Irving Wladawsky-Berger

The (Updated) Purpose of the US Corporation

In September of 1997, the Business Roundtable (BRT), - an association of CEOs of major US companies, - issued a Statement on Corporate Governance which argued that “the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.”

Last week, the BRT released an updated statement on the Purpose of a Corporation which moves away from it’s previous commitment to shareholder primacy to now emphasize a “Commitment to All Stakeholders” and to “An Economy that Serves All Americans.”  This new statement, which was signed by almost 200 CEOs, now places shareholder interests on the same level as the interests of all its other stakeholders, including customers, employees, suppliers, and communities.

The recent BRT statement has received mostly positive coverage. “Top CEOs Say Companies Have Obligations to Society.  Business Roundtable urges firms to take into account employees, customers and community,” said the WSJ in its article’s headline.  Speaking of the change, Fortune noted that over the past decade “Capitalism, at least the kind practiced by large global corporations, was under assault from all sides, and CEOs were getting the message loud and clear…  Capitalism, it seemed, was desperately in need of a modifier.”  The only note of discord I came across was the response of the Council of Institutional Investors, which expressed concerns that the BRT statement “undercuts notions of managerial accountability to shareholders.”

I applaud the BRT statement.  “This is great,” I thought when first reading it, followed by “what took you so long?”  Given the suffering brought upon so many Americans by the 2008 global financial crisis, - the worst since the Great Depression, - restoring trust in business and in our capitalist economic system should have been a top priority for corporate leaders.  To help appreciate why it’s taken the BRT over a decade to affirm that companies have obligations to society, let’s take a look at the prevalent economic and political context of the past 50 years.

The Challenges of Automation in a Fast Changing Economy

“Technological innovation should be embraced,” notes Automation and a Changing Economy, a recently published report by The Aspen Institute.  “Automation has been a largely positive economic and social force, and looking forward,   automation will be necessary to feed, house, and raise the living standards of a growing and aging population.” 

But, “While it is important to note that automation’s overall, long-run effect on the economy has been positive - more jobs, more growth, higher living standards - this does not negate the disruptive impact of automation on individuals and communities, which results from displacements, changing skill needs, and income inequality.”

The report is divided into two sections: The Case for Action, which explores how automation impacts the economic security and opportunity of American workers, and Policies for Shared Prosperity, which outlines a policy agenda for addressing automation’s challenges and opportunities.  Let me summarize the key conclusions and recommendations in each of the report’s two sections.

From “Buy What We Have” to “Connected Customer Strategies”

Adapting to the ongoing digitization of the economy is one of the key challenges faced by just about every company around the world.  While there are many ways a company can leverage digital technologies to differentiate itself from competitors, two are particularly prominent: streamline operations to develop higher quality products at competitive prices, and provide a superior, cost-effective customer experience through digital channels

The explosive growth of mobile devices means that a company can be engaged with its customers whether they are at home, at work, or shopping in a store.  But, digital customers can be fickle and hard to satisfy.  A successful business will try to make each of its clients feel special by understanding and addressing their unique requirements, and by providing excellent customer service and quickly resolving problems when they come up.  This is hard, which is also why it may very well be the most important way for a business to stand out from its competitors.

“Thanks to new technologies that enable frequent, low-friction, customized digital interactions, companies today are building much deeper ties with customers than ever before,” said a recent Harvard Business Review (HBR) article, The Age of Continuous Connection by Nicolaj Siggelkow and Christian Terwiesch, in its opening paragraph.  “Instead of waiting for customers to come to them, firms are addressing customers’ needs the moment they arise - and sometimes even earlier.  It’s a win-win: Through what we call connected strategies, customers get a dramatically improved experience, and companies boost operational efficiencies and lower costs.”

Most companies engage with their customer fleetingly, using what the authors call the buy what we have model.  In it, companies provide high-quality offerings at competitive prices, but it’s up to customers to identify their needs and seek out the appropriate products or services to meet them.  The key problem with the traditional buy what we have journey is that company and customer are poorly connected throughout.

The Evolution of Work in Urban Labor Markets

A few weeks ago I heard a very interesting keynote by MIT economist David Autor at the annual conference of MIT’s Initiative on the Digital Economy.  The talk was based on his recently published paper Work of the Past, Work of the Future.

Professor Autor started his talk by noting 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 post-college education have risen 80% to 100%.  At the same time, the earnings of those with a high school education or less have fallen among men and barely changed among women.

