Irving Wladawsky-Berger

Technology, Capitalism and “The American Way of Life”

Much has been written about our digital technology revolution and its impact on economies, societies and individuals.  But few have brought the kind of historical perspective to the subject that helps us better understand our turbulent times like scholar and consultant Carlota Perez in her 2002 book Technological Revolutions and Financial Capital:  The Dynamics of Bubbles and Golden Ages and related publications.

According to Perez, over the past few centuries, we’ve had a technology revolution every 40 to 60 years, starting with the Industrial Revolution in 1771, which was characterized by the emergence of machines, factories and canals.  This was followed by the age of steam, coal, iron and railways starting in 1829; steel, electricity and heavy engineering in 1875; and oil, autos and mass production in 1908.  Our present age of information and communication technologies (ICT), whose starting point she pegs at 1971, is the fifth such major revolution.

Technology revolutions have two distinct periods, each lasting 20 to 30 years.  The installation period is the time of creative destruction, when new technologies emerge from the lab into the marketplace, entrepreneurs start many new businesses based on these new technologies, VCs encourage experimentation with new business models, and the new ventures attract considerable investments and financial speculation.  Inevitably, this all leads to bubbles and crashes like the recent dot-com and subprime mortgage bubbles.

After the crash, comes the deployment period, a time of institutional recomposition.  The now well accepted technologies become the norm.  New paradigms emerge for guiding innovation and for determining winners and losers in the marketplace.  Over time, these new paradigms significantly transform the economy and everything around it, as well as re-shaping social behavior and the institutions of society.

Last year Perez published Capitalism, Technology and a Green Global Golden Age: The Role of History in Helping to Shape the Future.  In this recent article, she argued that we’re going through a crucial moment in history similar to the 1930s, which requires the kind of creative thinking and bold measures for which we justifiably celebrate statesmen like Franklin Delano Roosevelt and John Maynard Keynes.  Let me summarize her argument.

The State of American Jobs

Last year, the Pew Research Center, - in association with the Markle Foundation, - conducted a survey about the state of American jobs to shed light on how people think about work and about the skills and training needed to get ahead in our fast changing digital economy.  The survey was based on landline and mobile telephone interviews with a national sample of over 5000 adults.  Their analysis and conclusions were published last October in a highly detailed 94 page report, - The State of American Jobs.

“Tectonic changes are reshaping U.S. workplaces as the economy moves deeper into the knowledge-focused age,” said the report in its opening paragraph.  “These changes are affecting the very nature of jobs by rewarding social, communications and analytical skills.  They are prodding many workers to think about lifetime commitments to retraining and upgrading their skills.  And they may be prompting a society-wide reckoning about where those constantly evolving skills should be learned - and what the role of colleges should be.”

Let me summarize some of the report’s key findings.

Should the US Slowly Phase Out the $100 Bill?

Last November, Indian Prime Minister Narendra Modi shocked the country by banning the use of all 500- ($7.50) and 1,000-rupee ($15) notes, effectively removing over 85 percent of India’s currency in circulation.  Modi said that the ban was intended to curb corruption, tax evasion and the flow of counterfeit money, as well as disrupting terrorist organizations.  By December 30, people had to deposit their banned bills in bank accounts, or exchange them for the new bills the government was printing.

But, the Indian government didn’t print enough replacement notes in time for a smooth change, creating a cash shortage that disrupted large sectors of the economy.  In response, Indians started switching to electronic payments faster than had been anticipated.   Modi’s bold move will likely accelerate India’s push towards digital payments, - a major long-term benefit.

In a recent Washington Post article - What the U.S. can learn from India’s move toward a cashless society, - academic and writer Vivek Wadhwa noted that India has built a digital payments infrastructure that’s enabling it to skip two generations of financial technologies.  When it comes to digital payments, India may be actually leapfrogging the US, based on practical innovations, hard work, and, - necessity being the mother of invention, - the urgent need to step up to a major problem, - a decade ago, nearly half the Indian population had no identification whatsoever.

Wadhwa explained that “When you are born in a village without hospitals or government services, you don’t get a birth certificate.  If you can’t prove who you are, you can’t open a bank account or get a loan or insurance; you are doomed to be part of the informal economy - whose members live in the shadows and don’t pay taxes.”  He then described some of the key steps taken by the Indian government to address this problem.

The Growing Importance of Storytelling in the Business World

Communications have played a major role in my work over the past few decades.  During this period, I was involved in organizing emerging business opportunities at IBM, including the Internet and Linux.  Since retiring from IBM in 2007, I’ve continued my involvement with technology-based initiatives, - AI and blockchain most recently, - through my consulting and academic activities as well as the weekly blogs that I’ve now been writing for the past dozen years.

Over the years I’ve learned that when trying to explain a complex new concept or product, it’s important to engage in a kind-of conversation with your intended audience, where you talk about what's in your mind, your questions, your doubts, what you know and what you don't know.  In short, you’re telling a story about the concept, product or brand you’re trying to explain.

While storytelling is mostly associated with entertainment, education and culture, it also plays a major role in business.  Storytelling is widely used in the development of brands for products as well as companies.  And, the more powerful, important and complex the brand messages you are trying to convey, the more important it is that you do so by telling a compelling but simple, - i.e., understandable, - story.

Good storytelling is particularly important when introducing a complex and potentially disruptive offering in the marketplace whose value is not well understood.  It’s a natural way of explaining what the new innovation is all about.  As a concrete example, let me share my experiences with the development of IBM’s Internet and e-business strategy in the mid-late 1990s.

Automation and Employment in the 21st Century

Ever since the advent of industrialization over 200 years ago, there’ve been periodic fears about the impact of technology-based automation on jobs.  In the 1810s, for example, the so-called Luddites smashed the new machines that were threatening their textile jobs.  But each time those fears arose in the past, technology advances ended up creating more jobs than they destroyed.

Automation anxieties have understandably accelerated in recent years, as AI-related innovations, including robots and smart machines of all kinds, are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans.  The concerns surrounding AI’s long term impact on jobs may well be in a class by themselves.

There’s a broad consensus that AI will have a major impact on jobs and the very nature of work, but it’s much less clear what that impact will be.  Will AI play out like past technology innovations, - highly disruptive in the near term, but ultimately leading to the creation of new jobs, whole new industries, and a rising standard of living?  Or will this time be different, as AI-based innovations end up replacing a large portion of the workforce, - leading to mass unemployment, economic dislocations and social unrest?

The Fourth Industrial Revolution - Risks and Benefits

The Fourth Industrial Revolution (4IR) was the central theme of the 2016 World Economic Forum (WEF) that took place a year ago in Davos, Switzerland.  It continued to play a prominent role in the recently concluded 2017 annual meeting.   Coming to grips with the impact of the fourth industrial revolution was among the top leadership priorities discussed at this year’s meeting.

Over the past year, Klaus Schwab, - WEF founder and executive chairman, - has described his vision for the fourth industrial revolution in a number of articles as well as a book on the subject.  Dr. Schwab positions the 4IR within the historical context of three previous industrial revolutions.  The First, - starting in the last third of the 18th century, - introduced new tools and manufacturing processes based on steam and water power.  The Second, - a century later, - saw the advent of steel, oil, electricity, mass production and associated inventions including the telephone, light bulbs phonographs and cars.  The Third, - starting in the middle of the last century, - has brought us digital technologies, computers, the IT industry, and the automation of processes in just about all industries.

The 4IR builds on our ongoing digital revolution.  It “entails nothing less than a transformation of humankind,” wrote Dr. Schwab in his book’s introduction  “We are at the beginning of a revolution that is fundamentally changing the way we live, work, and relate to one another.  In its scale, scope and complexity, what I consider to be the fourth industrial revolution is unlike anything humankind has experienced before…”

“Consider the unlimited possibilities of having billions of people connected by mobile devices, giving rise to unprecedented processing power, storage capabilities and knowledge access.  Or think about the staggering confluence of emerging technology breakthroughs, covering wide-ranging fields such as artificial intelligence (AI), robotics, the internet of things (IoT), autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage and quantum computing, to name a few.  Many of these innovations are in their infancy, but they are already reaching an inflection point in their development as they build on and amplify each other in a fusion of technologies across the physical, digital and biological worlds.”

