Irving Wladawsky-Berger

The Three Major Structural Changes in the Global Economy

“To say that the last few years have been economically turbulent would be a colossal understatement,” wrote economist and businessman Mohamed El-Erian in “Not Just Another Recession: Why the Global Economy May Never Be the Same,” a  recently published article in Foreign Affairs. El-Erian, — one of the world’s most influential economic thinkers, — is President of Queens College in Cambridge University, chief economic advisor at Allianz, and former CEO of PIMCO.

“Inflation has surged to its highest level in decades, and a combination of geopolitical tensions, supply chain disruptions, and rising interest rates now threatens to plunge the global economy into recession,” he added. “Yet for the most part, economists and financial analysts have treated these developments as outgrowths of the normal business cycle. But rather than one more turn of the economic wheel, the world may be experiencing major structural and secular changes that will outlast the current business cycle.”

As evidence of these changes, the article cites a series of highly unlikely economic and financial development that have taken place in the past few years. These include the strengthening of autocracies around the world, the political polarization in several liberal democracies, the increasing US turn from free trade to protectionism, and the growing tensions between China and the US.

Are Business Schools to Blame for Wage Stagnation?

Several weeks ago I listened to a very interesting podcast, Are MBAs to Blame for Wage Stagnation, with Freakonomics Radio host, Stephen Dubner and MIT economist Daron Acemoglu. The podcast discussed a working paper by Acemoglu, Alex He, and Daniel le Maire on the effect of a CEO’s education on the wages of their company’s employees that was recently published in the National Bureau of Economic Research (NBER).

In the podcast, Acemoglu noted that over the last few decades, wages have grown much slower than productivity, — a development that has long puzzled economists. “If you look at the real wages of workers with a high school degree, it increased about 2.5% a year in real terms between1945 and the late 1970s — a remarkable increase,” he said. “Since 1980, it has been declining in real terms every year. So a large fraction of the U.S. population has been becoming poorer and poorer, even as we are building the most amazing technologies, the largest companies humanity has seen, the most modern economy.”

The labor share, — that is, the share of GDP that goes to workers, — declined from 63% in the 1980s to 58% in 2020. And during those same four decades, the share of US firms that were run by a business manager, — that is, an executive with an MBA or some other business degree, — increased from 25% in the 1980s to over 40% in 2020. Were these two trends connected? “Did the professionalization of the managerial class cause the labor share to fall? The answer wasn’t obvious.”

To shed light on this question, Acemoglu and his collaborators analyzed US and Danish data, including firm- and worker-level information. They chose Denmark, in addition to the US, because the country has very high-quality data that makes it possible to do a lot of analysis that would be harder to do with US data alone. Their methodology was very simple. They essentially tracked what happens to the earnings of the same workers when there is a switch in the type of manager leading their company, i.e., from a business to a non-business manager and vice versa.

Is AI (Finally) Coming of Age?

Artificial intelligence first came to light in the mid-1950s as a promising new academic discipline. AI became one of the most exciting areas in computer sciences over the next two decades. But, after years of unfulfilled promises and hype, a couple of so called AI winters of reduced interest and funding set in that nearly killed the field. AI was successfully reborn in the 1990s with a new statistical paradigm based on analyzing large amounts of data with powerful computers and sophisticated algorithms. Now, six decades after the field was founded, AI seems to be finally coming of age.

“2021 saw the globalization and industrialization of AI intensify, while the ethical and regulatory issues of these technologies multiplied,” said the 2022 AI Index report on the progress of AI, which was released in March of 2022 by Stanford’s Institute for Human-Centered Artificial Intelligence (HAI). “2021 was the year that AI went from an emerging technology to a mature technology - we’re no longer dealing with a speculative part of scientific research, but instead something that has real-world impact, both positive and negative,” wrote Jack Clark, co-chair of the AI Index. Multiple factors led to his conclusion, in particular the advent of foundation models like OpenAI’s GPT-3 and Google’s BERT.

In the past decade, increasingly powerful AI systems have matched or surpassed human levels of performance in a number of specific tasks like image and speech recognition. These task-specific deep learning (DL) systems have generally relied on supervised learning, a training method where the data must be carefully labelled, - e.g., cat, not-cat, - thus requiring a big investment in time and money to produce a model that’s narrowly focused on one task and can’t be easily repurposed.

Foundation models have gotten around these DL limitations based on two recent advances, transfer learning and huge scale. Transfer learning takes the knowledge learned from training a specific task and applies it to different but related tasks, - such as using the training in recognizing cars in images and applying it to recognizing trucks and buses. As a result, foundation models can be adapted to many different tasks with relatively small amounts of fine-tuning.

Has Economic Globalization Been a Failure?

“So one big promise of globalization was that countries, as they became more integrated in the global economy, would also modernize on a political dimension,” said Freakonomics Radio host, Stephen Dubner in the introduction to his recent podcast Has Globalization Failed?

Globalization was supposed to boost prosperity and democracy at the same time. The 1990s ushered a golden age of globalization, when the world seemed to be coming together. Nations were becoming more economically interdependent. The internet fostered worldwide communications. The ideological contest between communism and capitalism appeared to be over. Democracy was spreading a set of universal values - freedom, equality, human rights.

“I’m curious how successful or unsuccessful you think that’s been?,” Dubner asked his podcast guest Anthea Roberts, professor at the Australia National University and co-author of the 2021 book Six Faces of Globalization: Who Wins, Who Loses, and Why It Matters.

“One of the things that I think has clearly come out from both Russia and China is that that has not borne fruit in quite the way the United States may have hoped,” answered Roberts. “But part of it may also be that the U.S. may be retelling that story a little bit. It may have been that they wanted to say that it was about democracy, but actually a lot of it was also just about their own economic interests, and now their understanding of their economic interests have changed.”

Why Digital Wallets Are Critical to the Evolving Digital Landscape

A few months ago, the Linux Foundation (LF) announced its intent to launch the Open Wallet Foundation (OWF) in early 2023. The OWF aims to develop open source software, key building blocks, and best practices that anyone can use to build multi-platform, interoperable, secure, and privacy-protecting digital wallets that will support a wide variety of applications from identity credential to payments.

I’ve been really intrigued by digital wallets, a fairly complex and poorly understood subject. To learn more, I read “The Current and Future State of Digital Wallets,” a comprehensive report on digital wallets published in April of 2019 by technologist and entrepreneur Darrell O’Donnell. The report was sponsored by a consortium of Canadian companies that recognized that digital wallets were a major requirement to be able to properly manage our digital identities, — arguably the toughest challenge in the continuing evolution of the internet and the digital economy.

“Technologies are converging and provide immense potential for shifting how we can improve every aspect of our lives,” wrote O’Donnell in the report’s Executive Summary. “Underneath all of that technology lies the internet, which has a flaw that could have been fatal – until recently it has lacked a built-in digital identity. Hacks to get around this missing piece have resulted in huge security gaps and abusive digital relationships.”

Will the Metaverse and AR/VR Headsets Be IT’s Next Big Thing?

“Is it really the next big thing,” asked The Economist in A reality check for the metaverse is coming, another recent article in “The World Ahead 2023”, its year-end issue which I wrote about last week. “After desktop computing, the consumer internet and the smartphone boom, the consumer-computing industry is past due its Next Big Thing,” said the article. “The coming year will see big tech firms doubling down on two related, much-hyped possibilities. One is virtual- (vr) and augmented-reality (ar) headsets; the idea that, having shrunk computers into our pockets, the next step is to strap them to our faces. The other is the metaverse, which holds that an internet which is still largely flat - based on two-dimensional text, images and video - is ripe for replacement with one that is three-dimensional and immersive, experienced as a sort of globe-spanning video game.”

There is little question that the metaverse and AR/VR headsets are important trends to watch out for in the coming years. As The Economist wrote in a November, 2021 article, “as computers have become more capable, the experiences which they generate have become richer. The internet began its life displaying nothing more exciting than white text on a black background.”

The last major advance in user interfaces took place in the 1980s when text interfaces gave way to graphical user Interfaces (GUIS). GUIs were first developed at Xerox PARC in the late 1970s and later popularized by the Apple Macintosh in the ’80s. In the 1990s, GUIs were embraced by just about every PC and user device, and GUI-based Web browsers played a major role in the explosive growth of the internet.

The World Ahead 2023: Grappling with an Unpredictable World

A few weeks ago, The Economist published “The World Ahead 2023”, its 37th annual year-end issue that examines the trends and events that will likely shape the coming year. Two years ago, “The World in 2021” said that we should expect unusual uncertainty in the coming year, given the interactions between the still flourishing covid-19 pandemic, an uneven economic recovery and fractious geopolitics. Last year, “The World Ahead 2022” said that 2022 would be a year of adjusting to new realities in areas like work and travel being reshaped by the pandemic, and as deeper trends like the rise of China and accelerating climate change reasserted themselves.