At the same time, the supply of educated workers in the US has vastly increased.  From the 1960s to the present, the share of the labor force with college or post-college degrees rose from 12% to 39%,  while the share of those with some college rose from 13% to 28%.  But the share of those with a high school degree or less fell from 75 to 33%.  Based on the law of supply-demand, one would expect that the wages of college-educated workers would have fallen in recent years because there are so many of them, while the wages of those with a high school education or less would have risen because they are a significantly smaller share of the labor force.  But, as we well know, this has been far from the case.

Autor addressed this seeming paradox in his keynote by analyzing a number of potential explanations.  Eroding union penetration, falling minimum wages, and the rise of China, India and other low labor-cost countries have certainly contributed to the wage erosion of non-college workers.  But his main focus was the changing structure of work in the US and other advanced economies, as well as how these changes have unfolded across different geographic regions, from low density rural areas to high density cities.

The Puzzling Personal Productivity Paradox

The past 10-15 years have seen a number of technology advances, from smartphones to machine learning.  Yet, despite these impressive advances, for most of this period economies around the world have been stuck in an era of slow productivity growth.  Opinions abound, but in the end, there’s no consensus on the causes of this apparent productivity paradox, on how long the slowdown will likely last, or on what to do about it.

Some economists have argued that secular stagnation is the reason behind this unusual situation, caused primarily by a reluctance of companies to invest and of consumers to spend.  Others feel that aging populations around the world, accompanied by slow or declining labor forces are major factors.  A few contend that there’s been a fundamental decline in innovation and productivity over the past few decades, compared to the period between 1870 and 1970.

Yet others argue that there have always been time lags between technology advances and their impact on economic growth.  While technologies may advance rapidly, humans and institutions change slowly.  And, the more transformative the technologies, - as is currently the case, - the longer it takes for their impact to be felt across economies and societies.

But, companies and industries are not the only ones trying to adjust to our fast changing digital economy.  Individuals are also experiencing their own version of the productivity paradox.  Personal computers, along with applications like word processing and spreadsheets introduced a whole new category of personal productivity tools in the 1980s. A decade later, the Internet and World Wide Web enabled people to easily communicate with each other, and gave them access to all kinds of information and applications.

Once Lumbering, Now Innovative Incumbents Hit Their Stride

Last year, IBM’s Institute for Business Value published Incumbents Strike Back, a global C-suite study based on survey data from over 12,800 executives from 112 countries,  including CEOs, CFOs, CMOs, COOs, CIOs, and CHROs.

“Two decades after the Internet became a platform for transformation, we’re still wondering how it all might turn out,” notes the report.  “The signals aren’t always clear.  Today, winner-take-all organizations are on the rise, but collaborative ecosystems are flourishing as well.  Even in industries where competitive concentration is increasing, innovation hasn’t – as would be expected – flatlined.”

Overall, respondents were evenly divided on whether the key to the future are established markets or new ones.  But they stand in close agreement on two areas:  68% of executives said that their organizations will emphasize customer experience over products, and 63% said that they will continue to expand their networks of business partners.

There was also general agreement on the top external forces that will have the greatest impact in the 2-3 year timeframe: 69% said market factors such as increased competition and changing customer preferences; 63% said technological factors; and 61% said people skills, reflecting the increased importance of talent and ideas.

AI and the Evolution of History

Several weeks ago, I wrote about the event I attended on February 28 to celebrate the launch of MIT’s new Schwarzman College of Computing, - MIT’s strategic response to the rise of artificial intelligence, - a technology that will reshape “geopolitics, our economy, our daily lives and the very definition of work” in the decades to come.  The all-day celebration featured talks and panels on a wide variety of topics, some focused on innovative applications of AI technologies, others on the challenging issues raised by these powerful technologies.

A few weeks later I wrote about one of these challenging issues, the impact of AI on our social interactions, based on the talk by MIT professor Sherry Turkle on Rethinking Friction in Digital Culture, and a related article by Yale professor Nicholas Christakis on How AI Will Rewire US.

I now want to discuss the interview conducted by NY Times columnist Thomas Friedman with former US Secretary of State Dr. Henry Kissinger at the February 28 event.  The interview, - which can be seen in this video, - was based on a June, 2018 article by Dr. Kissinger in The Atlantic, - How the Enlightenment Ends: “Philosophically, intellectually - in every way - human society is unprepared for the rise of artificial intelligence.”

The Third Wave of the Digital Economy - Promises and Challenges

“The next wave of digital innovation is coming.  Countries can welcome it, prepare for it, and ride it to new heights of innovation and prosperity, or they can ignore the changing tide and miss the wave,” writes Robert Atkinson in The Task Ahead of Us.  Atkinson is founder and president of the Information Technology and Innovation Foundation (ITIF), a think tank focused on science and technology policy.