The Future of the Globally Integrated Enterprise

“In Retreat: Global companies in the era of protectionism,” reads the cover of the January 28 issue of The Economist.  In The retreat of the  global company, The Economist defines global firms as those where over 30% of their sales come from outside their home region.  For the past three decades, global firms have been the “apex predators of the global economy,” directing the global flow of goods, services and capital, shaping ecosystems, orchestrating supply chains and owning most of the world’s intellectual capital.  But now, “The biggest business idea of the past three decades is in deep trouble.”

Global firms boomed as China was opening up, Europe was integrating, the Soviet bloc was collapsing, and barriers to global trade and investment were coming down.  IT advances made it much easier to do business around the world.  Global competition forced companies to become more agile and efficient by unbundling functions and re-engineering processes. 

The world was waking up to the growing economic power of emerging markets.  “Governments in the rich world dreamed of their national champions becoming world-beaters.  Governments in the emerging world welcomed the jobs, exports and technology that global firms brought.  It was a golden age.”

The Economist referenced The Globally Integrated Enterprise, a 2006 Foreign Affairs article by IBM’s then CEO Sam Palmisano.  Palmisano’s article started out by looking at the evolution in the way companies have conducted business around the world.

The Emerging, Unpredictable Age of AI

In a 1930 essay, Economic Possibilities for our Grandchildren, English economist John Maynard Keynes wrote about the onset of “a new disease” which he called technological unemployment, that is “unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

“But this is only a temporary phase of maladjustment,” he added.  “I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is.”  Keynes believed that technological progress would lead us to a brighter future.  By 2030, people would likely work no more than 15 hours a week, and their biggest problem would be how to use their leisure and freedom from economic cares.

I was reminded of Keynes’ predictions while reading a number of recent articles on our emerging age of AI.  After decades of unfulfilled promises and hype, AI seems to be reaching a tipping point.  The necessary ingredients are finally coming together: lots and lots of data, with the volume of data pouring in expected to double every three years or so; advanced machine learning algorithms that extract insights and learn from all that data; drastically lowered technology costs for collecting, storing and analyzing these oceans of information; and access to an increasing variety of data-driven, cloud-based AI applications.

A small, but prominent group of technologists and scientists have warned that at some future time, a superintelligent AI might pose an existential threat to humanity.  But while dismissing such dire concerns, most experts worry that the real threat is that AI advances could lead to widespread economic dislocation and social unrest.  “Contrary to the more fantastic predictions for AI in the popular press, the Study Panel found no cause for concern that AI is an imminent threat to humankind…” was the conclusion of a recent study by AI experts.  “At the same time, many of these developments will spur disruptions in how human labor is augmented or replaced by AI, creating new challenges for the economy and society more broadly.”

The Competitive Value of Data: From Analytics to Machine Learning

A recent article by NY Times reporter Steve Lohr discussed the rising importance of data as a major competitive differentiator.  The article noted that regulators, policy makers and academics in Europe and the US are increasingly concerned that the vast data assets of digital giants could become a competitive barrier to startups and innovation.

Such competitive concerns have long applied to hardware and software platforms in the IT industry.  IBM’s System 360 family of mainframes, announced in 1964, became the premier platform for commercial computing over the following 25 years by developing a 3rd party ecosystem of add-on hardware, software and services.  In 1969, the US Department of Justice launched an antitrust suit against IBM based on its market dominance, which was eventually dropped in 1982 given the changing environment in the IT industry.

In the 1980s and 1990s, the explosive growth of personal computers was largely driven by the Wintel platform based on Microsoft’s Windows operating systems and Intel’s microprocessors, which attracted an even  larger ecosystem of hardware and software developers.  It also attracted the attention of the Justice Department and several states, which sued Microsoft in the 1990s, - a lawsuit that was eventually settled.  More recently, the European Commission has accused Google of unfair competition based on its Android mobile operating system.

The competitive concerns surrounding these various platforms are closely linked to the concept of network effects.  Scale significantly increases a platform’s value.  The more 3rd party applications and services a platform offers, the more users it will attract, helping it then attract more offerings, which in turn brings in more users, which then makes the platform even more valuable… and on and on and on.

AI and Public Policy

Two years ago, Stanford University launched the One Hundred Year Study of AI (AI100), “to study and anticipate how the effects of artificial intelligence will ripple through every aspect of how people work, live and play.”  One of its key missions is to convene a Study Panel of experts every five years to assess the then current state of the field, as well as to explore both the technical advances and societal challenges over the next 10 to 15 years. 

The first such Study Panel recently published Artificial Intelligence and Life in 2030, a report that examined the likely impact of AI on a typical North American city by the year 2030.  The report is organized into three main sections: Section I described the key research trends influencing AI’s future; Section II examined the key economic sectors that are most likely to be impacted by AI;  and Section III looked into issues surrounding AI and public policy.  Over the past several weeks I’ve discussed the first and second sections.  I now would like to turn my attention to Section III: Prospects and Recommendations for AI Public Policy.

“Throughout history, humans have both shaped and adapted to new technologies.  This report anticipates that advances in AI technologies will be developed and fielded gradually - not in sudden, unexpected jumps in the techniques themselves - and will build on what exists today, making this adaptation easier… The measure of success for AI applications is the value they create for human lives.  Going forward, the ease with which people use and adapt to AI applications will likewise largely determine their success.”

The report then adds some very important warnings.  “Conversely, since AI applications are susceptible to errors and failures, a mark of their success will be how users perceive and tolerate their shortcomings.  As AI becomes increasingly embedded in daily lives and used for more critical tasks, system mistakes may lead to backlash from users and negatively affect their trust.”

The Internet, Blockchain, and the Evolution of Foundational Innovations

Last year, a panel of global experts convened by the World Economic Forum selected blockchain as one of the Top Ten Emerging Technologies for 2016, based on its potential to fundamentally change the way economies work.  But, how transformative will blockchain turn out to be?  How long is the transformation likely to take?  And how will it compare with the Internet-based transformation of the past few decades?

These questions were nicely addressed in The Truth about Blockchain, a recent Harvard Business Review article by Harvard professors Marco Iansiti and Karim Lakhani.  Their article starts off with one of the best descriptions I’ve seen of the long-term promise of blockchain.

“Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems.  They protect assets and set organizational boundaries.  They establish and verify identities and chronicle events.  They govern interactions among nations, organizations, communities, and individuals.  They guide managerial and social action.  And yet these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation.  They’re like a rush-hour gridlock trapping a Formula 1 race car.  In a digital world, the way we regulate and maintain administrative control has to change…”

“With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision.  In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared.  Intermediaries like lawyers, brokers, and bankers might no longer be necessary.  Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction.”

AI, Automation and the US Economy

On December 20, the White House released Artificial Intelligence, Automation, and the Economy, a new report that investigates how AI will likely transform job markets over time, and recommends policy responses to address AI’s impact on the US economy.  This report is further evidence that AI is now reaching the kind of market impact that requires well thought out strategies by both business and government.

AI research has been around since the early days of IT, - having gone through ups and downs over the past several decades.  But it’s recent advances based on machine learning and related data-driven technologies are still relatively new, making it hard to predict where AI will be heading over time.

Harder still is predicting AI’s longer term economic and societal impact.  Think of anticipating the impact of the emerging Internet revolution back in the mid 1990s, before the advent of e-commerce and social media, let alone smartphones, IoT and cloud computing in the 2000s.  That’s roughly where we are with AI today.

