Erik Brynjolfsson and Andrew McAfee just published an excellent short (sixty pages, less than twenty thousand words) e-book - Race Against the Machine: How The Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. Erik Brynjolfsson is a professor at MIT’s Sloan School of Management and director of the MIT Center for Digital Business. Andy McAfee is Principal Research Scientist at the Center for Digital Business, as well as serving as its associate director.
“This is a book about how information technologies are affecting jobs, skills, wages, and the economy,” they write in the opening sentence. There are few more timely and vital subjects. During the 2007 - 2009 Great Recession, unemployment increased by as much as 5.7%, the largest increase in the post war period.
But, recessions are always accompanied by job losses. A more perplexing problem is our jobless recovery since the recession was declared officially over. The seemingly recovering economy is not putting enough people back to work. More than two years after the recession officially ended, US unemployment is still over 9 percent.
There are multiple reasons for our persistent high unemployment, but there is little doubt that information technologies are playing a major role. Since the mid-1990s, US labor productivity has surged, driven largely by advances in information technology. Companies are therefore able to satisfy their present demands with fewer people, and that is one of the main reasons for our jobless recovery. Until consumer demand rises significantly, companies see no need to hire additional people.
Race Against the Machine is one of the best books I have seen that focuses directly on the impact of technology on jobs. “Most economists aren't taking these worries very seriously,” the authors observe. “The idea that computers might significantly disrupt human labor markets - and, thus, further weaken the global economy - so far remains on the fringes. We think itʼs time to bring this idea into the mainstream and to pay more attention to technologyʼs impact on skills, wages, and employment.”
“Technology has always displaced some work and jobs,” wrote New York Times reporter Steve Lohr in an article following the book's publication. “Over the years, many experts have warned - mistakenly - that machines were gaining the upper hand. In 1930, the economist John Maynard Keynes warned of a new disease that he termed technological unemployment, the inability of the economy to create new jobs faster than jobs were lost to automation.”
Technology-based revolutions are typically accompanied by periods of creative destruction, when older industries and jobs are replaced with new, more efficient ones. Since the advent of the Industrial Revolution in the second half of the 18th century, we have had a technology-based revolution every forty to sixty years, including the eras of steam power, railroads, electricity and automobiles. But, over time, the new technologies transform the economy, re-shape the institutions of society, and ultimately lead to the creation of all kinds of new, more productive industries and jobs.
We are clearly going through such a period of creative destruction brought about by our digital technology revolution. The key question is whether new industries and job creation will eventually follow as has been the case in the past. Could it be different this time around? The technology revolutions of the past couple of centuries were physical in nature, that is, they resulted in major innovations that significantly augmented human physical activities. But, our present digital revolution is now enabling us to significantly augment our information-based activities, including activities that we have characterized as requiring human intelligence.
In the introduction to Race Against the Machine, the authors write that “. . . computers are now doing many things that used to be the domain of people only. The pace and scale of this encroachment into human skills is relatively recent and has profound economic implications. Perhaps the most important of these is that while digital progress grows the overall economic pie, it can do so while leaving some people, or even a lot of them, worse off.”
“And computers (hardware, software, and networks) are only going to get more powerful and capable in the future, and have an ever-bigger impact on jobs, skills, and the economy. The root of our problems is not that we’re in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring. Our technologies are racing ahead but many of our skills and organizations are lagging behind. So it’s urgent that we understand these phenomena, discuss their implications, and come up with strategies that allow human workers to race ahead with machines instead of racing against them.”
Why have digital technologies achieved such breakthrough advances in just the past few years, including Watson, IBM’s question-answering system that earlier this year won the Jeopardy! Challenge against the two best human Jeopardy! players. Or, look at the powerful, inexpensive, almost magical mobile devices that started to appear in just the last few years and are now giving us access to all kinds of sophisticated cloud-based services?
It is all because of Moore’s Law and exponential growth, argue Brynjolfsson and McAfee. I really like the way they explain their point using an ancient Indian story about the creation of the game of chess that has been used by Ray Kurzweill to illustrate the power of exponential growth.
According to the story, upon being shown the game of chess, the emperor was so pleased that he told its inventor to name his own reward. The inventor proceeded to request what seemed like a modest reward. He asked for an amount of rice computed as follows: one grain of rice for the first square of the chess board, two grains for the second one, four for the third and so on, doubling the amount each time up to the 64th square.