We’re now entering the third wave of the digital economy, says Atkinson.  The first was based on personal computing, the Internet, Web 1.0, and e-commerce.  The second brought us Web 2.0, big data, smartphones and cloud computing.  The emerging third wave promises to be significantly more connected, - including higher bandwidth and a wide variety of devices; more automated, - with more work being done by machines while integrating the physical and digital worlds; and more intelligent, - leveraging huge volumes of data and advanced algorithms to help us understand and deal with our increasingly complex world.

“Building and adopting the new connected, automated, and intelligent technology system will lead to enormous benefits globally, not least of which will be robust rates of productivity growth and improvements in living standards.  Moreover, these technologies will help address pressing global challenges related to the environment, public health, and transportation, among others.”

We’re in the early stages of this third wave.  5G, IoT, robotics, AI and other promising technologies are being embraced by early marketplace adopters, but their full-scale impact is still 5 to 10 years away.  We’re in a period not unlike the late 1980s, when it was clear that IT was on the brink of a major transition, but the Internet revolution didn’t arrive until the mid-1990s.

What Might Work Look Like in 2030?

A number of recent studies have taken a close look at the the future of work over the next 10 to 15 years.  For example, a December, 2017 report by McKinsey examined which jobs will likely be displaced by automation through 2030, as well as which jobs are likely to be created over the same period, based on data from 46 countries.

McKinsey’s overall conclusion was that a growing technology-based economy will create a significant number of new occupations which will more than offset declines in occupations displaced by automation.  However, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”

Another report, The Changing Nature of Work, - published by the World Bank in October, 2018, - concluded that our problem is not that there won’t be enough work in the future.  The key problem is that, in many countries, the workforce isn’t prepared for a fast unfolding future. Neglecting investments in human capital, - i.e., the sum total of a population’s health, skills, knowledge, and experience, - will dramatically weaken a country’s competitiveness.

Let me now discuss Eight Futures of Work Scenarios and their Implications, a white paper published in January, 2018 by the World Economic Forum (WEF) in collaboration with the Boston Consulting Group (BCG).  The paper considered eight distinct scenarios on what work might be like by 2030, based on different combinations of three of the most impactful and uncertain variables affecting the future of work: the rate of technological change; the evolution of learning in the workforce; and the magnitude of talent mobility across geographies.

AI and our Social Interactions

I recently wrote about the event I attended on February 28 to celebrate the launch of MIT’s Schwarzman College of Computing.  This new interdisciplinary College is MIT’s response to the rise of artificial intelligence, - a profoundly powerful technology that will likely reshape our economy, society and personal lives in the decades to come.  But, attaining AI’s broad potential will require not only a continuing slew of technological innovations, but equally important research on the challenges our society must get ready for, including ethical issues, workplace disruptions, and human interactions.

The event included keynotes and panels on a wide variety of topics. One of the talks I found most interesting was Rethinking Friction in Digital Culture by Sherry Turkle, MIT Professor of the Social Studies of Science and Technology.

In her many writings and seminars, - including her 2011 best-seller Alone Together, -  Professor Turkle has long been warning about the impact of technology on our social interactions.  “Most of us here today were introduced to the idea of friction free as a really good thing,” she said at the start of her keynote.  “It’s an aesthetic of engineering efficiency, so why shouldn’t it be a really good thing?”  This idea that technical things should be friction free and smooth easily bleeds into other domains. “Efficiency becomes aspirational - in politics, in business, in education, and in our thinking about relationships.”

She cited a few examples of the kinds of friction free interactions she’s come across in her research on technology and social relationships.  People of all ages have told her that they prefer to text rather than talk, - even when interacting with a colleague in the next cubicle or office.  People have said to her that they prefer to text their spouse rather than have a face-to-face conversation.  Friction free, she explained, “is usually tied up with a hope for greater efficiency and less vulnerability.”

Impact of an Aging Population on Economic Growth and Automation

The world has been stuck in an era of slow economic growth over the past decade.  Top economists and policy makers have proposed a number of explanations for the economic slowdown, but in the end, there’s no consensus on the reasons, on how long the slowdown will likely last, or on what to do about it.

Economic growth has two main components, productivity growth and the growth of the labor force.  One potential theory for our stagnant economic growth is demographics, namely, the rapidly declining population and labor force growth around the world.