“After two years in which the pandemic was the force shaping the immediate future, the main driver now is the war in Ukraine,” said Tom Sandage, editor of the annual World Ahead annual issues. “In the coming months the world will have to grapple with unpredictability around the conflict’s impact on geopolitics and security; the struggle to control inflation; chaos in energy markets; and China’s uncertain post-pandemic path. To complicate matters further, all these things are tightly coupled, like an interlocking series of gear wheels.”

Here are the top ten major trends for 2023:

1. All eyes on Ukraine - “Energy prices, inflation, interest rates, economic growth, food shortages - all depend on how the conflict plays out in the coming months.”
2. Recessions loom - “Major economies will go into recession as central banks raise interest rates to stifle inflation, an after-effect of the pandemic since inflamed by high energy prices.”
3. Climate silver lining - “[T]he war will accelerate the switch to renewables as a safer alternative to hydrocarbons supplied by autocrats.”
4. Peak China? - “With China’s population in decline, and its economy facing headwinds, expect much discussion of whether China has peaked.”
5. Divided America - “[S]ocial and cultural divides on abortion, guns and other hot-button issues continue to widen.”
6. Flashpoints to watch - “The intense focus on the war in Ukraine heightens the risk of conflict elsewhere.”
7. Shifting alliances - “Amid geopolitical shifts, alliances are responding. NATO, revitalised by the war in Ukraine, will welcome two new members. Will Saudi Arabia join the Abraham accords?”
8. Revenge tourism - “As travellers engage in post-lockdown ‘revenge’ tourism, traveller spending will almost regain its 2019 level.”
9. Metaverse reality check - “Will the idea of working and playing in virtual worlds catch on beyond video games?”
10. New year, new jargon - “Never heard of a passkey? … nimbys are out and yimbys are in; cryptocurrencies are uncool and post-quantum cryptography is hot; but can you define a frozen conflict, or synfuel?”

Let me discuss three of these trends.

The History and Current State of Human Progress

“For hundreds of thousands of years, human history played out without any rapid, marked advance in material living standards,” wrote NY Times journalist Ezra Klein in the introduction to his recent podcast, We Know Shockingly Little About What Makes Humanity Prosper. “And then, suddenly, in just the past few hundred years, everything changed: Humanity achieved a truly mind-boggling amount of progress in the evolutionary blink of an eye. In the early 21st century, we are all living in the world that progress bequeathed. And yet we understand shockingly little about what drives that progress in the first place. That’s important because, at least according to some metrics, progress seems to be slowing down.”

Klein’s podcast guest was Irish entrepreneur Patrick Collison, co-founder and CEO of the financial services company Stripe, one of the world’s most profitable and highest valued startups. Collison is very interested in the long history of human progress, and has been a leading advocate for the formation of a new discipline of Progress Studies.

In the podcast, Klein and Collison discussed a number of topics on the history and current state of human progress. But I’d like to focus my summary of the podcast on three key questions:What is progress?; why is progress slowing down?; and do we need a new discipline of Progress Studies?

The Current State of Service Science

On October 17, the National Academy of Engineering (NAE) conducted an online forum on Service Systems Engineering in the Era of Human-Centered AI. “With AI advances poised to drive service system productivity and quality - similar to the way previous generations of technology revolutionized agriculture and manufacturing productivity and quality - it is time to take stock for industry-academic-and-government stakeholders on this important topic,” wrote the NAE in its website.

The agenda included an opening keynote by retired IBM executive Nick Donofrio. It was followed by four panels on various aspects of service systems, and concluded with an open discussion of the way forward. I was a member of the panel on Evolving Engineering Education. In my prepared remarks, I reflected on the current state of service science and related sociotechnical systems. Let me share my remarks, slightly edited for clarity.

Service Science, Management and Engineering (SSME) is an initiative launched in IBM’s Almaden Research Lab in the early 2000s in partnership with a number of universities as an interdisciplinary field of study aimed at applying science, technology and innovation to the service sector of the economy.  The service sector is the largest in most economies around the world. At the time, services already accounted for over 70% of GDP and jobs in advanced economies, as well as an increasing portion of the revenues of many companies, including close to 60% of IBM’s revenues.

Culture: The Software of the Mind

Several weeks ago I listened to a very interesting Freakonomics podcast hosted by Stephen Dubner. “According to a decades-long research project, the U.S. is not only the most individualistic country on earth; we’re also high on indulgence, short-term thinking, and masculinity,” said Dubner. The podcast included comments from a number of social scientists but was particularly focused on the work of Gert Jan Hofstede, social sciences professor  at Wageningen University in the Netherlands, whose research is focused on artificial sociality, - the study of human social behavior based on computational models. He's continued to lead a major research project on national cultures started more than 50 years ago by his father Geert Hofstede who passed away in 2020.

“Every person carries within him- or herself patterns of thinking, feeling, and potential acting that were learned throughout the person’s lifetime,” wrote the Hofstedes in their 2011 book Cultures and Organizations: Software of the Mind, coauthored with Michael Minkov. “Much of it was acquired in early childhood, because at that time a person is most susceptible to learning and assimilating. As soon as certain patterns of thinking, feeling, and acting have established themselves within a person’s mind, he or she must unlearn these patterns before being able to learn something different, and unlearning is more difficult than learning for the first time.”

The thinking patterns that guide our behaviors can be thought of as mental programs, a kind of software of the mind. “This does not mean, of course, that people are programmed the way computers are,” said the authors. “A person’s behavior is only partially predetermined by his or her mental programs: he or she has a basic ability to deviate from them and to react in ways that are new, creative, destructive, or unexpected.” Culture, the software of the mind, “only indicates what reactions are likely and understandable, given one’s past.”

In the podcast, Gert Jan Hofstede discussed the power of culture: “It is what we got fed with our mother’s milk and the porridge that our dad gave us. … If you’re part of a society, you’re like one drop in the Mississippi River. You may decide to go another way, but that doesn’t make the river change. So we’re all constraining one another through our collective culture.”

The Changing Structure of Global Supply Chains

“The golden age of globalisation, in 1990-2010, was something to behold,” wrote The Economist in a January, 2019 article.  “Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised.” The very nature of the global firm was transformed during these two decades, with The Globally Integrated Enterprise destined to become the corporate model of the future, said IBM CEO Sam Palmisano in a 2006 Foreign Affairs article.

But, then global trade started slow down. “After the go-go 1990s and 2000s the pace of economic integration stalled in the 2010s, as firms grappled with the aftershocks of a financial crisis, a populist revolt against open borders and President Donald Trump’s trade war,” wrote The Economist in its June 18, 2022 lead article. “The flow of goods and capital stagnated. Many bosses postponed big decisions on investing abroad: just-in-time gave way to wait-and-see. No one knew if globalisation faced a blip or extinction.”

“Now the waiting is over, as the pandemic and war in Ukraine have triggered a once-in-a-generation reimagining of global capitalism in boardrooms and governments,” added the article. “Everywhere you look, supply chains are being transformed, from the $9trn in inventories, stockpiled as insurance against shortages and inflation, to the fight for workers as global firms shift from China into Vietnam. This new kind of globalisation is about security, not efficiency: it prioritises doing business with people you can rely on, in countries your government is friendly with.”

Most everyone agrees that global supply chains will be restructured over the next decade, accelerating the changes that were already in motion. “Decision-makers are increasingly concerned that supply chains should be robust, not just efficient,” said the briefing article in the same Economist issue. “As a result they are choosing to depend less on jurisdictions where they are exposed to risk. And countries are experimenting with industrial policies aimed at self-reliance or international pre-eminence in at least some ‘strategic’ technologies and businesses.” Let me discuss each of these potential changes.

The Latest Trends in Work from Home (WFH)

For years, companies and governments found all kinds of reasons for not embracing work from home, virtual meetings, telemedicine, online learning, and other online applications. But, the pandemic forced us to accelerate the digital transformation of the economy and society to help us cope with the crisis. And, not only have these digital applications worked remarkably well, but they offer a number of important benefits, like not waiting for a straightforward doctor diagnosis in a room full of sick people, and not having to travel for hours to participate in a 60 minute meeting.

For example, about a year ago I participated in an online panel. To start with, the moderator asked each panelist to introduce ourselves and to briefly say something positive about our lives over the past year despite the obvious challenges of coping with Covid. I truly struggled to find something positive to say about the highly frustrating pandemic-induced limitations of the previous year.

But finally, I did find something positive to say. I’ve been able to attend a number of meetings, including weekly lunch seminars, that pre-pandemic required me to drive for a few hours or catch a plane. In response to the pandemic, these meeting first changed from physical to online, and more recently to hybrid. In other words, my ability to attend such meetings from home was my one pandemic-induced benefit, a major one the more I thought about it.

Work from home (WFH) has been around for decades, modestly growing in the 1990s with the rise of the internet. The share of WFH three or more days per week was under 1% in 1980, 2.4% in 2010, and 4.0% in 2018. Then came Covid-19, forcing tens of millions around the world to work from home and triggering a mass workplace experiment that broke through the technological and cultural barriers that had prevented its adoption in the past.

