A few days ago I received an e-mail from MIT professor Erik Brynjolfsson inviting me to consider supporting an Open Letter on the Digital Economy that a small group had recently drafted. As he explained in the e-mail:
“We met out in Silicon Valley to discuss how technology was driving an economic transformation. We concluded that the effects on wealth and income are already significant, and emerging technologies promise greater effects in the coming decade. While the economic pie is bigger than ever, wages for the median worker in America and other advanced nations have stagnated, increasing inequality. With more powerful technologies available than ever before, the challenge before us is to create a better society than ever before. We decided to draft an open letter expressing some of our ideas.”
Since the steam engine in the late 18th century, we’ve had major waves of innovation every 50-60 years, including railroads, steel, electricity and heavy engineering in the 19th century; and automobiles, airplanes and telecommunications in the 20th century.
Each such wave was accompanied by periods of creative destruction, when older industries and jobs where displaced by the new technology-based innovations. Over time, these innovations transformed the economy, re-shaped the institutions of society, and ultimately led to the creation of all kinds of new, more productive industries and many new kinds of jobs.
“Previous technological innovation has always delivered more long-run employment, not less. But things can change,” is the tag line of an article on the future of jobs published in January of 2014 in The Economist. “Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers…”
“For much of the 20th century, those arguing that technology brought ever more jobs and prosperity looked to have the better of the debate… Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently. They start from the observation that, across the rich world, all is far from well in the world of work. The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant.”
The machines of the industrial economy made up for our physical limitations, - steam engines enhanced our physical power, railroads and cars helped us go faster, and airplanes gave us the ability to fly. The second age machines of our emerging digital economy are now making up for our cognitive limitations, augmenting our intelligence and our ability to process vast amounts of information. They are now being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans. Will new industries and job creation eventually follow as has been the case in the past? Could it be different this time around?
“The economic challenge of the future will not be producing enough. It will be providing enough good jobs,” wrote Harvard professor and former Treasury Secretary Larry Summers in a July, 2014 WSJ article.
“What has happened in agriculture over the past century is remarkable,” he later added. “The share of American workers employed in agriculture has declined from over a third a century ago to between 1% and 2% today. Why? Because agricultural productivity has risen spectacularly, with mechanization reducing the demand for agricultural workers even as food is more abundant than ever… Though global issues surely remain, the problems in American agriculture today no longer involve ensuring that food is available, but ensuring livelihoods for those who once worked in agriculture…”
“[T]here are many reasons to think the software revolution will be even more profound than the agricultural revolution. This time around, change will come faster and affect a much larger share of the economy. Workers leaving agriculture could move into a wide range of jobs in manufacturing or services. Today, however, there are more sectors losing jobs than creating jobs. And the general-purpose aspect of software technology means that even the industries and jobs that it creates are not forever…”
I thus wholeheartedly agree with the key concerns in the Open Letter on the Digital Economy. While “The digital revolution is the best economic news on the planet… the evidence is clear that this progress is accompanied by some thorny challenges.” In particular, “The majority of US households have seen little if any income growth for over 20 years, the percentage of national income that’s paid out in wages has declined sharply in the US since 2000, and the American middle class, which is one of our country’s great creations, is being hollowed out.”
To help address these serious challenges, the letter proposes a three-pronged effort:
- Public policy changes in education, infrastructure, entrepreneurship, trade, immigration, research, and other key areas that will help create jobs and improve the economy.
- Business and organizational models to help achieve not only higher productivity and profits for companies and more wealth for their executives and investors, but also a more inclusive, broad-based prosperity for workers and society.
- Research on the economic and social implications of the digital revolution that will us come up with highly innovative, long-term solutions.
Accompanying the letter is an ambitious research agenda, including key research priorities:
- “Creating better measures for the digital economy and welfare, including supplements or replacements for metrics like GDP, productivity, unemployment, and inflation.”
- “Identifying business models in which technology is a complement to – not a substitute for – labor and creating a taxonomy of their common characteristics.”
- “Analyzing changes in labor and capital demand by using new data sources like online job boards.
- “Identifying what skills have the most job openings and which have the greatest excess supply of labor.”
- “Understanding the effects and implications of a basic income or a guaranteed annual income.”
- “Understanding the incentives and costs associated with expanding the earned income tax credit and other types of wage subsidies.”
- “Forecasting when and in what order we should expect various jobs to become automated, and what new kinds of work may be needed. Based on those conclusions, we can shape education policy and workforce training efforts to enable people to excel at jobs that can best be done by humans.”
- “Understanding the relative importance and roles of technology, globalization, tax policy, the minimum wage, labor organizing and other factors in the recent growth of inequality in the United States and other countries.”
- “Developing new principles for personal data that protect privacy while encouraging effective data use for developing new products, reducing costs, matching needs to resources, and increasing overall welfare.”
The open letter and research agenda are “only meant to start the conversation, not be the final word,” noted Brynjolfsson in his e-mail. “We’d love to have your support.” I was happy to join the cause and add my name to the list of supporters. If you agree with the letter, please do so as well.