What is the fifth era of modern economic history?

What does the Era of Trust Networks mean for executives? How has the process of finding and serving customers changed? How have business models changed?

The answers to these questions lie in an examination of the principal effects that the Internet has on commerce, society, and the individual. Let’s begin with the profound insight of management guru, economist, and theorist, Peter Drucker. He divides modern economic history into five eras.

Five Eras, Each Lasting Approximately 40 Years, Define Modern Economic History

According to Peter Drucker, we entered the fifth era of modern economic history in 1995—just about the time that the Internet and Web became mainstream activities. We call this, the fifth cycle, the Era of Trust Networks.

As illustrated in the figure above, Drucker defines each era in terms of a single organizing principle—how the successful commercial enterprises of that era organize work and productivity, where productivity connotes the systematic application of knowledge to work.

During the first era, companies set up operations on or near plentiful natural resources, including harbors, lakes, rivers, mines, and forests. Their competitive advantage came from knowing how to exploit these natural resources—usually by getting there first, protecting their claims from encroachment by others, and directing the tremendous exertion of manual labor.

In the industrial production era, success came through access to labor pools, technical knowledge of manufacturing, and convenient, low-cost transportation for raw materials and finished goods. The Nobel Committee awarded its economic prize to the economist who showed that the United States pulled ahead of Europe in the Industrial Revolution because its network of rivers and canals ensured steady supplies of raw materials and ways to move finished goods to markets both local and abroad.

The era of mass markets arose with the emergence of an interstate rail and highway system, along with the development of newspapers, magazines, radio, film, and television. Trains and trucks provided highly efficient ways of moving inexpensive, mass-produced goods throughout a national market stimulated by national advertising and promotion. Competitive advantage derived from mastering the logistics of nationwide transportation systems—designing products for shipment and distribution through an expanding network of retailers and field sales organizations—and from advertising, publicity, and promotion, novel sources of entertainment welcomed by consumers hungry for news and cultural developments beyond the parochial scope of their towns and neighborhoods.

Drucker marks the beginning of the information era in 1955, when enterprises began to organize work and productivity in terms of the creation and use of information. He coined the term “knowledge worker” to characterize a new form of labor, a worker who produces and consumes information as the principal focus of the job. Competitive advantage derived from information technology (IT) infrastructure (in particular, specialized computer software) and the quality of the data that knowledge could transform into business intelligence and answers to questions of other knowledge workers of a firm. Because these information systems undergirded the means of production, distribution, and customer interactions, better-trained knowledge workers and superior IT systems conferred great advantage to the firms that mastered these two elements.

Drucker argues that each age lasts about 40 years, and that each provides a meaningful context for understanding the previous age. He notes that while immersed in the current era, people have a hard time understanding the organizing principle of that era. Like water to a fish or air to a bird, the operating principle of the current era remains hidden behind the veil of tranquilized obviousness.

Drucker wryly notes that, following this timeline, the information era ended in 1995. He says that we now find ourselves in a new era with a fundamentally new organizing principle for work and productivity. He laments that he can smell and taste but not name this new organizing principle. He nonetheless asserts that the new organizing principle should have sufficient explanatory power to quantify the economic value of information—something that remained impossible while we stayed immersed in the information era.

We note that in 1995, the World Wide Web burst on the scene to force the Internet out of its arcane academic/military R&D closet and thrust it into the world’s living rooms, offices, factory floors, and boardrooms. But the Internet does not constitute the organizing principle of the new economic era, any more than electricity served as the organizing principle for the information era. While electricity enabled the new era, information provided the organizing principle.

We submit that trust networks represent the organizing principle for work and productivity in the era that began in 1995 and which will end, according to Drucker’s theory, around 2035.