How Should Companies Prepare for the Coming Cybersecurity Regulations

“Cybersecurity has reached a tipping point,” wrote MIT professor Stuart Madnick in a recent Harvard Business Review article, New Cybersecurity Regulations Are Coming. Here’s How to Prepare. “After decades of private-sector organizations more or less being left to deal with cyber incidents on their own, the scale and impact of cyberattacks means that the fallout from these incidents can ripple across societies and borders.”

Given the growing threat of cyberattacks, there’s an urgent need to improve the security of IT systems. However, we still don’t know a lot about cyberattacks, including how many attacks have taken place and who’s been attacked. Until recently, cybersecurity regulation were mostly focused on data privacy, and the only attacks that had to be reported were those involving personal information, such as the theft of names and credit card numbers.

For example, when Colonial Pipeline suffered a serious ransomware attack in May of 2021 that shut down nearly 50% of fuel deliveries to the US East Coast, neither the company nor the pipeline operators were required to report the attack because personal information wasn’t stolen. “As a result, it’s almost impossible to know how many cyberattacks there really are, and what form they take,” said Madnick. “Some have suggested that only 25% of cybersecurity incidents are reported, others say only about 18%, others say that 10% or less are reported.” We need detailed information on who is being attacked, how are they getting attacked, what are the attackers after, and what have they’ve actually stolen.

The Recent Impact of AI on Jobs and Economies

“Recent developments in Artificial Intelligence (AI) have stoked new fears about large-scale job loss, stemming from its ability to automate a rapidly expanding set of tasks (including non-routine cognitive tasks), and its potential to affect every sector of the economy,” said The impact of Artificial Intelligence on the labour market: What do we know so far?, a recently published report by the Organization for Economic Co-operation and Development (OECD). Founded in 1961 to stimulate economic progress and world trade, the OECD now has 38 member countries around the world.

“Furthermore, there are concerns about employee well-being and the broader work environment, linked to the idea that AI may soon become pervasive in the workplace and threaten and undermine humans’ place in it,” noted the report. “However, AI also has the potential to complement and augment human capabilities, leading to higher productivity, greater demand for human labour and improved job quality.”

A number of recent studies have focused on the impact of AI on the future of work. For example, in the spring of 2018, MIT launched a task force on the Work of the Future to understand whether and how our current period of technological disruption differs from prior industrial epochs. The task force final report, The Work of the Future: Building Better Jobs in an Age of Intelligent Machines, released in November of 2020, concluded that:

 “No compelling historical or contemporary evidence suggests that technological advances are driving us toward a jobless future. On the contrary, we anticipate that in the next two decades, industrialized countries will have more job openings than workers to fill them, and that robotics and automation will play an increasingly crucial role in closing these gaps. Nevertheless, the impact of robotics and automation on workers will not be benign. These technologies, in concert with economic incentives, policy choices, and institutional forces, will alter the set of jobs available and the skills they demand.”

Human Capital: The Value of Work Experience and Continuous Learning

“The most important resource in any economy or organization is its human capital - that is, the collective knowledge, attributes, skills, experience, and health of the workforce,” said Human capital at work: The value of experience, a recent research report by the McKinsey Global Institute. Human capital development starts in early childhood, continues through formal educations, and grows as a person acquires and deploys new skills through their working life. The value of human capital can be approximated by an individual’s lifetime earnings, and represents roughly two-thirds of their total wealth.

“Human capital is much more than a macroeconomic abstraction,” notes the report. “Each person has a unique, living, breathing set of capabilities. They belong to the individual, who decides where to put them to work. The degree of choice is not limitless, of course. People are the products of geography, family, and education; their starting points matter. Having career options also depends on an individual’s abilities and attributes, their networks, their family obligations, the health of the broader labor market, and societal factors. While we recognize these constraints, career moves are nevertheless an important mechanism for expanding skills and increasing earnings.”

McKinsey’s study is focused on the contributions of work experience to a person’s human capital. The research analyzed a dataset containing the de-identified histories of all the job moves made by about a million workers in each of four countries: the US, UK, Germany, and India. The study traced the work history of each individual and their lifetime earnings starting with the first job after the last degree obtained and after all subsequent role moves. For each role move, the study estimated its skill distance, defined as the the opportunity to acquire new and additional skills in the new job. Finally, the study calculated both the share of lifetime earnings attributed to the entry-level skills acquired through formal education, and the share of lifetime earnings attributed to work experience.

The Importance of Open Source Digital Wallets to the Future of the Internet

On September 13, the Linux Foundation (LF) announced its intent to form the Open Wallet Foundation (OWF) at its Open Source Summit Europe in Dublin. The OWF aims to develop open source software, key building blocks, and best practices that anyone can use as a starting point to build multi-platform, highly secure, privacy-protecting digital wallets. In addition, the OWF will advocate for the wide adoption of open source wallets that can be used to support a wide variety of applications, from payments to digital identities.

The LF was originally founded in 2000 as the Open Source Development Labs to help set the standards for the Linux operating system and support its continued development and commercial adoption. It grew over the years and assumed its current name, Linux Foundation, in 2007. Over the past decade, the LF has undergone a major expansion beyond its original Linux mission. It now has over 1,260 company members and supports hundreds of open source projects. Some of the projects are focused on technology horizontals, - e.g., AI, blockchain, security, cloud, - and others on industry verticals, including energy, automative, government, and health care.

Let me attempt to explain the importance of this announcement by addressing three key questions: what is a digital wallet?; what are digital identities?; and why do we need standard-based, open source digital wallets?

The Carnegie Cloud Governance Project

Two years ago, the Carnegie Endowment launched the Cloud Governance Project, a multi-year study on the governance challenges associated with cloud computing. “This project recognizes that the cloud offers huge benefits for individuals, organizations, and national economies through greater IT convenience, flexibility, and cost savings,” said the project’s website. “However, the risks of a major disruption affecting cloud services will invite regulation by governments at the local, national, and international levels. Moreover, as the world grows increasingly dependent on the cloud, other aspects of the technology – related to consumer protection, sustainability, inclusiveness, and human rights – will also attract scrutiny and regulation to protect or advance public interests.”

I’ve been closely following cloud computing since it first emerged in the late 2000s. In 2008 I gave a talk at a conference on The Promise and Reality of Cloud Computing. Most everyone at the conference agreed that something profound and exciting was going on, but there was no real consensus on what cloud computing was. A major reasons for both the excitement and lack of consensus about cloud is that we were basically seeing the emergence of a new model of computing in the IT world, only the third such model in the history of computing. The mainframe-based centralized computing model first appeared in the 1960s. Then came the PC-based client-server model in the 1980s. The more recent internet-based cloud computing model emerged in the late 2000s.

Over the past fifteen years, cloud has gone through three major stages. First came infrastructure-as-a-service, offering near unlimited scalability at very attractive prices. Then came software-as-a-service, offering a faster and less costly way of prototyping and deploying innovative applications leveraging advanced tools like containers, Kubernetes, and microservices. Cloud computing has now become a major engine of business transformation, helping companies adapt to the accelerated digitalization of the economy, especially since the advent of Covid-19 in March of 2020.

A Framework for Understanding the Power of Platforms

This past July, MIT’s Initiative on the Digital Economy held its 10th annual Platform Strategy Summit. The hybrid Summit included a number of panels and keynotes throughout the day, a few of which I attended online. In particular, I’d like to discuss the very interesting presentation by Boston University professor Marshall Van Allstyne as part of a panel on emerging trends in which he raised and answered five fundamental questions about platforms:

• Structure: Why do platforms have such high market caps but so few assets or employees?
• Strategy: Why does traditional product strategy fail in platform markets?
• Regulation: Why does traditional antitrust fail in platform markets?
• Fake News: Why is misinformation such a hard problem?
• Can Decentralized Autonomous Organizations dethrone platforms?

In his presentation, Van Alstyne, aimed to articulate a single framework that will help answer all five questions, that is, a consistent way of thinking about platforms based on the research that he and his colleagues have been conducting over the past decade. Let me summarize Van Alstyne’s presentation by first describing his unifying framework, followed by how the framework applies to each of the five key questions.

Web3: The Promise of a Blockchain-Based Internet of Value

On June 30, MIT hosted the Imagination in Action Web3 Summit, an event jointly organized by MIT Connection Science, Forbes, and Link Ventures. The Summit brought together almost 600 developers, entrepreneurs, investors, and academics to discuss the present state and potential evolution of Web3. The agenda featured a number of panels and talks. Speakers included Alex (Sandy) Pentland, - MIT professor and Connection Science Director, Michael Federle, - CEO of Forbes, John Werner, - Managing Director at Link Ventures, and Esther Dyson, - investor, journalist, and philanthropist.

