In the 1930s, aeronautical engineer Theodore Paul Wright (1895-1970) made an important discovery during his study of aircraft production. For every doubling of the total number of aircraft produced, the cost of a newly-built aircraft fell by 15 per cent.
In 1936, he published his findings in the paper “Factors Affecting the Costs of Airplanes”. He described that we learn by doing and therefore the cost per unit produced decreases as the total number of aircraft produced increases. We know this law as Wright’s Law.
An example. Suppose the thousandth aeroplane costs 1,000 dollars to produce, then the two-thousandth costs 15 per cent less, i.e. 850 dollars each. The four-thousandth plane costs another 15 per cent less: USD 723.
Each technology has its own learning curve that describes the decrease in cost per doubling. The largest part falls somewhere between 10 and 25 per cent. The curve may fall at each technology’s own speed, but the mechanism is the same, whether you are talking about aeroplanes, computer memory, televisions, solar panels, nuclear power or DNA sequencing.
For the exponential nature of technology, we often refer to Moore’s law, which predicts that the number of transistors on a computer chip will double every few years. However, research into the emergence of 62 technologies in the period 1930-2009 by the Santa Fe Institute - a research centre in New Mexico that focuses on complex systems such as artificial life, chaos theory and self-organisation - shows that Wright’s law describes growth better than Moore’s law.
And that is not surprising. Adoption of technology often follows an erratic course consisting of all sorts of developments. Take lithium-ion batteries. They became cheaper because of billions of small devices such as smartphones, about 28 per cent per doubling of the total number. This stagnated when many billions of devices had been made and not many more doublings were possible. Until electric cars came on the scene. One Tesla has as many batteries as 5000 iPhones. Suddenly, new doublings were within reach!
More generally, it appears that many technologies have a tipping point (or several) where the costs become so low that an entirely new application becomes possible, with a production volume that is 10 to 100 times greater. And therefore it becomes much cheaper in a short time. This explains the surprising and explosive rise of many technologies: suddenly, it’s there!
Gradually, then suddenly
In Ernest Hemingway’s book The Sun Also Rises, the character Mike Campbell is asked how he went bankrupt. He answers: “Two ways. Gradually, then suddenly.” From the perspective of the uninitiated consumer, this is how any technology emerges. For many years you hear about it from time to time, but it remains experimental, awkward and expensive. And then suddenly it is everywhere and impossible to imagine life without it.
The acceleration by which a technology quickly takes over the torch from its predecessor is driven by the ever-decreasing cost with each doubling, while the fire is fanned by ever-increasing value for the user through network effects.
We can illustrate this process with electric cars. Today, less than 1 per cent of vehicles are electric. As more people switch over, the price will drop significantly (Wright). The infrastructure will also adapt to it: more charging stations, modified garages and a bustling second-hand market (network effects). To the point that the electric car is better, more convenient and cheaper than a oil-burning car, and only the real motorhead will continue to drive an “old-fashioned” car out of love.
You may already feel that there is a natural sequence in which developments should take place. The production process must be given time to incorporate new insights and improvements. People need to be trained and new businesses need to be started up. You can’t speed that up by getting very excited about it; grass doesn’t grow faster by pulling it.
The other side of that coin is that there will come a time when the change will be unstoppable. There will come a time when batteries and solar cells will be so incredibly cheap per kWh stored or produced that the energy transition will almost happen by itself. Using Wright’s law, technologist Ramez Naam has calculated that in five to ten years’ time, the kWh costs of energy produced by newly installed solar cells will be lower than the kWh costs of existing fossil energy power plants.
Imagination
A few years ago, an electric car was more expensive than a oil-burning car and you could not get very far with it. But realise that so many oil-burning cars have already been made that the total number may not even double - while the total number of electric vehicles may double tenfold.
Any comparison between an old, mature technology and a new, young challenger is bound to lead to serious underestimation of the youngster. For a long time, the crowd has been sceptical and critical: “It can never be done”. “Too expensive”. “Too clumsy”. Until the moment when that is suddenly no longer the case. Gradually, then suddenly.
For example, bitcoin is often judged with old technology as the criterion. Fewer transactions per second than VISA. Accepted in fewer places than the euro. But that old technology has no more doubling to do. While bitcoin, with its adoption of 1 per cent of people, 0.1 per cent of assets and a fraction of the transaction volume, can still double many times over.