Irving Wladawsky-Berger

Some Puzzling Questions about Innovation in the Digital Economy

This semester I am teaching the innovation half of a course on Entrepreneurship and Innovation at NYU’s new Center for Urban Science and Progress (CUSP).  Teaching forces you to take a fresh look at the subjects you are covering, so I find myself revisiting questions I’ve long been thinking about:  What is the essence of innovation in the digital economy and how does it differ from the industrial age innovation of the past two hundred years?

The bulk of the innovations in the industrial economy involved physical objects, physical systems and the physical world around us.  Our biggest scientific advances were in the natural sciences, e.g., astronomy, physics, chemistry, geosciences and biology.  In engineering, we made huge progress in applying science and technology to develop increasingly complex physical objects and infrastructures, such as railroads, cars, airplanes, chemical plants, refineries, power stations, bridges, skyscrapers, computers, microprocessors, and so on.  Ever since the steam engine gave rise to the Industrial Revolution 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.

The Industrial Revolution had a huge impact on all aspects of the economy and society.  It totally transformed the composition of labor.  In 1840, the vast majority of US jobs where in agriculture, with services accounting for roughly 20% of jobs.  Those figures have been drastically reversing since then.  According to 2009 statistics from the CIA World Factbook, only 0.7% of the US labor force is now involved in agriculture oriented jobs and roughly 20% work in the industrial sector.  The bulk of jobs, almost 80%, are in services, with 3/4 of those service jobs based on processing information in one way or another, - e.g., managerial, professional, technical, sales and office.  Similar changes in labor composition have been taking place in just about every country.      

The emerging 21st century digital economy seems quite different from the industrial economy of the past two centuries.  Dramatic advances in information and communication technologies are now enabling us to apply science, technology and innovation to improve the productivity of information-based service jobs, as well as that of sociotechnical systems, that is, systems in which people play a central role, such as business organizations, healthcare institutions and cities.  Such systems are particularly hard to understand and control because of the complexities inherent in human and organizational behaviors.

Why is it so Difficult to Make Long-Term Predictions?

What will the world be like in 2064?  Will we be living in a radically different post-singularity world, where machines far surpass humans in intelligence or will we continue to co-evolve with and shape our tools, as we have from time immemorial?  Will technology advances lead to increased economic inequalities and conflicts, or to major reductions in poverty in a more stable world?  Will it be an era of environmental crises and scarce water, food and energy, or will sustainable innovations and worldwide cooperations help us confront global challenges? 

These are some of the questions that went through my mind as I read Visit to the World’s Fair of 2014, an article by Isaac Asimov written around the time of the 1964 New York World’s Fair.  In the article he imagines what the world in 2014 would be like, 50 years into the future as envisioned in 1964.

Any predictions made by someone like Isaac Asimov have to be taken seriously.  He was one of the top science fiction authors of the 20th century, having written classics like the Foundation, Robot and Empire series.  He was professor of biochemistry at Boston University and a prolific author of popular science books, including The Intelligent Man’s Guide to Science.

Reflections on Bitcoin

Ever since I joined Citigroup as a strategic advisor in March of 2008, I’ve been spending a lot of time thinking about the ongoing transition toward a global digital money ecosystem.  For over 2,500 years, money has played a central role in the rise of civilizations and in human affairs of all kinds.  As a result, the historical transition to digital money is among the most exciting and important societal challenges in the coming decades.  Its impact might well be up there with that of other major technology-based societal transformations, including electricity, radio and TV, and the Internet and World Wide Web.

The evolution to a digital money ecosystem involves a lot more than the transformation of money - cash, checks, credit and debit cards, etc, - from physical to digital objects that we will carry in our smart mobile devices.  It encompasses the whole money ecosystem, including the global payment infrastructures, the management of personal identities and financial data, the global financial flows among institutions and between institutions and individuals, the government regulatory regimes, security and privacy issues, and so on.

Just about every aspect of the world’s economy is involved.  Over time, mobile devices will truly become our personal windows into an increasingly global, digital economy.  And, because continuing technology advances are now enabling us to bring the empowerment benefits of the digital revolution to just about everyone in the planet, digital money is a truly inclusive innovation with no apparent digital divide.  Mobile phones and Internet access have gone from a luxury to a necessity that most everyone in the planet will soon be able to afford. 

This evolution will take decades to fully play out, - historical transitions take their time.  But, it’s most definitely underway, with an increasing number of market pilots and research studies taking place around the world.

The Citi-Imperial Digital Money Readiness Index

On January 29 I attended the 2014 Digital Money Symposium in London, co-sponsored by Citi and Imperial College.  The Symposium convened a group of leaders in their fields to explore the state of adoption of digital money and its economic and societal impacts around the world.  This is the second such Digital Money Symposium, the first one having taken place in London in January of 2013. 

I was a part of the Citi-Imperial team that organized the event.  For this year’s Symposium, we developed a framework that would enable us to discuss the state of adoption of digital money on a more data-driven, scientific basis.  We looked at digital money as a highly complex sociotechnical ecosystem, that is, a technology-intensive system that has major societal, economic and political implications, like cities, healthcare and education.  To help us begin to quantify and understand this ecosystem, we developed the Digital Money Readiness Index, a set of global metrics that enables us to link digital money adoption to various measures of socio-economic development. 

The Index is a multi-functional tool, encompassing publicly available data from 90 countries around the world.  By analyzing its various interdependent components, the team computed a measure of how ready a country is to adopt digital money.  Quantifying the progress being made by each country along the digital money roadmap should help understand the key obstacles the country faces, as well as the potential actions it could take to overcome them.

Overall, the Index aims to help answer two fundamental sets of questions: 

What Matters?: What factors affect the adoption of digital money around world, and how do they vary across different countries and regions? 

 Why Bother?: Does digital money adoption really make a difference, and if so, can we quantify the benefit to governments, companies and individuals?