The MIT Summit is the first in a series of Imagination in Action conferences. The next one will take place on October 6 in San Francisco, followed by one on January 17 at Davos, and back to MIT in June of 2023. The summits aim “to take us from reflections on the last major social and economic transformation precipitated by the arrival of the Internet era, to the economics to build and the governance to sustain Web3,” as well as to envision the possibilities of a Web3 future and to try to discern hype from reality in these early days of a potential new internet era.

I wasn’t able to attend the Summit in person, but I watched the recordings of a number of the sessions, where I heard a variety of opinions on what Web3 is about. This is not surprising. In their early years, major new technologies are generally accompanied by a mixture of excitement, speculation and confusion, as people sort out what the technology might be about and how it’s likely to evolve. Something important is going on out there, but it takes time and marketplace experience to sort things out.

I’ve seen this play out a few times throughout my long career in the IT industry, especially in the early 1990s as the internet was transitioning from a DARPA-sponsored project in the research community to an initiative that was starting to take the broader marketplace by storm. A lot was happening around the internet, but it wasn’t at all clear where things were heading, and in particular what the implications would be to the world of business. Let me share some of the lessons learned in the 1990s while formulating IBM’s internet strategy in our newly formed Internet Division.

The Powerful Human Forces Driving the End of Globalization

“I can remember a time  - about a quarter-century ago - when the world seemed to be coming together,” wrote NY Times columnist David Brooks in a recent essay, Globalization Is Over. The Global Culture Wars Have Begun. “The great Cold War contest between communism and capitalism appeared to be over. Democracy was still spreading. Nations were becoming more economically interdependent. The internet seemed ready to foster worldwide communications. It seemed as if there would be a global convergence around a set of universal values - freedom, equality, personal dignity, pluralism, human rights.”

“We called this process of convergence globalization,” he added. “It was, first of all, an economic and a technological process - about growing trade and investment between nations and the spread of technologies that put, say, Wikipedia instantly at our fingertips.”

The 1990s ushered a golden age of globalization, when the world seemed indeed to be coming together. Thomas Friedman’s The World is Flat became an international best-seller in 2005 by nicely explaining what globalization was all about, including the key forces that contributed to flattening the world, - from the collapse of the Berlin Wall in November of 1989 and the Netscape IPO in August of 1995, to the rise of outsourcing, offshoring and global supply chains.

But, ever since the 2008 global financial crisis, globalization and global trade started to slow down. “Globalisation has slowed from light speed to a snail’s pace in the past decade for several reasons,” wrote The Economist in a 2019 article. “The cost of moving goods has stopped falling. Multinational firms have found that global sprawl burns money and that local rivals often eat them alive. Activity is shifting towards services, which are harder to sell across borders: scissors can be exported in 20ft-containers, hair stylists cannot.”

The Open Source AI and Data Ecosystem

“The availability of enterprise-grade open source software (OSS) is changing how organizations develop, maintain, and deliver products,” wrote Ibrahim Haddad in a recent report, Artificial Intelligence and Data in Open Source. Haddad is VP of Strategic Programs at the Linux Foundation (LF) and Executive Director of the LF AI & Data initiative. “Using and adopting OSS can offer many benefits, including reduced development costs, faster product development, higher code quality standards, and more. The open source methodology offers key and unique benefits to the domains of AI and data, specifically in areas of fairness, robustness, explainability, lineage, availability of data, and governance.”

Earlier this year, Stanford released the 2022 AI Index report, its fifth annual study on the impact and progress of AI. The Stanford report noted that “2021 was the year that AI went from an emerging technology to a mature technology - we’re no longer dealing with a speculative part of scientific research, but instead something that has real-world impact, both positive and negative.” 

A few weeks ago I wrote about the impressive scope of the Linux Foundation. The LF supports a large and growing number of open source projects in a wide variety of areas. AI is no different from other technology domains, so it’s not surprising that open source now plays a major role as AI is being increasingly integrated into the economy.

Web3 - Safeguarding Our Identity and Personal Data in the Digital World

Transformative technologies are generally accompanied by a mixture of excitement and confusion in their early years. Something important is going on out there, although there’s no consensus on what it is yet. A major reason for the lack of consensus is that there’s no single dimension around which to define an emerging technology or business model. It’s like the fable of the blind men and the elephant. Each one touches a different part of the elephant. They then compare notes on what they felt, and learn that they are in complete disagreement.

This was the case with the advent of the commercial internet in the early 1990s. A lot was starting to happen around the internet, but we weren’t sure where things were heading. It was pretty clear that a communications revolution was underway: after all, the internet was fundamentally a network of networks, and email was one of its earliest and most popular applications. It was also an information revolution: anyone with a browser, a PC, and an internet connection could now access all kinds of content in the new World Wide Web. And, above all, it promised to be an economic revolution: the internet ushered a historical transition to a new kind of digital economy, including many innovative e-business applications.

Over the past few decades, the term internet has come to encompass a number of related technologies including broadband networks, mobile devices, social media, cloud computing, e-commerce platforms, big data, AI, and more. More recently, we’ve seen the emergence of a new set of technologies and business models that are once more generating excitement, confusion, and multiple opinions on what they’re all about: Web3.

Last week I wrote about web3, referencing two recent books: the just-published Digital Asset Revolution by Alex Tapscott, and the soon-to-be-published Think Blockchain by Jerry Cuomo.

I wrote that web3 aims to usher a more open, entrepreneurial internet and digital economy by replacing today’s corporate mega-platforms with blockchain-based decentralized networks. Web3 would thus give creators, developers and users a way to monetize their contributions, involve them in the governance and decision-making of the platforms supporting their work, and give individuals more privacy and control over their data.

I now want to discuss another perspective on web3 based on The Emerging New Economy: Causes and Consequences of Web 3.0, a recent Stanford seminar by Alex (Sandy) Pentland, MIT professor and faculty director of the MIT Connection Science Research initiative, - with which I’ve long been affiliated as a Connection Science Fellow.

The Potential Impact of Web3 on the Internet and the Digital Economy

A few weeks ago, the Blockchain Research Institute (BRI) announced that its annual global conference would be renamed Web3 Blockchain World, and that the Enterprise Blockchain Awards would now be called the Web3 & Blockchain Transformation Awards.

I’ve been affiliated with BRI for a number of years as a research contributor and as chair of its blockchain awards committee. I was somewhat concerned with the name change, because, as is generally true of new technologies in their early stages, there are multiple views of what web3 is all about. Critics view web3 as little more than hype, a rebranding effort to shed some of the cultural and political baggage of crypto, while supporters believe that web3 represents the future of the internet, upending traditional gatekeepers and ushering a middleman-free digital economy.

Over the following weeks I learned from BRI founder Don Tapscott his reasoning behind the decision that BRI should embrace web3 in its research and events. I read Think Blockchain, a book by IBM Fellow and VP of Blockchain Technologies Jerry Cuomo that will be published later this month. I read the section on Web3 and the New Internet of Value in Digital Asset Revolution, a book by BRI co-founder Alex Tapscott that was just published earlier this week. And I looked at a number of articles from both supporters and critics of web3.

In the end, I became convinced that web3 is now where the commercial internet was in the early 1990s, cloud computing in the late 2000s, and blockchain in the mid 2010s: a very promising set of technologies and applications in their early years. While, at this stage it’s not yet clear how it will evolve, it’s time to start paying serious attention to web3 and try to influence its directions. Let me briefly share my views of web3.

How to Build Organizational Resilience to Cyberattacks

I became quite interested in cybersecurity around a year ago, given the growing threats of cyberattacks by criminal groups and adversarial governments. I then joined CAMS, MIT’s interdisciplinary cybersecurity consortium and started attending its online weekly seminars. A few weeks ago I attended a CAMS seminar on cyber resilience by Manuel Hepfer, a research affiliate at Oxford University and a research analyst at ISTARI, a cyber risk management company.

What is cyber resilience? While cybersecurity is the practice of protecting critical systems and sensitive information from digital attacks, cyber resilience is the ability to prepare for, withstand, and recover rapidly from any major disruption, whether an intentional cyberattack or a natural disaster.

The seminar was based on a study by Hepfer and colleagues of the 2017 NotPetya ransomware attacks, a series of powerful cyberattacks which caused over $10 billion in global economic damage across a number of industries. Their study was primarily focused on three global companies that were the subject of NotPetya attacks: a logistics company with over 60,000 employees, a manufacturing one with over 20,000 employees, and a third in professional services with over 5,000 employees.

The study conducted around 50 interviews with senior executives across the three companies, including CEOs, CFOs, CIOs, and CISOs. In addition, it reviewed internal documents, presentations, press releases, newspaper coverage, and audio and video files related to events before, during, and after the attack. Their study was published in two articles in the MIT Sloan Management Review, the first in 2020, the second in 2022.

Can We Trust Our Impressive AI Language Models?

One of the key findings of the 2022 AI Index Report was that large language models (LLMs) are setting records on technical benchmarks thanks to advances in deep neural networks and computational power that allows them to be trained using huge amounts of data. LLMs are now surpassing human baselines in a number of complex language tasks, including English language understanding, text summarization, natural language inference, and machine translation.

