The 21st Century’s Greatest Innovation

Here’s an interesting question: what is the single most impactful innovation of the 21st Century? Take a second to think about it.

Most of my friends say something like the internet or mobile phones. The problem is that most of what we think of as “technology” is really a composition many of individual inventions. The internet was made possible by great innovations at every level of the stack, from physical infra up through applications. Plus some new tech was simply made possible by cost curves falling to a certain level — that’s not quite a specific invention if you ask me.

To take a step back, what do we value when assessing impact? In my view, there are a few different “impact categories.” Specifically, most of what affects the world can be attributed to economic growth, political power, and side-effects like environmental changes or social norms.

How should we think about impact that derives from multiple technologies?

My unpopular opinion is that the most impactful technology of the 21st Century has nothing to do with software, hardware, or the traditional tech sector. I think shale oil extraction has been the most useful invention by a wide margin.

Let’s explore some of the ways that shale oil extraction makes a dent in the way the world works:

Economic: US oil production doubled in just 10 years, between 2007 and 2017. As you can probably guess, oil prices plummeted. (To be fair, this was partly due to increased Saudi production.) This played a role in the global recession recovery, and adds an estimated 0.5% to 1% to global GDP growth. Considering that economists left and right complain that growth in the developed world is so slow,  a 0.5-1% bump is incredible. I struggle to find any recent innovation that comes close to that. (Public-key encryption or perhaps relational databases may have made the cut 50 years ago.)

Geopolitical: The US has large shale rock formations. Tapping into them unlocks a huge amount of oil. But the process of shale extraction is more involved and expensive than traditional drilling so it’s only profitable when oil hits a certain price point in the market. When that price point is hit, however, we have as much oil as we need. This effectively caps the global price of oil at $70-90 per barrel which is below the break-even line for the budgets of the major oil production-dependent nations. This means that the US has much more economic and political leverage over the OPEC members. Since the other top oil producers — Saudi Arabia, Iran, Iraq, Kuwait, Libya, Russia, etc. — are all notorious for illiberal geopolitics and egregious human rights violations, the shale oil pricing dynamic gives American liberalism more power on the global stage. That’s rather impactful if you ask me!

Environmental: The negative impact of fossil fuels is often discussed and well-documented elsewhere, so I won’t belabor this point too much. There’s actually a very compelling argument for the “growth over environment” school of thought too. See this book or its summary for more. I’m not sure which viewpoint is better, but in either case, the magnitude of impact is clearly big.

We can even try big-picture comparisons between oil and something as massive and ill-defined as “the internet.” According to this McKinsey report, the internet accounts for ~21% of GDP growth in developed countries which yields a ~0.5% boost in GDP if you assume a 2.5% growth rate. Compare this to the 0.5-1% number mentioned a few paragraphs above, and you’ll find that lower oil prices may cause more growth than the entire internet! I’d take the report with a huge grain of salt, but the orders of magnitude are most likely correct.

The point here is that the traditional tech sector is not the most important part of our economy and our lives. The most wealthy companies in the world may be tech companies, but they represent an enormous amount of concentrated value. Most of what drives real-world wealth and opportunity isn’t (yet) linked to the pixels of our screen.