But, there’s one big difference.  The Internet generated a fair degree of hype, especially in the dot-com era of the late 1990s, but the overriding feelings were ones of hope and excitement.  Not so with AI.  Along with admiration for its considerable accomplishments, - from assisting in the treatment of rare forms of cancer to self-driving cars, - there are serious fears that AI advances will lead to massive job losses, economic dislocations and social unrest.

Securing the Foundations of our Digital Economy

In February of 2016, the President issued an Executive Order establishing the Commission on Enhancing National Cybersecurity within the Department of Commerce.  The Commission was charged with “recommending bold, actionable steps that the government, private sector, and the nation as a whole can take to bolster cybersecurity in today’s digital world, and reporting back by the beginning of December.”

On December 1 the Commission issued its final Report on Securing and Growing the Digital Economy.  The Commission urged the incoming administration to strengthen cybersecurity efforts within its first 100 days.  The report includes 16 major recommendations and related actions that can hopefully serve as a useful framework for significantly enhancing the Nation’s cybersecurity.

The widespread success of the Internet in the 1990s has led to a historical transition from the industrial age of the past two centuries to an economy and society increasingly based on global, digital interactions.  This transition has significantly accelerated over the past decade with the advent of billions of smartphones, tens of billions of IoT devices and huge amounts of data, all now connected via Internet-based broadband networks.

At the same time, Internet threats have been growing.  Large-scale fraud, data breaches, and identity thefts are becoming more common.  Companies are finding that cyber-attacks are costly to prevent and recover from.  As we move from a world of physical interactions and paper documents, to a world primarily governed by digital data and transactions, our existing methods for protecting identities and data are proving inadequate.

The 2016 MIT Inclusive Innovation Awards

Several months ago, MIT’s Initiative on the Digital Economy launched its first annual Inclusive Innovation Competition (IIC).  MIT is one of the world’s top research universities, renowned as well for its entrepreneurial culture.  But the objectives of the IIC are quite different and unique.  Instead of competing on creating the most advanced technologies or compelling startups, the IIC is focused on innovations aimed at improving the economic opportunities of middle- and low-income earners around the world.

Applicants competed for $1 million in prizes to be awarded in four main categories: Skills, - how employees were re-skilled for new types of jobs; Matching, - how qualified people were connected to new types of jobs; Humans + Machines, - how technology is used to augment human labor; and New Models, - how new business models revolutionize labor markets and job opportunities.  In each of these categories, the grand prize winner was awarded $125,000, while each of the four runner-ups received $25,000.  In addition, four additional $25,000 Judges Choice Awards were given to organizations deemed by the judges to be uniquely inventive.

I’m a Fellow of the Initiative on the Digital Economy, and served as one of the judges in the competition.  243 applications were received from around the world, from which we selected 24 finalists.  I personally reviewed around 20 applications, and was really impressed not only by their innovative ideas, but also by their courage and determination as they addresed some of society’s toughest problems.

How Will AI Likely Impact How We Work, Live and Play?

A few weeks ago I discussed whether AI is finally reaching a tipping point, mostly based on a recently published report, - Artificial Intelligence and Life in 2030.  The report was developed by a study panel of AI experts convened by the One Hundred Year Study of AI (AI100), an initiative launched at Stanford University in December, 2014 “to study and anticipate how the effects of artificial intelligence will ripple through every aspect of how people work, live and play.”  To better understand the future impact of AI on everyday lives, the panel focused the study on the likely influence of AI on a typical North American city by the year 2030.

The report is organized into three main sections.  Section I, - What is Artificial Intelligence?, - describes how researchers and practitioners define AI, as well as the key research trends that will likely influence AI’s future.  Section II looks into AI’s overall impact on various sectors of the economy, while the third Section, examines AI issues related to public policy.

My previous discussion was primarily focused on Section I.  I’d now like to turn my attention to Section II, - AI by Domain.  To help analyze where AI might be heading, the study panel narrowed its explorations to the eight domains most likely to be impacted by AI:

Towards a Trusted Framework for Identity and Data Sharing

I recently participated in a Treasury Identity Forum organized by the US Treasury Department in Washington, DC.  The Forum focused “on the critical role of legal identity for financial inclusion, economic development, and anti-money laundering/counter financing of terrorism (AML/CFT) safeguards, and the development of new technology identification/authentication solutions to help achieve these goals.”  It brought together stakeholders from governments, financial service companies, FinTech startups and technologists to better understand how emerging technologies and legal frameworks can help us develop the required digital identity systems.

I was a member of a panel on how government, business and research communities can collaborate in developing workable identity solutions.  Let me summarize the points I made in my introductory remarks.

From time immemorial, our identity systems have been based on face-to-face interactions and on physical documents and processes.  But, the transition to a digital economy requires radically different identity systems.  As the economy and society move toward a world where interactions are primarily governed by digital data and transactions, our existing methods of managing identity and data security are proving inadequate.  Large-scale fraud, identity theft and data breaches are becoming common, and a large fraction of the world’s population lacks the credentials needed to be part of the digital economy.

The Rise of the Global Superstar Company

The September 17 issue of The Economist included a special report on the rise of so called superstar companies.  “Disruption may be the buzzword in boardrooms, but the most striking feature of business today is not the overturning of the established order,” notes The Economist.  “It is the entrenchment of a group of superstar companies at the heart of the global economy.”

This trend toward consolidation and growing size is evidenced by a few worldwide statistics: 10% of public companies generate 80% of all profits; firms with over $1 billion in annual revenues are responsible for 60% of total global revenues; and the rate of mergers and acquisitions is more than twice what it was in the 1990s.  The trend is particularly prominent in the US: in the 20 years from 1994 to 2013, the share of GDP generated by the 100 biggest companies rose from 33% to 46%; the five largest banks now account for 45% of all banking assets, up from 25% in 2000; and new firm formation has been going down since the late 1970s, leading to an overall decline in young- and medium-aged companies over the years.

The current rise of large companies is somewhat unexpected.  Following the Great Depression and WW2, the country welcomed the stability promised by corporate capitalism.  Big, multinational companies dominated most industries, - from GM, Ford and Chrysler in cars to Esso/Exxon, Mobil and Texaco in oil and gas.  It was an era characterized by bureaucratic corporate cultures, focused on organizational power and orderly prosperity.

This all started to change a few decades later with the advent of a more innovative, fast moving entrepreneurial economy.  The 1980s saw the rise of young, high-tech companies, - e.g., Microsoft, Apple, Oracle, Sun Microsystems; telecommunications was deregulated; ATT was broken up; and Silicon Valley became the global hub for innovation, emulated by regions around the world.

Blockchains: the Promise of More Frictionless, Trusted Economies

Why do firms exist?  Ronald Coase, - the eminent British economist and University of Chicago professor, - addressed this question in The Nature of the Firm, - a seminal paper published in 1937 which along with other major achievements earned him the 1991 Nobel Prize in economics.

Professor Coase explained that, in principle, a firm should be able to find the cheapest, most productive, highest quality goods and services by contracting them out in an efficient, open marketplace.  However, markets are not perfectly fluid.  Transaction costs are a kind of friction incurred in obtaining goods and services outside the firm, such as searching for the right supply chain partners, establishing a trusted relationship, negotiating a contract, coordinating the work, managing intellectual property and so on.  Firms came into being to make it easier and less costly to get work done.

A recent IBM report, - Fast forward: Rethinking enterprises, ecosystems and economies with blockchains, - harks back to Coase’s paper to analyze the potential value of blockchains.  The report notes that while transaction costs are lower within firms, “in recent years as enterprises have scaled, the added complexity of operations has grown exponentially while revenue growth has remained linear.  The result?  At a certain point, organizations are faced with diminishing returns.  Blockchains have the potential to eradicate the cost of complexity and ultimately redefine the traditional boundaries of an organization.”

