I just read an interesting article that was published last summer in Foreign Affairs, - New World Order: Labor, Capital, and Ideas in the Power Law Economy. The article was written by MIT professor Erik Brynjolfsson and MIT Principal Research Scientist Andy McAfee, who are also Director and Co-Director respectively of the Initiative on the Digital Economy; and by Michael Spence, professor in NYU’s Stern School of Business, professor and dean emeritus of the Stanford Graduate School of Business, and recipient of the 2001 Nobel Prize in economics.
A major transition is now taking place in our digital economy. Over the past few decades, advances in technology, and the Internet in particular, have helped create an increasingly global marketplace for labor and capital. A highly connected, global economy has been rising all around us, whose magnitude and implications were brought to light by NY Times columnist Tom Friedman in his 2005 bestseller The World is Flat: A Brief History of the Globalized World in the Twenty-first Century.
Another bestseller, The Second Machine Age, published last year by Brynjolfsson and McAfee, is now helping to explain our new era of data science, AI and advanced automation. These second age machines are being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans, while enabling us to process vast amounts of information and tackle ever more complex problems.
These advanced machines are ushering a new kind of digital capital economy, quite different from the flat-world economy of only a decade ago. The winners are no longer those able to compete solely based on cheap labor or ordinary capital, both of which are being squeezed by automation. “Fortune will instead favor a third group: those who can innovate and create new products, services, and business models,” says the article. “So in the future, ideas will be the real scarce inputs in the world - scarcer than both labor and capital - and the few who provide good ideas will reap huge rewards. Assuring an acceptable standard of living for the rest and building inclusive economies and societies will become increasingly important challenges in the years to come.”