A.I. Is Mastering Language. Should We Trust What It Says?, a recent NY Times Magazine article by science writer Steven Johnson, took a close look at one such LLM, the Generative Pre-Trained Transformer 3, generally referred to as GPT-3. GPT-3 was created by the AI research company OpenAI. It’s been trained with over 700 gigabytes of data from across the web, along with a large collection of text from digitized books. “Since GPT-3’s release, the internet has been awash with examples of the software’s eerie facility with language - along with its blind spots and foibles and other more sinister tendencies,” said Johnson.

“So far, the experiments with large language models have been mostly that: experiments probing the model for signs of true intelligence, exploring its creative uses, exposing its biases. But the ultimate commercial potential is enormous. If the existing trajectory continues, software like GPT-3 could revolutionize how we search for information in the next few years.” Instead of typing a few keywords into Google and getting back a long list of links that might have the answer, you’d ask GPT-3 what you’re looking for in English and get back a well-written, accurate answer. “Customer service could be utterly transformed: Any company with a product that currently requires a human tech-support team might be able to train an L.L.M. to replace them.”

A Human-Compatible Safe, Controllable AI

“Even in its present state, the technology of artificial intelligence raises many concerns as it transitions from research into widespread use,” wrote UC Berkeley professor Stuart Russell in a recent essay, If We Succeed. “These concerns include potential misuses such as cybercrime, surveillance, disinformation, and political manipulation; the exacerbation of inequality and of many forms of bias in society; the creation and deployment of lethal autonomous weapons; and the usurpation of human roles in the economy and in social relationships.”

“My concern here, however, is with the potential consequences of success in creating general-purpose AI: that is, systems capable of quickly learning to perform at a high level in any task environment where humans (or collections of humans) can perform well.” Decades ago, Alan Turing expressed a similar concern. While answering a question during a lecture in 1951, Turing said: “It seems probable that once the machine thinking method had started, it would not take long to outstrip our feeble powers. … At some stage therefore we should have to expect the machines to take control.” Over the past decade, a number of public figures like Stephen Hawking and Nick Bostrom have argued that a superintelligent AI could become difficult or impossible for humans to control, and might even pose an existential threat to humanity.

Until recently, we didn’t have to worry about the consequences of such superhuman AIs because AI applications weren’t all that smart and were mostly confined to research labs. But, powerful AI systems have now matched or surpassed human levels of performance in a number of application- specific tasks such as image and speech recognition, skin cancer classification, breast cancer detection, and complex games like Jeopardy and Go. While these application-specific breakthroughs, - generally referred to as soft, or narrow AI, - were once viewed as the exclusive domain of humans, AI still lacks the deeper, general-purpose human intelligence that’s long been measured in IQ tests.

The Digital Divide in How We Use the Internet

A few weeks ago I attended an MIT seminar by Esteban Moro, professor at Universidad Carlos III in Madrid and visiting professor at MIT. Moro’s talk discussed the socio-economic digital divide based on how we use the internet, focused on two key questions: how profound is the digital usage gap in our society?; and can we use mobile phone traffic to infer socioeconomic status? His seminar was based on a recently published article in the Journal of the Royal Society Interface co-authored with four collaborators, - News or social media? Socio-economic divide of mobile service consumption.

“Inequality is a central societal problem, especially within rapidly expanding urban areas,” wrote the authors. “While it is a crucial driver for economic growth, the progressive clusterization of workers, industries, companies and services in cities has a tremendous cost in terms of segregation and discrimination. This cost is not only economic: in the same city, different areas can have a 10- to 15-year imbalance in life expectancy and highly divergent education levels, with little chances of social mobility.”

“The design and successful implementation of policies to alleviate these problems require fine-grained, frequently updated information about income, education or inequality across metropolitan areas,” they added. “However, most data sources employed today, such as population censuses or surveys, suffer from sparsity in population coverage or infrequent updating, hence they do not allow the swift evolution that urban societies experience nowadays to be followed. Thus, the traditional ways of understanding cities tend to explain what happened 5 years earlier rather than nowcasting or even predicting urban transformations.”

In his seminar, Moro referred to the socio-economic divide based on how we use the internet as the second digital divide, in contrast to the original digital divide which was based on access to the internet.

The 2022 Work Trend Index: How to Get Hybrid Right

“The people returning to the office are not the same as those who left in March 2020,” wrote Jared Spataro, Microsoft Corporate VP for Modern Work, in a recent Harvard Business Review (HBR) article, 5 Key Trends Leaders Need to Understand to Get Hybrid Right. The article summarized the findings of Microsoft’s 2022 Work Trend Index, a report based on various sources of information, including a survey of 31,000 people in 31 countries, labor trends from LinkedIn, and trillions of signals from Microsoft 365 suite of productivity apps.

“The data shows that the past two years left an indelible mark on the psyche of workers, altering their expectations and fundamentally shifting the way work gets done,” said Spataro. “This is a pivotal moment, where leadership matters more than ever. Those who embrace a new mindset and shift cultural norms will best position their people and their business for long-term success. Adapting to the influx of change in this business environment is no easy feat.”

“After many false starts, organizations are finally making the shift into a true hybrid work model. Like every other turning point over the past two years, there’s no shortage of perspectives on what this next phase will look like.” However, there’s no going back to the way work once was. Adapting to the many changes in this business environment is a challenge now facing every leader. To navigate the transition to hybrid work, leaders need to understand five key trends.

Beyond GDP: A Framework for Measuring Economic Progress

“What is meant by economic progress, and how should it be measured?,” asked economists Diane Coyle and Leonard Nakamura in a recent paper, Time Use and Household-Centric Measurement of Welfare in the Digital Economy. “The conventional answer is growth in real GDP over time or compared across countries, a monetary measure adjusted for the general rate of increase in prices. However, there is increasing interest in developing an alternative understanding of economic progress, particularly in the context of digitalization of the economy and the consequent significant changes Internet use is bringing about in production and household activity.”

Gross Domestic Product (GDP) became the accepted international measure of economic progress in the 1940s. It was a good measure for an industrial economy dominated by the production of physical goods, but GDP doesn’t reflect important economic activity beyond production, such as income, consumption and quality of life, nor does it capture measures of economic welfare or utility, that is, the extent to which a service or good satisfies an individual’s wants and needs. In addition, GDP doesn’t include the value of the increasing amounts of free information goods now available in the Internet-based digital economy, including email, texts, social media, maps, apps and videos.

In their paper, Coyle and Nakamura propose an alternative approach for measuring economic progress based on how much time people spend on different daily activities - e.g., paid work, household tasks, leisure, and consumption - combined with measures of well-being while engaged in these different activities. “In an economy that is four-fifths services rather than goods, with time to consume therefore inherent in the majority of economic activity, the utility of the different uses of time seems key to understanding economic welfare as well as productivity.”

How Do Young People See the World Compared to Older Generations?

“There is an emerging narrative about a growing intergenerational divide worldwide,” said a recent international survey conducted by The Changing Childhood Project. “In the media and in popular culture, the young are often portrayed as impatient, militant, outspoken, and even entitled, in contrast to more sober temperaments among older people. The concept of intergenerational tension is not new. What may be new, however, is the speed with which our world is changing – and with it, childhood.”

The Changing Childhood Project is a collaboration between UNICEF, - the UN agency responsible for providing humanitarian and developmental aid to children around the world, - and Gallup, - the analytics company best known for its international opinion polls. Created to explore these intergenerational shifts, the project seeks to answer a few key questions: what is it like growing up today?; how do young people see the world differently?; and, is there an intergenerational gap?

The 2022 AI Index Report: AI’s Emerging Real-World Impact

On March 16, Stanford’s Institute for Human-Centered Artificial Intelligence (HAI) released the 2022 AI Index report, its fifth annual study on the impact and progress of AI. The comprehensive study was led by an interdisciplinary group of experts from across academia and industry, and highlights the rapid rate of technical and marketplace AI advances, as well as the growing ethical and regulatory concerns associated with AI.

“2021 was the year that AI went from an emerging technology to a mature technology - we’re no longer dealing with a speculative part of scientific research, but instead something that has real-world impact, both positive and negative,” said Jack Clark, co-chair of the AI Index. “This year’s AI Index tells us that AI is being integrated into the economy and the effects of it are beginning to go global across research, deployment, and even funding.” Two weeks ago I attended an online HAI seminar where Clark gave this excellent presentation on the AI Index.

The report is organized into five chapters: Technical Performance, AI Ethics, R&D, Economy and Education, and Policy and Governance. Let me summarize the key findings of each chapter.

What Is Web3, and Could It Usher a New Economic System?

Bitcoin was introduced in 2008 with the release of Bitcoin: A Peer-to-Peer Electronic Cash System, which explained how to design a decentralized cryptocurrency and digital payment system without the need for central banks or trusted intermediaries. Blockchain, the digital ledger for managing and certifying the validity of bitcoin transactions, was introduced in the same paper.

