Can we transition to AI being invisible infrastructure like electricity without another bust, only then followed by reform?
If the parallels to the electrification boom remain unnoticed, the chances are slim.
By Nazarul Islam | USA
A century ago, during the 1920s, a major technology boom drove a new wave of innovation, productivity, and social change. It was part of the broader Second Industrial Revolution and was defined by the widespread adoption of electricity, the affordable automobile, and mass media like radio.
Key innovations of widespread electrification:
By 1929, 70 % of manufacturing was electrified and millions of homes were powered for the first time. The development of cheaper, more efficient electric generators and motors transformed both factories and home life.
Automobile mass production: Henry Ford’s assembly line drastically reduced the cost of automobiles, making the Model T affordable for average families. The number of registered vehicles in the U.S. more than doubled from 9 million in 1920 to 20 million by 1925.
The rise of radio: The first commercial radio station began broadcasting in 1920, and by the end of the decade, millions of homes owned a radio. Radio broadcasting created a shared national culture by allowing people across the country to listen to the same news, concerts, and sports.
Modern consumer appliances: Electrification enabled the invention and mass production of labor-saving devices for the home, including refrigerators, washing machines, and vacuum cleaners.
Aviation breakthroughs: Charles Lindbergh’s solo transatlantic flight in 1927 captured the public imagination and ushered in an era of commercial aviation.
Technological advances in film: Silent films dominated the early 1920s, but the introduction of “talking pictures,” like The Jazz Singer in 1927, transformed the film industry and popular culture.
Other notable inventions: This era also saw the invention of frozen food, the electric shaver, the pop-up toaster, and the traffic signal with a warning light.
Social and economic impact: Growth of consumer culture: Mass-produced goods and the new technology of mass advertising created a booming consumer economy. The expansion of credit allowed more people to purchase new cars and appliances.
Greater mobility and urbanization: The affordability of cars encouraged the growth of suburbs, giving people more freedom to live farther from their jobs. Cars also reduced the isolation of rural life.
New forms of entertainment: Radio and movies became central to American leisure time, creating a national popular culture and helping to popularize jazz music, which was key to the Harlem Renaissance.
Changes to home life: Household appliances reduced the time and effort required for domestic chores, particularly for women, contributing to shifts in gender roles and expectations.
The foundation of modern industry: Innovations in factory workflow, such as the assembly line, were perfected, vastly increasing productivity and spurring the growth of industries like steel, oil, and rubber.
Cultural shifts and tensions: While technology drove prosperity, it also amplified cultural tensions between modern lifestyles and traditional values. The rise of a celebrity culture and new social norms, like those of the “flapper,” fueled societal debates.
The electrification boom of the 1920s set the United States up for a century of industrial dominance and powered a global economic revolution.
But before electricity faded from a red-hot tech sector into invisible infrastructure, the world went through profound social change, a speculative bubble, a stock market crash, mass unemployment and a decade of global turmoil.
Understanding this history matters now. Artificial intelligence (AI) is a similar general purpose technology and looks set to reshape every aspect of the economy. But it’s already showing some of the hallmarks of electricity’s rise, peak and bust in the decade known as the Roaring Twenties.
The 1920s were the single most consequential decade for the lives of everyday Americans. This is when the contours of modern life emerged.
Technological innovations diffuse by an S shape.
Something is invented; it trundles along for a couple of decades; then it becomes a toy of the rich, perhaps; then it spreads quickly through the population; finally, we spend another couple of decades making it better. The S-curve applies to airplanes, cars, or practically any other technology you can think of.
The middle of the S-curves of many important technologies coincided in the 1920s. Growth wasn’t about the accumulation of stuff; it was about changing the way everyday people lived their lives.
At the beginning of the 1920s, about 30 percent of American homes had electricity. By the end of the decade, nearly 70 percent had been electrified. Famously, the Vermont home of Calvin Coolidge’s father had no electricity in 1923 when word arrived that President Warren Harding had died. That’s why Coolidge took the oath of office by kerosene light.
Electricity improved during that time, too, as alternating current, or AC, became standardized. With that came electric lights instead of kerosene lamps, and electric appliances such as the iron, the toaster, the washing machine, and the vacuum cleaner. Electricity revolutionized home life, removing much of the drudgery.
Electricity changed the economy as well. In 1914, only 30 percent of manufacturing was electrified; by 1929, that number had reached 70 percent.
How did electricity get to homes and factories? Was there a big federal program to build the massive infrastructure of power stations and wires needed? No, private utilities built it.
In 1920, 20 percent of people had automobiles; by 1929, 60 percent of families owned cars. There were 9 vehicles for every 10 households. The automobile revolution happened in one decade.
Cars weren’t just a convenience; they brought a massive change in how people lived their lives. Previously, people needed to live right near a soot-emitting factory where they worked. Now they could move somewhere where they could have a more pleasant life. The car helped to make that possible.
The automobile also eased rural isolation. By 1929, most farmers had cars to get them to town. The car connected them.
The transportation revolution didn’t occur because the federal government offered tax breaks and subsidies. There was no federal spending bill to build the network of gas stations motorists needed. No, the filling stations came in on their own when people figured out that they could make money operating them.