The current world’s population is 7.7 billion.  The UN Population Division estimates that global population will reach 9.8 billion with a growth rate of 0.5% in 2050, and will peak around 2100 at roughly 11.2 billion with a growth rate of 0.1%.  Other projections estimate that the population will grow slower, peak at 9.4 billion around 2070 and then decline to around 9 billion in 2100.  Some project that after reaching a peak of 9 billion, the world’s population will decline back to today’s levels, - around 7 billion, - by 2100.

Japan and a few other countries are already experiencing population declines.  The US population is currently around 330 million, and is projected to reach 390 million in 2050 and 450 million in 2100.  While the US birthrate hit a historic low in 2017, the population has continued to grow due to immigration.  The US growth rate is 0.71% including immigration and 0.43% without.

The global labor force grew at an average of 1.8% per year between 1960 and 2005, but since then it’s been growing at just 1.1% per year.  The labor force is still growing in some developing countries like India, Nigeria and the Philippines, but it’s already shrinking in China, Japan and Germany.  In the US, the labor force is growing very slowly, - 0.5 percent per year over the past decade, compared with 1.7 percent from 1960 to 2005.  Given the continuing decline in fertility rates in most parts of the world, the global labor force is expected to slip further in the coming decades.

The New, Interdisciplinary, MIT Schwarzman College of Computing

A few months ago, MIT president Rafael Reif announced the launch of the Stephen A. Schwarzman College of Computing in an e-mail to the MIT community.  “This new College is our strategic response to a global phenomenon – the ubiquity of computing and the rise of AI…” wrote President Reif.  “To state the obvious, AI in particular is reshaping geopolitics, our economy, our daily lives and the very definition of work.  It is rapidly enabling new research in every discipline and new solutions to daunting problems.  At the same time, it is creating ethical strains and human consequences our society is not yet equipped to control or withstand.”

The new College of Computing is made possible by a $350 million foundational gift from Stephen Schwarzman, - chairman, CEO and co-founder of Blackstone, one of the world’s leading investment firms.  The gift is part of a  $1 billion commitment to reshape MIT to help it better address the continuing advances in technology in our 21st century digital economy, as well as their many applications , - both the exciting opportunities and the difficult challenges.

The College is envisioned as an interdisciplinary hub across all five of MIT’s existing schools: Engineering; Science; Humanities, Arts, and Social Sciences; Architecture and Planning; and the Sloan School of Management.  This MIT News announcement succinctly summarized the key objectives of the new College:

• reorient MIT to bring the power of computing and AI to all fields of study at MIT, allowing the future of computing and AI to be shaped by insights from all other disciplines

• create 50 new faculty positions that will be located both within the College and jointly with other departments across MIT - nearly doubling MIT’s academic capability in computing and AI

• give MIT’s five schools a shared structure for collaborative education, research, and innovation in computing and AI

• educate students in every discipline to responsibly use and develop AI and computing technologies to help make a better world; and

• transform education and research in public policy and ethical considerations relevant to computing and AI.

The Business Value of Resilience

The Industrial Revolution was “as much about process innovations that reduced waste and increased productivity as it was about the application of new technologies,” wrote Roger Martin in a recent Harvard Business Review (HBR) article, - The High Price of Efficiency.  Martin is professor and former dean of the Rotman School of Management at the University of Toronto, as well as an accomplished writer.

The belief that efficiency is fundamental to competitive advantage has turned management into a science, - taught in every business school on the planet, - whose objective is the elimination of waste, - whether of time, materials, or capital.

“Why would we not want managers to strive for an ever-more-efficient use of resources?,” asks Martin.  Of course we do.  But, an excessive focus on efficiency can produce startlingly negative effects.  To counterbalance such potential negative effects, companies should pay just as much attention to a less appreciated source of competitive advantage: resilience,  - “the ability to recover from difficulties - to spring back into shape after a shock.”

“Think of the difference between being adapted to an existing environment (which is what efficiency delivers) and being adaptable to changes in the environment.  Resilient systems are typically characterized by the very features - diversity and redundancy, or slack - that efficiency seeks to destroy.”

The Current State of AI Adoption

AI is seemingly everywhere.  In the past few years, the necessary ingredients have finally come together to propel AI beyond early adopters to a broader marketplace: powerful, inexpensive computer technologies; advanced algorithms; and huge amounts of data on almost any subject.  Newspapers and magazines are full of articles about the latest advances in machine learning and related AI technologies.

Two recent reports concluded that, over the next few decades, AI will be the biggest commercial opportunity for companies and nations.  AI advances have the potential to increase global GDP by up to 14% between now and 2030, the equivalent of an additional $14-15 trillion contribution to the world’s economy, and an annual average contribution to productivity growth of about 1.2 percent.