After 32 squares, the inventor had received 232 − 1 or about 4 billion grains of rice, roughly one large field’s worth weighing about 100,000 kilograms - a large, but not unreasonable reward. However, the second half of the chess board is different due the power of exponential growth. After 64 squares, the total amount of rice, 264 − 1, would have made a heap bigger than Mount Everest and would have been roughly 1000 times the world’s total production of rice in 2010.
“So where are we in the history of business use of computers? Are we in the second half of the chessboard yet?,” ask the authors. “This is an impossible question to answer precisely, of course, but a reasonable estimate yields an intriguing conclusion. The U.S. Bureau of Economic Analysis added Information Technology as a category of business investment in 1958, so letʼs use that as our starting year. And letʼs take the standard 18 months as the Mooreʼs Law doubling period. Thirty- two doublings then take us to 2006 and to the second half of the chessboard. Advances like the Google autonomous car, Watson the Jeopardy! champion supercomputer, and high-quality instantaneous machine translation, then, can be seen as the first examples of the kinds of digital innovations weʼll see as we move further into the second half - into the phase where exponential growth yields jaw-dropping results.”
If you also consider the impressive algorithmic and architectural advances of the past decade, it is not surprising that digital technology innovations are resulting in such impressive results. We will undoubtedly encounter limits, such as we have already seen with the energy consumption of our digital technologies as we aggregate them in ever larger numbers. But, we can expect to continue to see a stream of impressive technological advances in the future.
While technologies are advancing at what seems like blinding speeds, individuals and organizations are finding it hard to keep up and acquire the skills to properly leverage the new technologies. That takes considerable more time. Millions are being left behind. And, it is quite possible that given our increasingly complex world, it will take longer than we would like to restructure economies and societies so they are able to adapt to these dramatic technological advances.
Key to this adaptation is not to look at the problem as a race between humans and our increasingly intelligent machines, any more than it would have made any sense to look at the Industrial Revolution as a race between humans and steam power to see who is strongest, or between humans and cars to see who is faster. The key, as it has always been, is to “learn to better race with machines, using them as allies rather than adversaries.” In particular, Brynjolfsson and McAfee recommend that we focus our learning in two key areas: accelerate organizational innovation and enhance human capital.
Organizational innovation means “co-inventing new organizational structures, processes, and business models that leverage ever-advancing technology and human skills. . . [T]he stagnation of median wages and polarization of job growth is an opportunity for creative entrepreneurs. They can develop new business models that combine the swelling numbers of mid-skilled workers with ever-cheaper technology to create value. There has never been a worse time to be competing with machines, but there has never been a better time to be a talented entrepreneur.”
In addition, we need to invest in human capital, namely “the education and skills required to get the most out of our racing technology. Smart entrepreneurs can, and will, invent ways to create value by employing even less skilled workers. However, the message the labor market is clearly sending is that itʼs much easier to create value with highly educated workers.”
None of us truly knows whether the future will result in a great stagnation or a new age of prosperity. In the end, how you feel about the future depends on whether you are optimistic that we will learn to co-evolve with our increasingly intelligent machines and over time create new industries and jobs, - as has been the case in the past; or whether you feel that this time is different because technology advances are running so far ahead that large numbers of people will not be able to keep up, and the future will bring even more serious economic disruptions and societal unrest.
Despite all the tough challenges we face, I am in the optimists camp. So are Erik Brynjolfsson and Andrew McAfee. In the concluding paragraphs of Race Against the Machine, they write:
“As digital technologies make markets and businesses more efficient, they benefit all of us as consumers. As they increase government transparency and accountability and give us new ways to assemble and make our voices heard, they benefit us as citizens. And as they put us in touch with ideas, knowledge, friends, and loved ones, they benefit us as human beings.”
“So as we observe the opening up of the digital frontier, we are hugely optimistic. History has witnessed three industrial revolutions, each associated with a general purpose technology. The first, powered by steam, changed the world so much that according to historian Ian Morris, it “made mockery of all that had gone before.” It allowed huge and unprecedented increases in population, social development, and standards of living. The second, based on electricity, allowed these beneficial trends to continue and led to a sharp acceleration of productivity in the 20th century. In each case there were disruptions and crises, but in the end, the mass of humanity was immensely better off than before.”
“The third industrial revolution, which is unfolding now, is fuelled by computers and networks. Like both of the previous ones, it will take decades to fully play out. And like each of the first two, it will lead to sharp changes in the path of human development and history. The twists and disruptions will not always be easy to navigate. But we are confident that most of these changes will be beneficial ones, and that we and our world will prosper on the digital frontier.”