Why Are We Stuck in a World of Slow Economic Growth? Nobody Seems to Know for Sure

Over the past few centuries, the natural sciences, - e.g. physics, chemistry, biology, - have developed a variety of principles and models.  These have enabled them to analyze and predict the behavior of our highly complex physical systems under widely different conditions.  But the situation is quite different in the social sciences, - e.g., economics, sociology, political science.  It’s much more difficult to make accurate predictions in social systems, - whose key components are people, organizations and their intricate interactions, - because of their highly fluctuating behaviors.

I was reminded of this major distinction between physical and social systems by a recent issue of Foreign Affairs, which focused on How to Survive Slow  Growth.  “[G]rowth has ground to a halt almost everywhere, and economists, investors, and ordinary citizens are starting to confront a grim new reality: the world is stuck in the slow lane and nobody seems to know what to do about it,” notes its introductory article.  Several prominent authors wrote about various aspects of the economic slowdown.  But in the end, they didn’t arrive at consensus reasons for the slow growth or how long it will likely last, - years or decades.

In the lead article, - The Age of Secular Stagnation: What It Is and What to Do About It, - Harvard economics professor Larry Summers wrote:  “As surprising as the recent financial crisis and recession were, the behavior of the world’s industrialized economies and financial markets during the recovery has been even more so.”  Back in 2009, almost no one would have predicted that we would still be in a period of slow economic growth, that inflation would be around one percent and interest rates would hover around zero.  But, “nearly seven years into the U.S. recovery, markets are not expecting normal conditions to return anytime soon.”

Blockchain Can Reshape Financial Services… But it Will Take Significant Time and Investment

In early August, the World Economic Forum (WEF) published two excellent reports: A Blueprint for Digital Identity, - which I wrote about a few weeks ago, - and The future of financial infrastructure: An ambitious look at how blockchain can reshape financial services, - which I’d now like to discuss.

“Distributed ledger technology (DLT), more commonly called blockchain, has captured the imaginations, and wallets, of the financial services ecosystem,” notes the report, citing a few statistics as evidence: over 90 central banks are engaged in DLT discussions around the world; more than 24 countries have already launched blockchain-based initiatives; 80% of banks predict that they’ll launch blockchain projects by 2017; over 90 financial and technology companies have already joined blockchain consortia; over the past 3 years; more than 2,500 patents have been filed; and $1.4 billion has been invested in blockchain-based startups over the same time span.

In addition, a panel of global experts convened by the WEF selected blockchain as one of the Top Ten Emerging Technologies for 2016 because of its potential to fundamentally change the way markets and governments work, - further evidence that blockchain is reaching a tipping point of market acceptance.

But, significant hurdles must be overcome before the advent of large-scale blockchain infrastructures.  The WEF correctly warns that this will take time.  Not only are there major technology and standards issues to be worked out, but the industry will have to collaborate with governments around the world to develop the appropriate legal frameworks and regulatory environments.

STEM Literacy and Jobs

In the early days of the Industrial Revolution, it’s been estimated that around 12% of the world's population was literate. Literacy rates increased throughout the 19th century, as people started moving from the countryside to towns and cities for the job opportunities opening up in the newly industrialized societies.  Many of these new jobs, especially the higher paying ones, required the ability to read and write.  With the rise of universal education in almost all countries around the world, literacy rates steadily increased in the 20th century, - from roughly 20% in 1900 to around 80% in 2000.  In the 21st century, we not only have the challenge of eliminating illiteracy altogether, but we must now also focus on STEM (Science, Technology, Engineering, Math) literacy.

Most everyone would agree that there is a big difference between being proficient at reading and writing and being a playwright, a literary critic, a book editor or a journalist.  The skills requirement are radically different.  But, students don’t often appreciate the difference between achieving a modicum of STEM literacy and pursuing a STEM profession.  Many avoid taking STEM courses because they have no intention of majoring in a STEM discipline.  While everyone agrees that basic literacy is critical for just about any job, we don’t quite have the same level of appreciation that being STEM literate is increasingly important to qualify for a wide variety of jobs in our information-based knowledge economy.

Over the past few years, an increasing number of studies have argued that a good education for students majoring in STEM disciplines should include the so-called softer competencies more associated with the liberal arts in addition to harder, more technical skills.  For example, a 2006 report by the National Academy of Engineering on the need to reforming engineering education noted that “New graduates were technically well prepared but lacked the professional skills for success in a competitive, innovative, global marketplace.  Employers complained that new hires had poor communication and teamwork skills and did not appreciate the social and nontechnical influences on engineering solutions and quality processes.”

Automation Technologies and the Future of Work

Last year, McKinsey launched a multi-year study to explore the potential impact of automation technologies on jobs, organizations and the future of work.  “Can we look forward to vast improvements in productivity, freedom from boring work, and improved quality of life?,” its initial article on the study asked, or “Should we fear threats to jobs, disruptions to organizations, and strains on the social fabric?”

Most jobs involve a number of different tasks or activities.  Some of these activities are more amenable to automation than others.  But just because some of the activities have been automated, does not imply that the whole job has disappeared.  To the contrary, automating parts of a job will often increase the productivity and quality of workers by complementing their skills with machines and computers, as well as by enabling them to focus on those aspect of the job that most need their attention.

Given that few jobs or occupations will be entirely automated in the near-mid future, the study focused instead on the kinds of activities within jobs that are more likely to be automated, as well as how those jobs and business processes will then be redefined.  It did so by analyzing the extensive data in O*NET, a web-based application sponsored by the US Department of Labor which includes the most comprehensive information on US occupations.

The study analyzed around 2,000 work activities across 800 different occupations, and grouped them into 18 different capabilities, - 3 of them social in nature; 10 cognitive; and 5 physical, - and then assessed the automation potential of each.  It found that 45% of work activities could be automated using existing, state-of-the-art technologies.

Digital Identity - the Key to Privacy and Security in the Digital World

From time immemorial, our identity systems have been based on face-to-face interactions and on physical documents and processes.  But, the transition to a digital economy requires radically different identity systems.  In a world that’s increasingly governed by digital transactions and data, our existing methods for managing security and privacy are no longer adequate.  Data breaches, identity theft and large-scale fraud are becoming more common.  In addition, a significant portion of the world’s population lacks the necessary digital credentials to fully participate in the digital economy.

Last month, the World Economic Forum (WEF) published an excellent report, A Blueprint for Digital Identity.  The report lays out a framework for the creation of digital identity systems, discusses the benefits that these systems would bring to its various stakeholders, and argues that financial institutions should lead their development.  It also includes a primer on identity, which clearly explains what identity is all about.

Identity plays a major role in everyday life.  Think about going to an office, getting on a plane, logging to a website or making an online purchase.  While all around us, we generally don’t pay much attention to our identity credentials unless something goes wrong.  But, it’s a highly complex and interesting subject, which the report helped me better understand.  Let me summarize some of what I learned.

“Why is identity important?,” the primer starts out by asking.  “In an increasingly borderless and digital world, privacy and security cannot be ensured through the construction of walls around sensitive information.  Identity is the new frontier of privacy and security, where the very nature of entities is what allows them to complete some transactions but be denied from completing others.  To understand the importance of identity and the criticality of strong identity protocols that protect against cyber-risk and suit the needs of transacting parties, it is essential to understand what identity is, and its role in enabling transactions.”

Blockchain - Once Again, the Technological Genie Has Been Unleashed from its Bottle

Skeptics needing further reassurance that the Blockchain is truly reaching a tipping point can rest easier with the recent publication of Don Tapscott’s Blockchain Revolution, co-written with his son Alex.  Don, whom I’ve long known, has a knack for identifying what The Next Big Thing will likely be, and shortly thereafter writing a book to explain it to everybody else.  The Digital Economy, written in the mid 1990s, anticipated the unbundling of vertically integrated companies into business webs, giving rise to the open networked enterprise.  His 2006 Wikinomics predicted the rise of mass collaboration in what became known a few years later as the On Demand Economy.  Blockchain Revolution, his 16th book, now explains “How The Blockchain Will Transform Everything From Banking To Government To Our Identities.”