Over time, AI could become a transformative, general purpose technology like the steam engine, electricity, and the Internet. AI marketplace adoption will likely follow a typical S curve pattern, - that is, a relatively slow start in the early years, followed by a steep acceleration as the technology matures and firms learn how to best leverage AI for business value.

To get a better sense of the current state of AI adoption, McKinsey recently conducted a global online survey on the topic, garnering responses from over 2,000 participants across 10 industry sectors, 8 business functions and a wide range of regions and company sizes.  The survey asked about their progress in deploying nine major AI capabilities, including machine learning, computer vision, natural language text and speech processing, and robotic process automation.

The True Value of a Good Education: Adaptability to a Changing Environment

In his 1945 seminal report, Science The Endless Frontier, presidential science advisor Vannevar Bush laid out the blueprint for R&D in post-war America: “New knowledge can be obtained only through basic scientific research” conducted in universities and research labs, which is then applied to develop new products by the private sector and new and improved weapons by the defense sector.  The report was quite influential and led to the considerable expansion of university research, much of it supported by the National Science Foundation (NSF), the National Institutes of Heath (NIH) and other US federal agencies.

A number of large industrial companies also embraced these recommendations, and launched or expanded corporate research labs, such as ATT’s Bell Labs, GE Research, Xerox PARC and IBM Research.  Their job was to push the frontiers of knowledge by conducting both basic and applied research, which would hopefully lead to innovative technologies and products.

A doctoral degree or PhD has long been a key requirement for most research positions, whether in universities, or corporate and government labs.  Thus, since the post-war expansion of research, the number of PhDs has been steadily rising.  NSF data shows that the number of PhD recipients per year from US universities has more than quintupled, - from under 10,000 in 1958 to almost 55,000 in 2017.  Over three quarter of the degrees awarded in 2017 were in STEM disciplines: 23% in Life Sciences, 18% in Engineering, 17% in Social Sciences, 11% in Physical Sciences, and 7% in Math and Computer Sciences. Beyond STEM, 10% of 2017 PhDs were in the Humanities and Arts, 9% in Education, and 5% in various other disciplines.

Data from the US Bureau of Labor Statistics (BLS) shows the value of a PhD education.  According to 2017 BLS data, recipients of doctoral degrees had among the lowest unemployment rates at 1.5%, compared with 2.2% of those with master’s degrees, 2.5% with bachelor degrees and an overall unemployment rate of 3.6%.  Holders of doctoral degrees were also among the best paid, with weekly median earnings of $1,743, slightly below holders of professional degrees, - e.g. physicians, dentists, lawyers, - at $1,836, and higher than the $1,401 for master’s degrees and $1,173 for bachelor’s.

Given these positive figures, one would expect near universal agreement on the value of obtaining a PhD.  But, in fact, this is not the case.  A number of recent articles have been questioning whether a PhD is worth it.  Let’s take a closer look at their arguments.

Will Humans Be Better Off in an Increasingly AI-Based Future?

After decades of promise and hype, artificial intelligence is finally becoming one of the most important technologies of our era.  As AI continues to both spread and advance, will it enhance human capacities or will it lessen human autonomy and agency?  By 2030, will most people be better or worse off than they’re today?

To shed light on these very important questions, the Pew Research Center canvassed AI experts this past summer, including technologists developers, and business and policy leaders.  It received almost 1,000 responses, which formed the basis for its recently published report Artificial Intelligence and the Future of Humans.

Overall, 63% of respondents were optimistic, predicting that most individuals will mostly be better off, while 37% thought otherwise.  But optimistic or not, most experts expressed concerns about the long-term impact of AI on “the essential elements of being human.”

The survey further asked the experts to explain their hopes and fears, to sketch out how they envision human-machine interactions over the coming decade, and what actions should be taken to assure the best possible future. Many answered, and their detailed comments are organized into the report’s three main sections: concerns; suggested solutions; and expectations for the future.  Let me briefly discuss the key points in each section.

The World Bank’s Human Capital Index

Last week I wrote about a recently published World Bank report, The Changing Nature of Work.  The report highlights the increasing importance of investing in human capital by both the public and private sectors.  All around the world, the demand for workers who are good at complex problem-solving, interactions with clients and colleagues, and able to adapt to new tools and technologies is rising, while the demand for less advanced skills that can be replaced by technology is declining.  Neglecting investments in human capital, it warned, can dramatically weaken a country’s competitiveness.