Over the years blockchain has transcended its original objectives, and has evolved in two major directions. One continues to focus on blockchain as the underlying platform for bitcoin, but it’s also become the platform for the large number of cryptocurrencies, digital tokens, and other cryptoassets that have since been created. The other is focused on the use of blockchain as a trusted distributed data base for private and public sector applications involving multiple institutions, such as supply chains, financial services and healthcare. The cryptocurrency camp is based on public permissionless blockchains, which anyone can join and require some kind of proof-of-work or proof-of-stake systems. The multi-institution camp is based primarily on private permissioned blockchains where participation is restricted to the institutions transacting with each other.

Given my professional interests, I’m particularly interested in the use of blockchains in business and public sector applications for two major reasons. First, I consider blockchain as a major next step in the continuing evolution of the Internet, helping us enhance the security of Internet transactions and data by developing a layer with the standard encrypted services for secure communication, storage and data access. And, longer term, blockchain technologies can significantly improve the efficiency, resilience, and management of complex global applications involving multiple institutions.

But, while I’ve been somewhat skeptical of the crypto camp, a number of intriguing crypto-related topics have recently captured my attention, including Non-Fungible Tokens (NFTs), Decentralized Finance (DeFi), and especially Web3. These various topics were nicely explained by technology columnist Kevin Roose in The Latecomer’s Guide to Crypto, an article in the March 20 SundayBusiness section of the NY Times.

The Widening Gap Between Technological and Institutional Change

A few weeks ago I read The Exponential Age Will Transform Economics Forever, an article in Wired by Azeem Azhar based on his recently published book The Exponential Age. Azhar’s central thesis is that the chasm between what technology allows us to do and what our institutions are prepared to handle has been rapidly widening. New technologies are being invented and scaled at an ever-faster pace. But our institutions, - including our economic systems, political organizations and social norms, - are changing much more slowly. While technological advances follow an exponential curve, institutional adaptation follow a straight, incremental line.

The gap between technological and institutional change is nothing new. Ever since the advent of the Industrial Revolution, there’s been a significant time lag between the emergence of a transformative technology and its ensuing impact on economies and societies. Even after reaching a tipping point of market acceptance, it takes considerable time, - often decades, - for their benefits to be fully realized.

In The Productivity J-Curve, a 2018 NBER paper, Erik Brynjolfsson, Daniel Rock, and Chad Syverson  explained that general purpose, transformative technologies, - such as the steam engine, electricity, and semiconductors, - “are the defining technologies of their times and can radically change the economic environment. They have great potential from the outset, but realizing that potential requires larger intangible and often unmeasured investments and a fundamental rethinking of the organization of production itself.”

The life cycle of historically transformative technologies consists of two district phases, investment and harvesting. Since the technologies are general purpose in nature, they require massive complementary investments, including business process redesign, co-invention of new products and business models, and the re-skilling of the workforce. Moreover, the more transformative the technologies, the longer it takes for them to reach the harvesting phase when they are widely embraced by individuals, companies and industries across the economy.

The Impact of Open Source on the EU Economy

In the 1990s, open source was generally viewed as experimental approach to software development mostly used by research and academic communities on emerging projects like the Internet and Linux. Open source has since evolved to become a well-accepted model of economic production across just about all private- and public-sector communities around the world. But, while widely used, what’s been the economic impact of open source on nations and firms? This question was addressed in a recent study on the impact of open source on the European economy.

“The increasing relevance of Open Source (OS) during the last two decades requires an update of an in-depth analysis of its current role, position and its potential for the European economy,” said the European Commission (EC) in its report on The impact of open source software and hardware on technological independence, competitiveness and innovation in the EU economy.

“Whereas Open Source Software (OSS) has become mainstream across all sectors of the software industry during the past 20 years, Open Source Hardware (OSH) is still in an emerging phase. However, the business ecosystem for OSH is developing.”

The EC conducted a comprehensive analysis of the commercial uses, costs, and benefits of OSS and OSH. “On the basis of this information, the study assesses the potential for the European Union (EU) to achieve its policy goals (including economic growth, greater competitiveness, innovation, and job creation) through the use, promotion and support of OSS and OSH.”

The Rise and Fall of Nation-States

Several weeks ago I attended The End of Nation-States, by technology executive and consultant Tomás Pueyo, - part of the Stanford Digital Economy Lab seminar series. In May of 2021, Pueyo launched Unchartered Territories, a newsletter he describes as aiming to explore the unchartered territories of a fast changing world “to know how we can prepare for them.”

His seminar discussed the role of information technologies in the rise of nation-states throughout history, and how information technologies are likely to lead to the end of nation-states in the coming decades. Let me summarize Pueyo’s key arguments based on his talk and two related newsletters.

The Rise of Nation-States

In Internet and Blockchain Will Kill Nation-States, published in August of 2021, Pueyo explained how the printing press led to the emergence of nation-states in the 16th century.

The feudal system was the basic structure of society between the 9th and 15th centuries in medieval Europe. Feudalism was based on the relationship between a landed-aristocracy, - e.g., kings, dukes, counts, - and the vassals under their protection who vowed them allegiance. Power in the feudal system was hyperlocal and widely distributed across different landowners. Communication was difficult across different localities, since they each generally spoke different dialects or altogether different languages.

The Catholic Church was the biggest power in medieval Europe. The root of its power was the Church's well organized hierarchy of priests, bishops, archbishops, cardinals, and the Pope, all of which were able to communicate with each other far better than everyone else, - aristocrats and vassals alike.

Getting Ready for the 100-Year Life

“In the United States, demographers predict that as many as half of today’s 5-year-olds can expect to live to the age of 100,” said The New Map of Life, a recent report from the Stanford Center on Longevity. The   cross-disciplinary Stanford Center was founded in 2007 to conduct research on the key issues associated with increased longevity, - from cognitive health to physical well-being and financial security, - with the aim to make long lives healthy and rewarding.

While the 100-year life may be here, we’re not ready. “By the middle of this century, this once unattainable milestone may become the norm for newborns, continuing a remarkable trend that saw human life expectancies double between 1900 and 2000, and still rising in this century, despite the grievous toll of the Covid-19 pandemic,” notes the report. “Longevity is one of the greatest achievements in human history, brought about by reductions in infant mortality, advances in sanitation and medicine, public education, and rising standards of living. Yet the change came about so quickly that the social institutions, economic policies, and social norms that evolved when people lived for half as long are no longer up to the task.”

According to the Stanford Center, there’s a clear distinction between aging and longevity. Aging is the biological process of getting older - the accumulation of changes in a human being over time. Longevity is “the measure of long life,” - the ways to enhance the quality of a long life “so that people experience a sense of belonging, purpose, and worth at all ages and stages.”

The Promise & Peril of Human-Like Artificial Intelligence

In his 1950 seminal paper, Computing Machinery and Intelligence, Alan Turing proposed what’s famously known as the Turing test, - a test of a machine’s ability to exhibit intelligent behavior indistinguishable from that of a human. If a human at a keyboard couldn’t tell whether they were interacting with a machine or a human, the machine is considered to have passed the Turing test. “Ever since, creating intelligence that matches human intelligence has implicitly or explicitly been the goal of thousands of researchers, engineers and entrepreneurs,” wrote Erik Brynjolfsson, - Stanford professor and Director of the Stanford Digital Economy Lab, - in a recent article, The Turing Trap: The Promise & Peril of Human-Like Artificial Intelligence.

“The benefits of human-like artificial intelligence (HLAI) include soaring productivity, increased leisure, and perhaps most profoundly, a better understanding of our own minds. But not all types of AI are human-like - in fact, many of the most powerful systems are very different from humans - and an excessive focus on developing and deploying HLAI can lead us into a trap. … On the one hand, it is a path to unprecedented wealth, increased leisure, robust intelligence, and even a better understanding of ourselves. On the other hand, if HLAI leads machines to automate rather than augment human labor, it creates the risk of concentrating wealth and power. And with that concentration comes the peril of being trapped in an equilibrium where those without power have no way to improve their outcomes, a situation I call the Turing Trap.”

Over the past decade, powerful AI systems have matched or surpassed human levels of performance in a number of tasks such as image and speech recognition, applications like skin cancer classification and breast cancer detection, and complex games like Jeopardy and Go. These AI breakthroughs are generally referred to as soft, narrow or specialized AI, inspired by, but not aiming to mimic the human brain. They’ve been generally based on machine learning, that is, on the analysis of vast amounts of information using powerful computers and sophisticated algorithms, whose results exhibit qualities that we associate with human intelligence.

The Work of the Future Is Ours to Invent

The Work of the Future: Building Better Jobs in an Age of Intelligent Machines, by David Autor, David Mindell and Elisabeth Reynolds was published last week. The new book is based on the multiyear MIT Task Force on The Work of the Future that they jointly co-chaired.