The book is organized into three main sections.  The first explains the blockchain from two complementary points of view: as a major next step in the evolution of the Internet; and as the architecture underpinning bitcoin, the best known and most widely held digital currency.  The second and longest section describes how blockchain could potentially transform financial services, companies, government, the Internet of Things, and other key areas.  The last section summarizes the major challenges that must be overcome as well as the governance required to fulfill the promise of blockchain.

“It appears that once again, the technological genie has been unleashed from its bottle,” write the authors in their opening paragraph.  “Summoned by an unknown person or persons with unclear motives, at an uncertain time in history, the genie is now at our service for another kick of the can - to transform the economic power grid and the old order of human affairs for the better.  If we will it.”

Is There a STEM Crisis or a STEM Surplus?

Is the US facing a critical shortage of STEM skills?  Do we have enough STEM workers to meet the demands of the labor market?  Are enough young people choosing STEM careers so we can meet future demands?

Such serious concerns have been expressed in a number of national studies over the past two decades.  In 2005, for example, the National Innovation Initiative listed “Build the Base of Scientists and Engineers” as one of its top recommendations, noting that “unless the United States takes swift action, the demand for S&E talent will far outstrip supply.  The number of jobs requiring technical training is growing at five times the rate of other occupations.”

Two years later, a major National Academies study, Rising Above the Gathering Storm, called for increasing America’s STEM talent pool by providing 25,000 new 4-year competitive undergraduate scholarships to US citizens enrolled in the physical sciences, the life sciences, engineering and math; and by funding 5,000 new graduate fellowships each year for US citizens pursuing graduate studies in areas of national need.

And in 2012, a report by the President’s Council of Advisors on Science and Technology wrote: “Economic projections point to a need for approximately 1 million more STEM professionals than the U.S. will produce at the current rate over the next decade if the country is to retain its historical preeminence in science and technology.  To meet this goal, the United States will need to increase the number of students who receive undergraduate STEM degrees by about 34% annually over current rates.”

Is the Blockchain Now Reaching a Tipping Point?

A few weeks ago, the World Economic Forum (WEF) published its annual list of the Top Ten Emerging Technologies for 2016.  The technologies on the list have been worked on for years.  But their inclusion in the Top Ten List indicates that each has now reached a market acceptance tipping point where its impact can be meaningfully felt.  The Blockchain is one of the technologies in this  year’s list, selected by the WEF panel of global experts because of its emerging potential to fundamentally change the way markets and governments work. 

What does it mean for an infrastructure technology like the blockchain to have reached such a tipping point?  The WEF report compared the blockchain to the Internet, noting that “Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built.  And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.”

I agree with this comparison and find it useful to help us understand how blockchains might evolve over the years. So, I’d like to compare the state of the blockchain in 2016 to the state of the Internet 25 years ago or so.

The Long Term Impact of AI on Jobs - Some Lessons from History

The June 25 issue of The Economist includes a special report on artificial intelligence.  AI has been making extraordinary progress in the past few years.  It’s ironic that after years of frustration with AI’s missed promises, many now worry that its mighty power is now upon us while we still don’t know how to properly deploy it.  Some fear that at some future time, a sentient, superintelligent general AI might pose an existential threat to humanity.  But while being dismissive of such dire concerns, many experts worry that the real threat is that AI advances could lead to widespread economic dislocation.

People have long worried about the impact of technology on society, be it railroads, electricity, and cars in the Industrial Age, or the Internet, mobile devices and smart connected products now permeating just about all aspect of our lives.  The Economist reminds us that these worries have been with us ever since the advent of industrialization two centuries ago.  Eminent English economist David Ricardo first raised the machinery question in 1821, that is, the “opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests”.

Automation anxieties continued to resurface in the 20th century, right along with accelerating technology advances.  In a 1930 essay, English economist John Maynard Keynes wrote about the onset of “a new disease” which he named technological unemployment, that is, “unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”  But each time those fears arose in the past, technology innovations ended up creating more jobs than they destroyed, causing the majority of economists to confidently wave away the machinery question.

Automation fears have understandably accelerated in recent years, as our increasingly smart machines are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans.  The concerns surrounding AI’s long term impact may well be in a class by themselves.  Like no other technology, AI forces us to explore the very boundaries between machines and humans.

What impact will AI have on jobs?  Could our smart machines lead to mass unemployment?  What will life be like in such an AI future?  “After 200 years, the machinery question is back. It needs to be answered, notes The Economist.”  What can we learn from history that will help us better respond to AI’s technological advances?

Vehicle Automation - a Very Important Priority for AI Research

In September, 2014, I attended an MIT conference that explored the major progress that’s taken place in artificial intelligence, robotics and related technologies over the past several years. Autonomous vehicles was one of the main areas of discussion.  With most other topics, there was considerable consensus, but not so with self-driving cars.  While some thought that fully autonomous vehicles will be all around us within a decade or so, others were not quite so sure, myself included, due to the many highly complex technical, economic and societal issues that must be worked out.

I was reminded of this meeting a few weeks ago when I read that a Florida man had been killed while driving a Model S Tesla in autopilot mode.  The accident is still under investigation, but it appears that the Tesla struck a tractor-trailer truck that was making a left turn in front of its path.  Neither the driver or the Tesla’s autopilot noticed that a truck was suddenly crossing its lane of traffic, perhaps because the white truck was hard to spot against a bright sky.

This accident has led to a renewed discussion of the current state-of-the-art of vehicle automation, the approaches being pursued by different companies, and the prospects for the near- and long-term future.

The Smart London Plan

Urbanization is one of the major forces shaping the 21st century - right up there with the digital technology revolution and globalization.  Over half of the world’s population lives in urban areas, and as the 2014 UN World Urbanization Prospect noted: “The continuing urbanization and overall growth of the world’s population is projected to add 2.5 billion people to the urban population by 2050,” with the proportion of the population living in urban areas increasing to 66 percent by 2050.

Just about every study that’s benchmarked the competitiveness of major urban areas ranks London, - along with New York, - as the world’s two top cities.  But despite, - or perhaps because of, - their leadership positions, both cities face major challenges as they deal with economic growth and a growing population.

London has been much in the news lately.  First came the election of Sadik Khan last May, - the first Muslim mayor not only of London but of a major Western capital, followed by the recent Brexit referendum, where London voted to Remain in the EU by an overwhelming 60% of its vote while the UK as a whole voted 52% to Leave.

At this point, it’s very hard to predict where Brexit is heading over the next few months, let alone what it’s long term consequences might be.  But, given its many strengths I have little doubt that London will remain among the world’s very top cities.  So, let me put Brexit aside for the moment and discuss instead what London has been doing to address its major population and economic challenges.

FinTech and Financial Inclusion

In early June I spent a few days in Mexico City.  The main purpose of the trip was to participate and give a keynote at the 2016 Cumbre de Directores (Director’s Summit), a conference sponsored by Endeavor Mexico in collaboration with the IPADE Business School.  Endeavor is a global not-for-profit organization dedicated to long-term economic growth by supporting high-impact entrepreneurship in over 25 cities around the world, including Mexico.  The Director’s Summit is Endeavor Mexico’s major annual meeting, bringing together over 400 entrepreneurs and senior executives.

My talk was focused on the changing nature of innovation in the digital economy.  A major part of the talk included a discussion of innovations in the digital payments and financial services ecosystem.  My keynote was followed by two separate FinTech panels, where different entrepreneurs discussed the importance of FinTech in Mexico as well as their individual companies’ efforts in the area.  That same evening I attended and spoke at a reception sponsored by Angel Ventures Mexico, an early stage VC firm where I also heard quite a bit about FinTech startups.  My overall impression is that there’s considerable FinTech activity in Mexico, a large portion of which is aimed at financial inclusion.

