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I found it amusing to be reading my print edition of The Economist magazine special report about “The Third Industrial Revolution” replacing traditional manufacturing with 3-D printers that make products. Isn’t the information revolution supposed to be replacing traditional printing presses too?

Low cost 3-D printers will certainly extend the power of personal manufacturing to everyone similar to the way desktop publishing extended the power of printing presses to everyone. However, the report misses a much bigger aspect of the third industrial revolution that is happening in highly-automated, IT-driven Smart Manufacturing which will someday make most cars, cell phones and cosmetics for billions of middle class consumers this century.

In trying to understand this shift to the third industrial revolution, Oxford and Stanford Professor Emeritus of Economics Dr. Paul David published a seminal paper in 2000 about the second industrial revolution illuminating lessons learned from “Our Ignorance.” David analyzed the difficulties shifting from steam engines to electric motors – the new general purpose engine essential for modern assembly lines. Ninety-five percent of all factories were still steam engine and leather-belt driven in 1900, two decades after Edison’s first electric power company opened. The first all-electric factory in America didn’t happen until 1920 more than four decades after the first power plant. U.S. total factor productivity (TFP) gains from the second industrial revolution finally began in the mid-1920’s despite Vice Presidents of Electricity – a title in vogue at the time – advocating for the great benefits envisioned from all-electric factories and assembly line production in prominent magazine articles dating back to the turn of the century.

David partly attributes this long delay to the unprofitability of replacing still serviceable steam-engine driven manufacturing plants. However, even knowledgeable contemporary observers of the second industrial revolution failed to grasp its transformational profitability. Similarly today, almost every factory is managed as a “cost center” with plant managers assigned due to their cost reduction expertise. For Smart Manufacturing to transform factories into “profit centers” again by pioneering mass customization strategies, they will require entirely new types of business leaders with a much different mentality and expertise.

These business leaders will drive strategies to grow profits by increasingly letting customers tell the factory what to make instead of vice versa. They’ll execute marketing campaigns promoting the superiority of products produced by automation, machines and robots. Instead of labor relations, they’ll be experts in minimizing the new high-cost WAGES used in production – water, air, gas, electricity, steam and industrial ecology.

Government policies like the AC-DC standards debate also hindered the second industrial revolution shift. Power companies built electrical systems based on AC standards, ideal for the early adopters in homes, stores and offices. But Thomas Edison and many industry leaders argued for a DC standard, necessary for large electric motors to drive assembly lines. Even today, most factories still transform AC to DC power at an added cost burden. Likewise, the World Wide Web is based on IT standards and systems that are not ideal for Smart Manufacturing. A bi-partisan Congress passed the Manufacturing Enterprise Integration Act of 2002 directing the U.S. National Institute of Standards & Technology (NIST) to develop the ideal internet and IT standards for Smart Manufacturing a decade ago, but President Bush’s administration failed to fund it. Although that law has since expired, similar to Smart Grid, industry still needs NIST to establish the fundamental internet and IT standards that are essential for Smart Manufacturing and the third industrial revolution to fully begin here in the U.S.