The Task Force was commissioned by MIT President Rafael Reif in the spring of 2018 to address one of the most critical questions of the digital economy, - an economy that technology universities like MIT have played a major role in bringing about: as emerging technologies raise aggregate economic output and the wealth of nations, will they also enable people to attain higher living standards, better working conditions, greater economic security, and improved health and longevity? Led by Autor, Mindell and Reynolds, the task force involved over 20 faculty members from 12 departments at MIT as well as more than 20 graduate students. Its final report was released in November of 2020. In addition, the Task Force published a number of working papers and research briefs.

“Amidst a technological ecosystem delivering rising productivity, and an economy generating plenty of jobs (at least until the COVID-19 crisis), we found a labor market in which the fruits are so unequally distributed, so skewed towards the top, that the majority of workers have tasted only a tiny morsel of a vast harvest.” was the Task Force overarching conclusion. But, it argued that with better policies in place, more people could enjoy good careers even as new technologies transform the very nature of work.

Let me summarize the Task Force key findings which the book builds on:

Is It Possible to Establish Norms for Responsible State Behavior in Cyberspace?

In mid-December, the Council on Foreign Relations sponsored a virtual roundtable with Joseph Nye, - former dean of Harvard’s Kennedy School of Government, - to discuss his recent Foreign Affairs article The End of Anarchy?: How to Build a New Digital Order. Professor Nye has long been regarded as one of America’s preeminent strategic thinkers and political scientists. In the 1970s he chaired the National Security Council Group on Nonproliferation of Nuclear Weapons, and over the past decade he’s brought his expertise to the study of conflict and deterrence in cyberspace.

Cybersecurity is an increasingly important aspect of the of US national security strategy, including global trade and the protection of our critical infrastructures. In June of 2021, FBI Director Christopher Wray compared the danger of ransomware attacks on US firms by Russian criminal groups to the September 11 terrorist attacks. And, in a July editorial, the NY times said that ransomware attacks have emerged as “a formidable potential threat to national security,” given “their ability to seriously disrupt economies and to breach strategically critical enterprises or agencies,” urging governments that “It is a war that needs to be fought, and won.”

At an MIT conference in February of 2019, former US Secretary of State Henry Kissinger was asked if we need cybersecurity control agreements with Russia, China and other nations similar to the nuclear arms control agreements that he spent so much time negotiating during the Cold War. Dr. Kissinger replied that for arms control to be effective, the two sides needed to share information and agree to inspections. But such mechanisms are harder to apply in the digital world, because the transparency that was essential for arms control would be very hard to establish for cyber threats. In addition, while controls of physical arms are relatively explicable and negotiable, the variety and speed of cyber attacks make it much harder to develop adequate control agreements.

What’s the State of Our Digital Technology Revolution?

I first met Carlota Perez in the mid-2000s when she gave a seminar at IBM based on her 2002 bestseller Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. At the time, we had been living through a series of major changes, - the explosive growth of the Internet, the advent of the digital economy, the dot-com bubble, and the bursting of the bubble. In her excellent presentation Perez explained these turbulent times by positioning them within the historical perspective she wrote about in her book.

If you look at the historical big picture, patterns begin to emerge which serve as a good guide for understanding the past and thinking about the future. Since the onset of the Industrial Revolution we’ve had 5 major technological revolutions, each one lasting roughly 40 to 60 years. First was the age of machines, factories and canals starting in 1771. This was followed by the age of steam, railways, iron and coal, starting in 1829; steel, electricity and heavy engineering in 1875; oil, automobiles, and mass production in 1908, and our present information technology and telecommunications (ICT) digital age starting in 1971.

Technology revolutions are engines of growth, ushering new paradigms for innovation, rejuvenating and transforming the economy, and re-shaping social behavior and the institutions of society. To better understand the dynamics of a technology revolution, we should split it into two different periods, each lasting 20 to 30 years.

A New Measurement Framework for the Digital Economy

Several weeks ago I heard a very interesting keynote presentation by Cambridge professor Diane Coyle at the annual workshop of the Stanford Digital Economy Lab, - What Don’t We Know About Measuring the Digital Economy? Professor Coyle is also a research associate of the UK Economics Statistics Centre of Excellence. In 2017 she was a recipient of the Indigo Prize on how to measure economic activity in the digital economy for her essay Making the Future Count, co-authored with Benjamin Mitra-Kahn.

“GDP captures only market transactions at the price of exchange, and not the welfare gains, externalities, environment, distribution of wealth or innovation which occurs in an economy,” wrote the authors. “Hence almost since its creation in the 1940s it has been criticised for its inability to capture economic welfare. Now changes in the economy, being restructured by digital technology and paying the price for unsustainable growth, make the case for a new measurement framework more pressing than ever. GDP was never an ideal measure of economic welfare and its suitability has been decreasing.”

Gross Domestic Product (GDP) became the accepted international measure of economies in the1940s. While being a good measure for the 20th century industrial economy, GDP is a flawed measure for the 21st century economy. It was suitable when the economy was dominated by the production of physical goods, but GDP doesn’t adequately capture the growing share of services and other intangible assets that now characterize advanced economies. Nor does it reflect important economic activity beyond production, such as income, consumption and living standards.

The World Ahead 2022: Adjusting to New Realities

A few weeks ago The Economist published The World  Ahead 2022, its 36th annual look at the economic, political, social and cultural trends that will likely shape the coming year. “If 2021 was the year the world turned the tide against the pandemic, 2022 will be dominated by the need to adjust to new realities, both in areas reshaped by the crisis (the new world of work, the future of travel) and as deeper trends reassert themselves (the rise of China, accelerating climate change),” wrote the issue’s editor Tom Sandage.

Here are the top ten major trends in The World Ahead 2022:

New Ways of Understanding Human Behavior

“It is often said that no person is an island and it takes a village to raise a child, but psychology has largely lacked the scientific evidence to quantify and characterize these aphorisms,” wrote MIT professor Alex (Sandy) Pentland in Contextualizing Human Psychology, - an article published in the August, 2020 issue of Technology, Mind and Behavior, a journal of the American Psychological Association. “As a result, experimental focus is usually on more easily quantifiable individual traits and behaviors.”

“In the last decade, however, digital data from online interactions, cell phones, and credit cards have allowed us to precisely quantify large-scale social behavior at a very fine level of detail. The little data breadcrumbs that we leave behind as we move around in the world are enabling new ways of understanding human behavior, giving rise to the emerging discipline of computational social science. “[T]hese new tools can help relate individual traits to the surrounding social context and thus better explain life outcomes and societal characteristics.” 

The article illustrated the advances and challenges of data-driven predictions by discussing a 2017 mass collaboration experiment. The experiment asked each of 160 academic teams to predict six life outcomes, - such as a child’s grade point average and whether a family would be evicted from their home, - by analyzing development data of over 4.200 at-risk children from the Fragile Families and Child Wellbeing Study. These data had been collected by interviewing primary caregivers over more than 15 years, as well as other assessments including early childhood education and the children’s scores on a variety of standard tests. Additional information was provided on the parents, including medical, employment, and incarceration histories, religion, and child care practices. Almost 13,000 measurements were made for each child and their family.

How Has Working from Home Worked Out So Far?

“COVID-19 triggered a mass social experiment in working from home (WFH),” said economists Jose Maria Barrero, Nicholas Bloom, and Stephen J. Davis in Why Working from Home Will Stick, a paper published in April of 2021 by the National Bureau of Economics Research (NBER). “Americans, for example, supplied roughly half of paid workhours from home between April and December 2020, as compared to five percent before the pandemic. This seismic shift in working arrangements has attracted no shortage of opinions about whether WFH will stick.”

Working from home (WFH) has been around for decades, modestly growing in the 1990s with the rise of the Internet. The share of WFH three or more days per week was under 1% in 1980, 2.4% in 2010, and 4.0% in 2018. Then came Covid-19, forcing tens of millions around the world to work from home and triggering a mass workplace experiment that broke through the technological and cultural barriers that had prevented its adoption in the past.

To investigate whether WFH will stick, the authors of the NBER paper devised a survey that asked questions about working arrangements and personal experiences with WFH during the pandemic, as well as worker preferences and employer plans after the pandemic ends. The survey was conducted monthly between May 2020 and March 2021, by which time it had collected 28,597 valid responses from 20-64 years old US workers, of which 43.8% were female. The typical respondent was 40 to 50 years old, with one to three years of college, who earned $40 to $50 thousand in 2019.

Let me discuss a few of the survey’s questions and findings.

Which Colleges and College Programs Give Students the Best Bang for their Buck?

“The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014,” wrote NY Times journalist David Leonhardt in Is College Worth It? in May of 2014. “Over the long run, college is cheaper than free,” he added, citing an article by MIT economist David Autor which pointed out that a college-educated worker can expect an additional lifetime earning of over $500,000 compared to one whose highest degree is a high school diploma. Experts and journalists questioning the value of a college education are most likely obsessing to get their toddlers into an elite nursery school, so they are on-track for the right schools over the ensuing 20 years, added Leonhardt.