Every year, the World Bank publishes the Global Findex database, a measure of financial inclusion around the world, including how individuals save, borrow, make payments and manage risks in over 140 countries.  According to their latest report, - Global Findex 2014, - 62 percent of adults worldwide have an account at a bank, at another type of financial institution, or with a mobile money provider, - up from 51 percent in 2011.  The 2014 report also noted that 2 billion adults remain without an account around the world, a 20 percent decrease from the 2.5 billion unbanked adults in 2011. Technology advances, particularly the rapid growth in mobile devices and digital financial services, are the major reasons for these dramatic improvements.

The Global Findex database includes data for each individual country.  Their 2014 data for Mexico showed that about 39 percent of adults had accounts with financial institutions, - a significant improvement over the 27.4 percent of adults with accounts in 2011.  But, Mexico still lags many of its peers in Latin America.  Over half of all adults have financial accounts in Latin America as a whole, significantly above Mexico’s figure.

Learning to Work with Our Increasingly Smart Machines

A few weeks ago I attended the annual conference of MIT’s Initiative on the Digital Economy.  The day-long conference featured a number of interesting talks on the impact of digital technologies on business, the economy and society.  Tom Davenport, - Babson College professor and IDE Fellow, - gave one such talk on technology and jobs, based on his recently published book Only Humans Need Apply: Winners and Losers in the Age of Smart Machines, co-authored with HBR editor Julia Kirby.

Davenport started his talk by noting that over the past two centuries we’ve seen three distinct stages of automation, based on the kinds of jobs that were replaced by machines.  The machines of the first automation era “relieved humans of work that was manually exhausting,” making up for our physical limitations, - steam engines and electric motors enhanced our physical power while railroads, cars and airplanes helped us go faster and farther.

Next came the automation of jobs involving routine tasks that could be well described by a set of rules and were thus prime candidates for IT substitution.  “Era Two automation doesn’t only affect office workers.  It washes across the entire services-based economy that arose after massive productivity gains wiped out jobs in agriculture, then manufacturing.”  It threatened many transactional service jobs that “are so routinized that they are simple to translate into code,” from bank tellers to airline reservations clerks.

We’ve now entered the third era of automation.  Our increasingly smart machines are “now breathing down our necks…  This time the potential victims are not tellers and tollbooth collectors, much less farmers and factory workers, but rather all those knowledge workers who assumed they were immune from job displacement by machines,…” including, - as Davenport and Kirby poignantly remind us, - “People like the writers and readers of this book.”

The Prosperity Puzzle

The April 30 issue of The Economist includes a special briefing on The Prosperity Puzzle. The briefing highlights how tricky it is to compare living standards across countries, across economic classes within a country, and, - arguably hardest of all, - across time.

“Which would you prefer to be: a medieval monarch or a modern office-worker?,” it glibly asks.  “The king has armies of servants.  He wears the finest silks and eats the richest foods.  But he is also a martyr to toothache.  He is prone to fatal infections.  It takes him a week by carriage to travel between palaces.  And he is tired of listening to the same jesters.  Life as a 21st-century office drone looks more appealing once you think about modern dentistry, antibiotics, air travel, smartphones and YouTube.”

The point is further illustrated by referencing the research of Yale economist William Nordhaus.  In the mid 1990s, Nordhaus looked at the evolution of the price of light over the past two centuries in Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not.

The President’s Commission on Enhancing National Cybersecurity

Last February, President Obama issued an Executive Order establishing the Commission on Enhancing National Cybersecurity within the Department of Commerce.  The Commission is charged with “recommending bold, actionable steps that the government, private sector, and the nation as a whole can take to bolster cybersecurity in today’s digital world, and reporting back by the beginning of December.”

The Commission is composed of twelve individuals from the world of business, technology and academia. Former national security advisor Tom Donilon and former IBM CEO Sam Palmisano serve as chair and vice-chair respectively.

To gather the necessary information for its short- and long-term recommendations, the Commission is holding public meetings around the country, each focused on a different sector of the economy.  On May 16, it met in New York City to discuss the challenges and opportunities facing the financial sector.  The meeting included three panels, one on finance, one on insurance, and the third on research and development.

I was a member of the R&D panel, along with MIT professor Sandy Pentland, IBM Fellow Jerry Cuomo, and Greg Baxter, head of digital strategy at Citigroup.  During our 90 minute panel, we each made introductory remarks based on our previously submitted briefing statements and then answered the commissioners’ questions.

The Public Face of Science

Last month, the American Academy of Arts and Sciences launched a three year initiative to address the complex relationship between scientists and the public.  The Public Face of Science project will explore the interactions of the general public with science, technology, medicine and related areas.

Throughout the 20th century, polls have consistently indicated strong public support for science and technology, especially during the Cold War decades following World War 2.  But recent polling data, - and in particular, a recent study conducted by the Pew Research Center, -  reveals a more complex relationship between the public and science.  While scientific achievements are still recognized and valued, there is a large opinion gap between the general public and scientists on a number of scientific issues.

The Pew findings were released in a January, 2015 report based on two surveys of science-related issues conducted in collaboration with the American Association for the Advancement of Science (AAAS).  The first survey is based on a representative sample of 2,002 general public adults and was conducted by landline and mobile phones.  The second survey was conducted online, and is based on a representative sample of 3,748 US-based scientists who are members of AAAS.

The Analog Foundations of the Digital Revolution

This past January, the World Bank issued the Digital Dividends report, a comprehensive study of the state of digital developments around the world.  All in all, it’s a mixed picture.  Digital technologies have been rapidly spreading in just about all nations, but their expected digital dividends, - i.e., their broad development benefits, - have lagged behind and are unevenly distributed.

“We find ourselves in the midst of the greatest information and communications revolution in human history,” notes the report in its Foreword.  “More than 40 percent of the world’s population has access to the internet, with new users coming online every day.  Among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone…”  But, while this is great progress, much remains to be done.  Many are still left behind due to their limited connectivity, and are thus unable to fully benefit from the global digital revolution.

While universal connectivity is necessary, it’s far from sufficient, the report adds.  “[T]raditional development challenges are preventing the digital revolution from fulfilling its transformative potential…  the full benefits of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health, and promote good governance.”

Let me attempt to summarize the salient findings and recommendations of this comprehensive (over 300 pages) report.

Could Blockchain Prove to Be “The Next Big Thing”?

Over the past several decades, information technologies (IT) have been fundamentally transforming companies, industries and the economy in general.  In its early years, - ’60s, ’70s, ’80s - companies deployed IT primarily to automate their existing processes, - leaving the underlying structure of the business in place.  It wasn’t until the 1990s, - with the pioneering work of Michael Hammer and others on business process reengineering, - that companies realized that just automating existing processes wasn’t enough.  Rather, to achieve the promise of IT, it was necessary to fundamentally redesign their operations, examine closely the flow of work across the organization, and eliminate legacy processes that no longer added value to the business.

Organizational transformation was then taken beyond the boundaries of the company with the explosive growth of the Internet.  The Internet made it significantly easier to obtain goods and services outside the firm, enabling companies to rely on business partners for many of the functions once done in-house.  To compete effectively in an increasingly interconnected global economy, companies now had to optimize not only the flow of work within their own organizations but across their supply chain ecosystems.  Over the past 20 years, such ecosystem-wide transformations have been disrupting the business models of industry after industry, - from retail and manufacturing to media and entertainment.

The banking industry has long been one of the major users of IT, - among the first to automate its back-end and front-office processes and to later embrace the Internet and smartphones.  However, banking has been relatively less disrupted by digital transformations than other industries.  In particular, change has come rather slowly to the world’s banking infrastructure.

Is FinTech Forcing Banking to a Tipping Point?

For the past few decades, digital technologies have been systematically transforming one industry after another.  The transformations have generally proceeded along three different stages.  First comes the use of IT to improve the productivity and quality of production-oriented, back-end processes.  Distribution comes next, leveraging the universal reach and connectivity of the Internet over the past 20 years.  The transformation then reaches a tipping point when technology radically changes the user experience, - as has happened with the rise of smartphones over the past decade, - leading to a fundamental disruption of the industry and its business models.