“The world is healthier and more educated than ever…,” notes the World Bank in a companion report, The Human Capital Project.  “But a large and unfinished agenda remains.  Life expectancy in the developing world still lags far behind that of rich countries…  Worldwide, more than 260 million children and youth are not in school. Meanwhile, nearly 60 percent of primary school children in developing countries fail to achieve minimum proficiency in learning.”

Why should countries invest in human capital?  Can early health care and education prepare children to succeed and prosper as adults in a rapidly changing world?  What are the barriers to nurturing human capital and how can countries overcome them?  To address these important questions, the World Bank introduced the Human Capital Index (HCI).  The HCI is designed to quantify the amount of human capital that a child born today can expect to attain by age 18 given the prevailing health and education conditions in the country where the child lives.  It will be updated periodically and refined as data measures improve.  This video nicely explains the HCI and what it measures. 

Human Capital and the Changing Nature of Work

People have long feared that machines are coming for our jobs.  Throughout the Industrial Revolution there were periodic panics about the impact of automation on work, going back to the so-called Luddites, - textile workers who in the 1810s smashed the new machines that were threatening their jobs.

Automation anxieties 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.  But on balance, such fears appear to be unfounded, noted the World Bank in a comprehensive recent report on The Changing Nature of Work.  Our problem is not that there won’t be enough work in the future.  Our key problem is that, in many countries, the workforce isn’t prepared for our fast unfolding future.

In a recent article in Foreign Affairs, World Bank Group President Jim Yong Kim warned that the world is facing a Human Capital Gap.  “Governments in pursuit of economic growth love to invest in physical capital - new roads, beautiful bridges, gleaming airports, and other infrastructure.  But they are typically far less interested in investing in human capital, which is the sum total of a population’s health, skills, knowledge, experience, and habits.  That’s a mistake, because neglecting investments in human capital can dramatically weaken a country’s competitiveness in a rapidly changing world, one in which economies need ever-increasing amounts of talent to sustain growth.” 

Redefining Work - Leveraging Human Capabilities in a Future of Expanding Automation

How will labor markets evolve in our 21st century digital economy?  What’s the likely future of jobs, given that 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?  How will AI, robotics and other advanced technologies transform the very nature of work?

Over the past few years, a number of papers, reports and books have addressed these very important questions.  They generally conclude that AI will have a major impact on jobs and the very nature of work.  For the most part,  they view AI as mostly augmenting rather than replacing human capabilities, automating the more routine parts of a job and increasing the productivity and quality of workers, so they can focus on those aspect of the job that most require human attention.  Overall, few jobs will be entirely automated, but automation will likely transform the vast majority of occupations. 

A recent McKinsey report noted while there will likely be enough work to maintain full employment by 2030, the transition will be very challenging, “on a scale not seen since the transition of the labor force out of agriculture in the early 1900s in the United States and Europe, and more recently in in China.”  The report estimated that “up to 375 million workers, or 14 percent of the global workforce, may need to change occupations - and virtually all workers may need to adapt to work alongside machines in new ways.”

Given these predictions about the changing nature of work, what should companies do?  How should firms prepare for a brave new world where we can expect major economic dislocations along with the creation of new jobs, new business models and whole new industries, and where many people will be working alongside smart machines in whole new ways?

The Jobs Outlook for 2022

A few weeks ago, the World Economic Forum (WEF) released The Future of Jobs Report 2018.  The report takes an in-depth look at the world of work in what the WEF calls the Fourth Industrial Revolution. The report is based on a survey of over 300 chief human resource officers and top strategy executives from large global companies across 12 industry sectors.  These companies collectively represent more than 15 million employees, and conduct business in 20 developed and emerging economies which collectively account for about 70% of global GDP.

First introduced at its 2016 annual Davos Forum, the WEF positions the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - in the last third of the 18th century, - ushered the transition from hand-made goods to mechanized, machine-based production based on based on steam and water power.  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…” wrote WEF founder and chairman Klaus Schwab in a December, 2015 Foreign Affairs article.  “The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited.  And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”

The Future of Jobs 2018 examines the potential of these advanced technologies to eliminate and create new jobs, as well as to improve the current workplace and prepare people for emerging jobs. Rather than looking at the future of work over the longer term, the report chose to examine the 2018-2022 period, which is within the planning horizon of the companies and executives that participated in the survey.

The 2018 MIT Inclusive Innovation Challenge

In 2016, MIT’s Initiative on the Digital Economy launched its first annual Inclusive Innovation Challenge (IIC).  The key objective of the IIC is to help create greater shared prosperity around the world by awarding over one million dollars in prizes each year to to entrepreneurs that are leveraging technology advances to reinvent the future of work.