The 1920s saw a revolution in communications as well. The telephone, the phonograph, radios, and movies became ubiquitous parts of daily life. Radio went from essentially zero at the beginning of the decade to a pervasive feature of American life. Broadcast networks were born in the 1920s, creating mass media.
How did these changes happen? As usual, pretty much everything occurred despite the government.
Indoor plumbing, water, sewer, and gas all were practically absent in 1920 and close to universal in 1930. That meant the end of the outhouse, of fetching water from a pump, of cooking over a coal stove
The reckoning that followed could be about to repeat.
First, arrived the electricity boom: A century ago, when people at the New York Stock Exchange talked about the latest “high tech” investments, they were talking about electricity.
Investors poured money into suppliers such as Electric Bond & Share and Commonwealth Edison, as well as companies using electricity in new ways, such as General Electric (for appliances), AT&T (telecommunications) and RCA (radio).
It wasn’t a hard sell. Electricity brought modern movies, new magazines from faster printing presses, and evenings by the radio.
It was also an obvious economic game changer, promising automation, higher productivity, and a future full of leisure and consumption. In 1920, even Soviet revolutionary leader Vladimir Lenin declared: “Communism is Soviet power plus the electrification of the whole country.”
Today, a similar global urgency grips both communist and capitalist countries about AI, not least because of military applications.
Then came the peak
Like AI stocks now, electricity stocks “became favorites in the boom even though their fundamentals were difficult to assess”.
Market power was concentrated. Big players used complex holding structures to dodge rules and sell shares in basically the same companies to the public under different names.
US finance Professor Harold Bierman, who argued that attempts to regulate overpriced utility stocks were a direct trigger for the crash, estimated that utilities made up 18% of the New York Stock Exchange in September 1929. Within electricity supply, 80% of the market was owned by just a handful of holding firms.
But that’s just the utilities. As today with AI, there was a much larger ecosystem.
Almost every 1920s “megacap” (the largest companies at the time) owed something to electrification. General Motors, for example, had overtaken Ford using new electric production techniques.
Essentially, electricity became the backdrop to the market in the same way AI is doing, as businesses work to become “AI-enabled”.
No wonder that today tech giants command over a third of the S&P 500 index and nearly three-quarters of the NASDAQ. Transformative technology drives not only economic growth, but also extreme market concentration.
In 1929, to reflect the new sector’s importance, Dow Jones launched the last of its three great stock averages: the electricity-heavy Dow Jones Utilities Average.
But then came the bust
The Dow Jones Utilities Average went as high as 144 in 1929. But by 1934, it had collapsed to just 17.
No single cause explains the New York Stock Exchange’s unprecedented “Great Crash”, which began on October 24 1929 and preceded the worldwide Great Depression.
That crash triggered a banking crisis, credit collapse, business failures, and a drastic fall in production. Unemployment soared from just 3% to 25% of US workers by 1933 and stayed in double figures until the US entered the second world war in 1941.
The ripple effects were global, with most countries seeing a rise in unemployment, especially in countries reliant on international trade, such as Chile, Australia and Canada, as well as Germany.
The promised age of shorter hours and electric leisure turned into soup kitchens and bread lines.
The collapse exposed fraud and excess. Electricity entrepreneur Samuel Insull, once Thomas Edison’s protégé and builder of Chicago’s Commonwealth Edison, was at one point worth US$150 million – an even more staggering amount at the time.
But after Insull’s empire went bankrupt in 1932, he was indicted for embezzlement and larceny. He fled overseas, was brought back, and eventually acquitted – but 600,000 shareholders and 500,000 bondholders lost everything.
However, to some Insull seemed less a criminal mastermind than a scapegoat for a system whose flaws ran far deeper.
Reforms unthinkable during the boom years followed.
The Public Utility Holding Company Act of 1935broke up the huge holding company structures and imposed regional separation. Once exciting electricity darlings became boring regulated infrastructure: a fact reflected in the humble “Electric Company” square on the original 1935 Monopoly board.
Lessons from the 1920s for today:
What are the lessons from 1920?
AI is rolling out faster than even those seeking to use it for business or government policy can sometimes manage properly.
Like electricity a century ago, a few interconnected firms are building today’s AI infrastructure.
And like a century ago, investors are piling in – though many don’t know the extent of their exposure through their superannuation funds or exchange traded funds (ETFs).
Just as in the late 1920s, today’s regulation of AI is still loose in many parts of the world – though the European Union is taking a tougher approach with its world-first AI law.
US President Donald Trump has taken the opposite approach, actively cutting “onerous regulation” of AI.
Some US states have responded by taking action themselves. The courts, when consulted, are hamstrung by laws and definitions written for a different era.
Can we transition to AI being invisible infrastructure like electricity without another bust, only then followed by reform?
If the parallels to the electrification boom remain unnoticed, the chances are slim.
Read: The future lies in our re-imagination
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The Bengal-born writer Nazarul Islam is a senior educationist based in USA. He writes for Sindh Courier and the newspapers of Bangladesh, India and America. He is author of a recently published book ‘Chasing Hope’ – a compilation of his articles.