While this digital disruption journey is ultimately inevitable, the pace varies widely across industries.  The IT industry has been the most disrupted, - often by its own digital creations in a kind of sorcerer’s apprentice scenario.  Over my long career, I’ve seen many once powerful IT companies done in by technology and market changes, and either disappear altogether or become shadows of their former selves.

Beyond IT, few industries have felt the impact of digital forces like media.  Everything seems to be changing at once, from the way content is produced and delivered, to the sources of revenue and profits.  In less than two decades, the global recorded music industry has lost over half its revenues, while the drop in newspaper advertising revenue in the US has been even steeper.  Retail has also been undergoing major changes with the rise of e-commerce, as has telecommunications with the transition to mobile phones and wireless data.

How about the banking industry, which has long been a major user of information technologies, - including back- and front-office automation, ATM’s, Internet banking, data-driven risk management, fraud detection, and mobile financial apps?

How is the Real America Doing?

Listening to cable news, talk radio, and our heated election campaigns, you might quickly conclude that the US is going to hell, that the best days of America are behind us and that the country is unraveling right in front of our eyes.  To a greater or lesser extent, these sentiment are to be expected in a presidential-election year, when the out-of-power party always argues that things are bad and getting worse.  But for the last several years, the apocalyptic sentiments are coming not only from most on the right but from many on the left as well.

Beltway Washington is going through a particularly polarized, volatile phase, as has sometimes been the case through the country’s history.  Moreover, the amplifying effects of social networks and 24/7 information channels make it even harder to find common ground and get anything done.

But, what’s going on beyond the beltway, - in cities and towns across America?  Beyond the surreal world of Washington politics, is the country truly falling apart?  How are Americans faring, despite the hard times so many have been going through?  What’s going on in the real America, where real people live and work and where the proverbial rubber meets the road?

The MIT Inclusive Innovation Competition

About three years ago, MIT launched the Initiative on the Digital Economy (IDE), a major effort focused on the broad changes brought about by the relentless advances of digital technologies.  As its website explains:

“While digital technologies are rapidly transforming both business practices and societies and are integral to the innovation-driven economies of the future, they are also the core driver of the great economic paradox of our time.  On one hand, productivity, wealth, and profits are each at record highs; on the other hand, the median worker in America is poorer than in 1997, and fewer people have jobs.  Rapid advances in technology are creating unprecedented benefits and efficiencies, but there is no economic law that says everyone, or even a majority of people, will share in these gains.

The future of work and jobs is one of the major areas being addressed by IDE.  What will the workforce of the future look like?; Where will jobs come from in the coming years?; Will the nature of work be significantly different in the digital economy?; How can we accelerate the transformation of institutions, organizations, and human skills to keep up with the quickening pace of digital innovation?

To help come up with breakthrough answers to these very challenging questions, IDE just launched its first annual Inclusive Innovation Competition.  The competition aims to identify, celebrate and award prizes to “organizations that are inventing a more sustainable, productive, and inclusive future for all by focusing on improving economic opportunity for middle- and base-level income earners.” 

The Coming Robotics Revolution

Hi, Robot: Work and Life in the Age of Automation, reads the Hamlet-inspired cover of the July, 2105 issue of Foreign Affairs.  The clever cover highlights the issue’s main theme, artificial intelligence and robotics, - a set of technologies that some fear could one day threaten our very existence. 

As its introductory article reminds us “new technologies have been revolutionizing the world for centuries, transforming life and labor and enabling an extraordinary flourishing of human development.  Now some argue that advances in automation and artificial intelligence are causing us to take yet another world-historical leap into the unknown.” 

Speculations about a future radically transformed by technology are nothing new.  But, with AI and robots seemingly everywhere, the concerns surrounding their long term impact may well be in a class by themselves.  Like no other technologies, AI and robots force us to explore the boundaries between machines and humans.  Will they turn out like other major innovations, e.g., steam power, electricity, cars, - highly disruptive in the near term, but ultimately beneficial to society?  Or, will we see a more dystopian future, as smart machines increasingly encroach on activities requiring intelligence and cognitive capabilities that not long ago were the exclusive domain of humans?  Opinions abound, but in the end, we don’t really know.

What’s the Value of a Liberal Arts Education in Our 21st Century Digital Economy?

A few years ago, I came across a very interesting article about the efforts of Roger Martin to transform business education.  At the time, Martin was the Dean of the Rotman School of Management at the University of Toronto.  He had long been advocating “that students needed to learn how to think critically and creatively every bit as much as they needed to learn finance or accounting.  More specifically, they needed to learn how to approach problems from many perspectives and to combine various approaches to find innovative solutions.”

“Learning how to think critically - how to imaginatively frame questions and consider multiple perspectives - has historically been associated with a liberal arts education, not a business school curriculum, so this change represents something of a tectonic shift for business school leaders.”  Achieving this goal would require business schools to move into territory “more traditionally associated with the liberal arts: multidisciplinary approaches, an understanding of global and historical context and perspectives, a greater focus on leadership and social responsibility and, yes, learning how to think critically.”

Similarly, in a 2006 report, the National Academy of Engineering called for reforming engineering education.  “New graduates were technically well prepared but lacked the professional skills for success in a competitive, innovative, global marketplace.  Employers complained that new hires had poor communication and teamwork skills and did not appreciate the social and nontechnical influences on engineering solutions and quality processes.”

The Fourth Industrial Revolution

The Fourth Industrial Revolution: what it means, how to respond was the central theme of the 2016 World Economic Forum (WEF) that took place earlier this year in Davos, Switzerland.  The theme was nicely explained by Klaus Schwab, WEF founder and executive chairman, in the lead article of a recently published Foreign Affairs Anthology on the subject.

Dr. Schwab positions the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - in the last third of the 18th century, - introduced new tools and manufacturing processes based on steam and water power, ushering the transition from hand-made goods to mechanized, machine-based production.  The Second, - a century later, - revolved around steel, railroads, cars, chemicals, petroleum, electricity, the telephone and radio, leading to the age of mass production.  The Third, - starting in the 1960s, - saw the advent of digital technologies, computers, the IT industry, and the automation of process in just about all industries.

“Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century,” he noted.  “It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”

Shaping the Future of the Internet

The Winter 2016 issue of Dædalus, the Journal of the American Academy of Arts and Sciences, is devoted to the Internet.  Its 7 articles explore some of the major issues shaping the Internet’s future.  The issue was curated by Harvard professor Yochai Benkler and MIT research scientist David Clark, whose joint introduction and individual papers frame the overall discussion.

“The Internet was born in 1983,” write Benkler and Clark in the Introduction.  That year saw the adoption of TCP/IP, - the communications protocol that defines the Internet to this day.  Its technical directions and overall culture have been largely determined by the academic and research communities, who were also its early users.  With strong government support, they developed a system that “only a researcher could love: general, abstract, optimized for nothing, and open to exploration of more or less anything imaginable using connected computers.”

The Internet has since evolved “from a network that primarily delivered email among academics and government employees, to a network over which the World Wide Web arose, to the video and mobile platform it has become - and the control network for embedded computing that it is fast becoming.”  From its niche research beginnings, it’s become the universal platform for collaborative innovation, enabling startups, large institutions, and everyone in between to quickly develop and bring to market many new digital products and services.

What design choices have led to the Internet as we know it?  Could it still evolve into a fundamentally different platform than the one we use today?  What decisions could significantly shape its future?  These are among the very important questions explored in the Dædalus issue.  In their Introduction, Benkler and Clark summarized some of the key themes that emerged from the various papers, - a few of which I’d now like to discuss.

The (Uneven) Digitization of the US Economy

Digital technologies are all around us, - increasingly ubiquitous and commoditized.  But, are they a major source of competitive differentiation?  Are they still a strategic value to business?  Can digital innovation drive long term economic growth?