“The IIC believes that Inclusive Innovation is an economic and moral imperative, and that the key question of our era isn’t what technology is going to do to our economy and society, but what we will do with technology.  By identifying and promoting the powerful global community of future of work visionaries, the IIC proactively accelerates the technology-driven solutions enabling greater economic opportunity for working people around the world facing the challenge of rapidly advancing digital progress.”

Entrepreneurs from around the globe compete for awards in four categories: income growth and job creation, skills development and opportunity matching, technology access, and financial inclusion. Approximately 1,500 organizations registered to compete this year, and 500 judges reviewed their applications.   

In 2018, rather than having one global competition as in the previous two years, there were five separate regional competitions, - North America, Latin America, Europe, Africa, and Asia, - each region selecting its own category winners.  A Grand Prize winner was then selected in each category from among the regional winners and each awarded $250,000.  The winners were announced at a gala event that took place in MIT on November 8.

The Economic Value of Artificial Intelligence

 PwC recently released a report on the potential economic value of AI to different regions and industry sectors around the world.  The report defined AI, “as a collective term for computer systems that can sense their environment, think, learn, and take action in response to what they’re sensing and their objectives.”  By this broad definition, AI includes the automation of physical and cognitive tasks; assisting people to perform tasks better and faster; helping humans make better decisions; and automating decision making with no human intervention.

The report’s overriding finding is that AI is the biggest commercial opportunity for companies, industries and nations over the next few decades.  PwC estimates that AI advances will increase global GDP by up to 14% between now and 2030, the equivalent of an additional $15.7 trillion contribution to the world’s economy.

Around $6.6 trillion of the expected GDP growth will come from productivity gains, especially in the near term.  These include the continued automation of routine tasks, and the development of increasingly sophisticated tools to augment human capabilities.  Companies that are slow to adopt these AI-based productivity improvements will find themselves at a serious competitive disadvantage.

But, over time, increased consumer demand for AI-enhanced offerings will overtake productivity gains and result in an additional $9.1 trillion of GDP growth by 2030.  Moreover,  network effects, - that is, the more data and better insights companies are able to gather, the more appealing the products and services they’ll be able to develop, - will further increase consumer demand.  AI front-runners will gain an enormous competitive advantage through their ability to leverage this rich supply of customer data to shape product developments and business models, making it harder for slower moving competitors to catch up. 

Automation and the Changing Demand for Workforce Skills

In 2015, the McKinsey Global Institute launched a multi-year study to explore the potential impact of automation technologies on jobs, organizations and the future of work.  In the intervening three years, the study has published a number of report on the subject.

The first report, published in November, 2015, explored whether we can look forward to vast improvements in productivity and quality of life, or whether automation will mostly threaten jobs, disrupt organizations, and strain the social fabric.  Based on an analysis of around 2,000 work activities across 800 different occupations, the report concluded that “fewer than 5 percent of occupations can be entirely automated using current technology.  However, about 60 percent of occupations could have 30 percent or more of their constituent activities automated.”  In other words, relatively few jobs will be entirely automated, but automation will likely transform the vast majority of occupations.

McKinsey’s December, 2017 report analyzed whether there will be enough work in the future.  The overall conclusion was that a growing technology-based economy will create a significant number of new occupations, - as has been the case in the past, - which will more than offset declines in occupations displaced by automation.  However, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”

Let me now discuss the more recent report published earlier this year, which examined the changes in skills required of human workers over the next 10-15 years.  To do so, the study analyzed how the total number of hours worked in 25 different skill areas has changed between 2002 and 2016 and estimated the expected change in hours worked by 2030.  This was done for the US and 5 Western European countries.  I’ll focus my discussion on the US skill changes, as the European changes were similar.

Solow Paradox 2.0: The Lagging Impact of Technology Advances on Productivity Growth

Fewer workers is one of the key reasons for our stagnant economic growth.  Over the coming decades, the labor force is expected to shrink in most parts of the world as fertility rates continue to decline, especially in advanced and emerging economies.  The US labor force is growing very slowly while fertility rates keep hitting record lows.

Our aging economies are thus dependent on productivity gains to drive long-term economic growth, future prosperity and higher standards of living.  Which is why few topics have generated as much concern among economists and policy makers as the sharp decline in productivity growth in the US and other advanced economies over the past decade, - despite accelerating technology advances.

