and was in use since 1980 in various government organizations.

In general I have noticed that when an industrial sector is commercialized it creates a bubble that bursts quickly. The best example is the Dotcom bubble. Internet was commercialized in 1995 and it created a bubble which busted in 2000. The reason why IT industry suffered a lot during 2000 was that the dotcom bubble and the Y2k demand died together in the same year.

The second phase in the growth of any industrial sector is actually Industrialization which lays clear foundation for the exponential growth of a sector. This is the most significant phase of any sector. This is the phase where processes are invented, standards are defined, productivity is consistently improved and crises are converted to routines. This industrialization phase will also create booms and busts. The best example is the automobile industry around the world. If you explore the industrialization phase of automobile industry and study the booms and busts you can see the pattern in the bubbles. I read about automobile industry history when I worked for a vehicle processing company that services Volkswagen Group of Companies.

The third phase in the growth of any industrial sector is democratization. One of the few traits I noticed of the society when I moved to USA was “Do It Yourself” labels. This should remind you to explore the history of laundry, fridge, telephone etc. When I was growing up we employed people who come to our home and wash our clothes, dry them and iron them for us. In some countries the trend changed after few years and laundromats were open and these small laundromats would come and collect the clothes and take it to their laundromat and wash them in the machine and iron them. Now this has become Do-It-Yourself activity and each household in developed countries have a washer and dryer. I believe that any sector will reach is peak potential only when it has plans to reach democratization stage. The laundry example may not be a fancy one but the democratization of power industry is a good one. Solar panels can now be installed on roof top of your house and you can generate electricity from that.

Hope this article sows some seeds of thought about various phases of growth in an industry. Please post your comments in contact me page.

Credits and References

  • My experiences in India and USA
  • India’s Century: The Age of Entrepreneurship in the World’s Biggest Democracy – Mr.Kamal Nath
  • The Elephant, The Tiger, and the Cellphone: India, the Emerging 21st-Century Power – Mr. Shashi Tharoor
  • Conversations with Aavin employees in India
  • Conversations with automobile workers in USA and India