Several weeks ago, the McKinsey’s Global Institute (MGI) published a report addressing these questions.  Digital America: A tale of the haves and have-mores aims to quantify the state of digitization of the US economy.  The report introduces the MGI Industry Digitization Index, a methodology for exploring the various ways US companies are going about their digital journey, - based on 27 indicators that measure how they’re building digital assets, expanding digital usage, and creating a digital workforce.

“Digital innovation, adoption, and usage are evolving at a supercharged pace across the US economy,” notes the report in its opening paragraph. “As successive waves of innovation expand the definition of what is possible, the most sophisticated users have pulled far ahead of everyone else in the race to keep up with technology and devise the most effective business uses for it.”

Let me discuss a few of the findings in this extensive report.

Why People and Companies Die While Cities Keep Growing

The Winter issue of strategy+business includes a very interesting article on theoretical physicist Geoffrey West, - The Fortune 500 Teller.  Dr. West is Distinguished Professor and Past President of the Santa Fe Institute (SFI), a non-profit research institute dedicated to the study of complex systems.  Prior to joining the SFI in 2003, he was the leader and founder of the high energy physics group at Los Alamos National Lab.

About 20 years ago, West got interested in whether some of the techniques and principles from the world of physics could be applied to complex biological and social systems.  In particular, he wondered if we could apply empirical, quantifiable and predictive scientific methods to help us better understand complex biological organisms and social organizations like cities and companies.

In the 1990s, his attention first turned to biology.  There are enormous variations in the characteristics of living creatures, their live spans, pulse rates, metabolism, and so on.  How do these characteristics change with body size?  Why do human beings live roughly 80 to 100 years, while mice live only two to three years.  Are there some common principles that apply to all living creatures regardless of size?  Can we find empirical mathematical models that might allow scientists to ask big questions about life, aging and death?

Trust and the On-Demand Economy

The intrinsic structure of companies has long been a subject of study, most famously by Ronald Coase, the eminent British economist and recipient of the 1991 Nobel Prize in economics.  In 1937, Coase published a seminal paper, The Nature of the Firm, in which he explained that, in principle, a firm should be able to find the cheapest, most productive goods and services by contracting them out in an efficient, open marketplace.

However, markets are not perfectly fluid.  Transaction costs are incurred in obtaining goods and services outside the firm, such as searching for the right people, negotiating a contract, coordinating the work, managing intellectual property and so on.  Firms thus came into being to make it easier to get work done.  A well managed company tries to achieve a good balance between the work that gets done within and outside its boundaries.  

Over the past few decades, the firm has been going through dramatic changes, driven by both advances in information technologies and the heightened competitive pressures brought about by globalization.  Fundamental changes have taken place in the structure of firms and in the overall flow of goods and services in the economy.  As this 2005 IBM study noted:

“The nature of competition - increasingly intense, global and unpredictable - requires strength across the board.  So the objective is to decompose the enterprise into its component parts, understand with great precision what is truly differentiating - where the enterprise has strengths and weaknesses - and then make decisions about how to build, buy or partner for world-class capability.” 

“In this model, companies can focus their energies on their true point of differentiation, instead of trying to master many domains and ultimately squander competitive advantage by dispersing focus and investment.  Rather than existing as static and fixed organizations, more enterprises could essentially become an aggregation of specialized entities with complementary interests - expanding, contracting and reconfiguring themselves in a way that best adapts to or even anticipates market dynamics.”

Why Blockchains Could Transform How the Economy Works

The October 31 issue of The Economist featured the blockchain in its cover: “The Trust Machine: How the technology behind Bitcoin could change the world.”  Its two articles on the subject explain what blockchains are about, as well as why we should care about an exotic technology that involves concepts from cryptography, game theory and distributed computing. 

Right up front, the Economist distinguishes between three different notions that are often muddled up when discussing blockchains: 

• Bitcoin, the best known and most widely held digital currency, whose users can transact directly with each other with no need for a central authority, - be it a bank or government agency, - to certify the validity of the transactions.
  

• The blockchain architecture underpinning bitcoin, whose protocols were specifically designed to control the creation and transfer of bitcoins. 

• The general concept of blockchain, a distributed database architecture with the ability to handle trust-less transactions where no parties need to know nor trust each other for transactions to complete. 

Bitcoin has had a mixed reputation, due to its wild fluctuations in value and past links to illicit activities.  And, bitcoin-specific blockchain concepts like mining might well be perceived as too wasteful of computing power and energy by all but the most libertarian of bitcoin supporters.  But the advanced technologies and architectures underlying blockchains are being increasingly accepted as having important implications far beyond bitcoin and other cryptocurrencies.

The blockchain holds the promise to revolutionize the finance industry by bringing one of its most important and oldest concepts, the ledger, to the Internet age.  Beyond finance, the blockchain “offers a way for people who do not know or trust each other to create a record of who owns what that will compel the assent of everyone concerned.  It is a way of making and preserving truths.”

Technological Unemployment and the Future of Work

Few topics are as important, - and as challenging to anticipate, - than the future of work given our justifiable fears of rising technological unemployment.  How are job markets likely to evolve in our 21st century digital economy?  This question has been widely discussed for years, but, - at the end of the day, - we don’t really have good answers.

One such discussion took place this past September at the The World Summit on Technological Unemployment in New York.  Its agenda featured top experts on the subject, including Larry Summers, Robert Reich and Joseph Stiglitz.  I moderated a panel on Technology and the Future of Work, where MIT economist David Autor and NY Times reporter John Markoff talked about their most recent work.  The Summit explored many good ideas, but there were no definitive answers.

Autor’s most recent paper on the subject, Why Are There Still So Many Jobs? The History and Future of Workplace Automation, frames the topic through a number of important questions, including:

• Why hasn’t automation already wiped out a majority of jobs?;
• Will mid-skill, mid-pay jobs continue to decline?; and
• What’s the impact of AI, robotics and other advanced technologies?

Bridging the World’s Knowledge Divide: Technology + Competition, Skills and Institutions

A few months ago I attended the 12th annual Brookings Blum Roundtable on Global Poverty, a meeting that brought together around 50-60 policy and technical experts from government, academia, business, investors and NGOs.  This year’s event was focused on the impact of digital technologies on economic development in emerging and developing countries.  It was organized around six different sessions, each of which explored the links between technology and development through a different lens. 

Prior to the event, the Brookings Institution commissioned a policy brief for each session to help set the stage for the ensuing discussions.  I wrote one of the briefs, - Will the Digital Revolution Deliver for the World’s Poor.  I would now like to discuss another brief which I found quite interesting, - Will the Spread of Digital Technologies Spell the End of the Knowledge Divide?, by Deepak Mishra, lead economist at the World Bank.  Dr. Mishra is also co-director of the World Development Report 2016: Internet for Development, which will shortly be released by the World Bank.

The Future of Jobs: Lessons from History

How will the job market evolve in our 21st century digital economy?  What can we learn from history that might help us make such predictions?  While there’s no guarantee that historical patterns will continue to apply going forward, they might well be our most important guides as we peer into an otherwise unpredictable future.

Fears that machines will put humans out of work are not new.  Throughout the Industrial Revolution there were periodic panics about the impact of automation on jobs, going back to the so-called Luddites, - textile workers who in the 1810s smashed the new machines that were threatening their jobs.

Automation anxieties continued to resurface in the 20th century, right along with advances in technology.  In a 1930 essay, English economist John Maynard Keynes wrote about the onset of “a new disease” which he named technological unemployment, that is, “unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

Automation fears have understandably accelerated  in recent years, as our increasingly smart machines are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans.  “Previous technological innovation has always delivered more long-run employment, not less.  But things can change,” said an Economist article from January, 2014.  “Nowadays, the majority of economists confidently wave such worries away…  Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently.”

Automation angst, past and present, was the subject of three papers in the Summer issue of the Journal of Economic Perspectives.   I’d like to focus my discussion on one of the papers, - The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different? - by economic professors Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth.  Their paper looked at both the history and the future of jobs from multiple points of view.