In May, 2019 seminar I attended, Autor noted that over the last four decades, the US and other industrial economies have seen a remarkable rise in wage inequality by educational attainment, with the earnings of the most-educated increasing, and the earnings of the least-educated falling in real terms. Since the 1980s, the earnings of those with a four year college degree have risen by 40% to 60%, while the earnings of those with a high school education or less have fallen among men and barely changed among women.

Every year, the US Bureau of Labor Statistics publishes a set of earning projections by educational attainment. Their 2020 projections showed that the median weekly earnings for all workers is $1,029; for those with less than a high school degree it is $619; high school diploma - $781; some college, no degree - $877; associate’s degree - $938; bachelor’s degree - $1,305; master’s degree - $1,545; doctoral degree - $1,885; and professional degree - $1,893.

Beyond these aggregate numbers, which institutions of higher education give students the best economic returns, that is, the best bang for their buck. In April of 2020, Third Way, a public policy think tank, published a report that introduced a new approach for estimating the economic return of an education, - that is, the Price-to-Earnings Premium (PEP), - based on the amount of time it generally takes a student to recoup the cost of obtaining a credential at a particular school.

Impact of Covid-19 on Job Automation

“Why are there still so many jobs?,” asked MIT economist David Autor in a 2015 article on the history of workplace automation. Given that technologies have been automating human work for the past couple of centuries,“should we not be somewhat surprised that technological change hasn’t already wiped out employment for the vast majority of workers?”

As Autor explained in the article, the answer is based on an economic reality that’s frequently overlooked. “Automation does indeed substitute for labor - as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply. … journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor.”

Professor Autor was co-chair of MIT’s Work of the Future Task Force, which was launched in the spring of 2018 to better understand the impact AI and automation on jobs. The Task Force released an interim report in September of 2019. Its overriding conclusion was that the likelihood that AI and automation would wipe out major workforce sectors in the near future was exaggerated.

However, it raised important reasons for concern, especially the rising polarization of employment and wage distribution over the past few decades, which has disproportionately benefited high-skilled professionals while reducing opportunities for mid- and low-skilled workers. The report emphasized that “at a time of historic income inequality, a critical challenge is not necessarily a lack of jobs, but the low quality of many jobs and the resulting lack of viable careers for many people, particularly workers without college degrees.”

The Covid-19 pandemic came a few months later, pretty much turning our world upside down.

The Complex Interplay Between Cybersecurity and Regulatory Compliance

Cybersecurity threats have significantly increased since March of 2020 when much of the economy was forced online to help us cope with the Covid crisis, including a number of high profile attacks by international criminal groups and adversarial governments. This past June, FBI Director Christopher Wray compared the danger of ransomware attacks on US firms by Russian criminal groups to the 9/11 terrorist attacks. When Biden and Putin met in Geneva a few weeks later, cyberweapons control was at the top of the agenda, a spot previously occupied by the control of nuclear weapons.

It’s been clear for a while that in a world increasingly governed by digital data and transactions, our existing cybersecurity methods have been far from adequate. To learn more about this very important area, earlier this year I joined  CAMS, MIT’s interdisciplinary cybersecurity initiative, and started attending its research seminars.

At a recent seminar, I heard a very interesting presentation on Compliance and Cybersecurity by CAMS research affiliate Angelica Marotta. Her seminar was based on Convergence and divergence of regulatory compliance and cybersecurity, a recent paper she co-authored with MIT professor Stuart Madnick.

Marotta’s opening slide included succinct definitions of cybersecurity and compliance that highlight their different objectives:

• Cybersecurity is responsible for the “internal procedures established by a company to improve the security of its operations.”
• Compliance is responsible for the “external regulations established by governments or industries groups that must be met.”

Today, in order to be successful, every organization needs to be both compliant and cyber secure. But, the extent to which compliance helps or hinder security for an organization continues to be a very important research question.

The Supply Chain Economy - A New Categorization of the US Economy

A few weeks ago I attended The Supply Chain Economy: Understanding Innovation in Services, a virtual seminar sponsored by the Council on Foreign Relations with economists Mercedes Delgado and Karen Mills discussing their recent paper A New Categorization of the U.S. Economy.

The debate about the drivers of innovation and job creation has long been centered on manufacturing versus services. The predominant view has been that manufacturing drives good wages, economic growth, and innovation as measured by its large share of patents, while services provide lower-wage jobs, less innovation and significantly fewer patents.

But Delgado and Mills argue that categorizing the economy in terms of manufacturing versus services is no longer meaningful. Instead, they’ve proposed an alternative framework for understanding the drivers of innovation and economic performance that’s focused on the suppliers of both goods and services: the supply chain economy.

“A long academic and policy debate has focused on the role of the manufacturing capacity of a country in its economic and innovative performance,” wrote the authors. “This question has become even more relevant as the U.S. economy has shown a large decline in manufacturing employment in recent decades, in part due to increased import competition. In this debate, the predominant view is that a country's manufacturing capacity drives innovation because of externalities associated with the production of intermediate goods (e.g., machine tools, automation equipment, and semiconductors) that improve the efficiency of the innovation process. Most prior work on innovation focused on a narrow view of suppliers as producers of intermediate goods. However, in today's economy suppliers increasingly produce services (e.g., enterprise software).”

A Pandemic Is Fundamentally an Information Problem

A few weeks ago I attended a very interesting online seminar, Economics in the Age of Covid-19, by University of Toronto professor Joshua Gans. Over the past 18 months, professor Gans has been conducting research and writing extensively on the impact of Covid-19, including a number of articles, a newsletter, and two books. His key thesis is that a pandemic is fundamentally an information problem. If you know that someone you interact with is potentially infectious, you can take actions to limit the interactions. However, if you have to guess whether a person is infectious, you’re taking a risk. Not only can you become infected, but you might also pass that infection on to others.

“The difference between perfect knowledge and no knowledge is what causes an infectious disease to have an impact on social and economic interactions,” wrote Gans in The Pandemics Information Gap, first published in April of 2020, followed by an expanded second edition in November of 2020. “With perfect knowledge, some people get sick, they are isolated, and life is (for most of us) essentially unchanged. … perfect knowledge allows you to avoid all infected people. No knowledge makes it near certain that you will encounter at least one infected person.” Furthermore, when we don’t know who is infected, we have to act as if everyone is infected, which then leads to major economic and social disruptions, including near-empty offices and city centers, decreased travel and leisure activities, and learning from home instead of in school.

In his seminar, Gans cited the 2002 SARS outbreak in China, Hong Kong, and Taiwan and the 2015 MERS outbreak in South Korea as examples of pandemics that were quickly contained. With SARS and MERS, people only became infectious when they developed a fever, cough, and other easily identifiable flu-like symptoms. Anyone suspected of being infected could thus be quickly isolated before infecting many others. This made it possible to contain the SARS and MERS viruses within a few short months, and to suppress them completely a few months later.

The 2020 COVID-19 outbreak was different. About a third of the people infected with the virus were asymptomatic carriers who didn’t develop noticeable symptoms but were still capable of infecting others. Of the people who showed symptoms, around 80% were only mild to moderate. And, there was generally a delay of several days between the time a person first became infected and the appearance of the first symptoms. In other words, the information problem was relatively straightforward with SARS and MERS, which made them easier to manage and contain, whereas managing the information problem with COVID-19 has been much, much harder.

Why Our Judgements Are Often Flawed and What to Do About It

A few weeks ago I listened to a very interesting Freakonomics podcast hosted by University of Chicago economist Steven Levitt. In the podcast, Why Our Judgment is Flawed — and What to Do About It, Levitt interviewed Daniel Kahneman about his recent book, Noise: A Flow in Human Judgement, co-authored with Olivier Sibony and Cass Sunstein. Kahneman is Professor of Psychology and Public Affairs Emeritus at Princeton University. In 2002, he was awarded the Nobel Prize in Economics “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”

Thinking, Fast and Slow, Kahneman’s 2011 bestseller, was about the major discoveries by psychologists and cognitive scientists that have led to our current understanding of judgement and decision-making over the past several decades. Up to the 1970s, the prevailing view among social scientists was that people are generally rational and in control of the way they think and make decisions. It was thought that people only departed from rational behaviors because powerful emotions like fear, hatred or love distorted their judgement.

These assumptions were challenged by the pioneering research of Kahneman and his long time collaborator Amos Tversky, who died in 1996. In a series of experiments, they demonstrated that human behavior often deviated from the predictions of the previous rational models, and that these deviations were due to the machinery of cognition, that is, to the biases and mental shortcuts or heuristics that we use for making everyday decisions, rather than to our emotional state.

Kahneman has been studying biases and how they lead to errors in judgement for most of his career. But a few years ago, he encountered another type of error, noise, that he hadn’t thought about earlier. Noise is “the sort of ignored stepsister of bias… the complement of bias. And in terms of the standard way of measuring accuracy and measuring error, bias and noise are completely independent of each other. … bias is really the average error. And noise is the variability of error, the standard deviation of errors.