“Labor productivity growth is near historic lows in the United States and much of Western Europe,” noted Solving the Productivity Puzzle, a report published earlier this year by the McKinsey Global Institute (MGI).  The report analyzed the productivity-growth declines across a sample of seven countries, - France, Germany, Italy, Spain, Sweden, the United Kingdom, and the United States, - which represent about 65% of the GDP of advanced economies.  Their average productivity growth in the 5 years between 2000 and 2004 was 2.4%.  A decade later, - in the 5 year period between 2010 and 2014, - their average productivity growth had declined to .5%.  While starting to pick up recently, productivity growth remains at or below 1 percent in many of the countries in the study, still quite low relative to historical levels.

The Myth of the Washed-Up, Middle-Age Entrepreneur

Steve Jobs, Bill Gates, and Mark Zuckerberg were in their early 20s; Sergei Brin and Larry Page were 25; and Jeff Bezos was just 30 when they founded their world leading high-tech companies.  Their companies are truly in a class by themselves, even having their own, somewhat frightful acronym - FAMGA.  Their founders’ ages are not only evidence that young people can be highly successful entrepreneurs, but it’s led to the belief that they’re uniquely capable of coming up with big, transformational ideas.

“Young people are just smarter,” Zuckerberg told the audience of a 2007 VC conference, adding that successful start-ups should only employ young people with technical expertise.  In 2010, PayPal’s co-founder Peter Thiel created the Thiel Fellowships, a program that provides $100,000 over two years to would-be entrepreneurs 23 and under so they can drop out of school to work on their ideas.  “The stereotype of an entrepreneur is a college drop-out,” said a recent Economist article.

“Silicon Valley has become one of the most ageist places in America,” noted a 2014 New Republic article on The Brutal Ageism of Tech, where years of experience are considered obsolete.  “People under 35 are the people who make change happen,” said VC Vinod Khosla at a 2011 conference.  “People over 45 basically die in terms of new ideas” because they “keep falling back on old habits.”  Entrepreneur and VC Paul Graham said in a 2013 interview that investors tend to be biased against older founders.  “The cutoff in investors’ heads is 32… after 32, they start to be a little skeptical.”

These various statements remind me of the 1960s counterculture saying don’t trust anyone over 30.  But, are they justified?  Are young entrepreneurs more likely to produce high-growth firms?  Can middle-age founders in their 40s be successful? 

AI - the Creation of a Human-Centric Engineering Discipline

AI is rapidly becoming one of the most important technologies of our era.  Every day we can read about the latest AI advances from startups and large companies, including applications that not long ago were viewed as the exclusive domain of humans.  Over the past few years, the necessary ingredients have finally come together to propel AI beyond the research labs into the marketplace: powerful, inexpensive computer technologies; huge amounts of data; and advanced algorithms.

Machine learning  and related algorithms like deep learning, have played a major role in AI’s recent achievements.  Machine learning gives computers the ability to learn by ingesting and analyzing large amounts of data instead of being explicitly programmed.  It’s enabled the construction of AI algorithms that can be trained with lots and lots of sample inputs, which are subsequently applied to difficult AI problems like language translation, natural language processing, and playing championship-level Go.

Over the past several decades, AI has been besieged by rounds of hype which over-promised, under-delivered, and nearly killed the field.  Once more, a recent Gartner article positioned machine and deep learning at the top of their hype cycle, - when all the excitement, publicity and promising potential often leads to a peak of inflated expectations, risking falling into the trough of disillusionment if the technology fails to deliver.  Now that AI is finally reaching a tipping point of market acceptance, it’s particularly important to be cautious and not repeat past mistakes.

In Artificial Intelligence - The Revolution Hasn’t Happened Yet, UC Berkeley professor Michael I. Jordan aims to inject such a note of caution.  “AI has now become the mantra of our current era…  The idea that our era is somehow seeing the emergence of an intelligence in silicon that rivals our own entertains all of us  -  enthralling us and frightening us in equal measure.  And, unfortunately, it distracts us…  Whether or not we come to understand intelligence any time soon, we do have a major challenge on our hands in bringing together computers and humans in ways that enhance human life.”

The Transformative Power of Analytics - The Houston Astros: a Case Study

In 2013, the Houston Astros finished the season with a 51-111 record, - the worst record in the history of the franchise, having also lost over 100 games in the previous two years.  In 2017, the Astros won 101 games, finished first in the American League West Division, and went on to win their first ever World Series.  How did the Astros go from worst team record to first World Series victory in only four years?

The answer, in a nutshell, is analytics.  In December, 2011 the Astros hired Jeff Luhnow from the St Louis Cardinals as their General Manager.  As VP of scouting and player development in St Louis, Luhnow built a strong analytics department and enjoyed great success as one of the top talent producers in baseball, helping the Cardinals win the 2011 World Series as well as reach the playoffs from 2012 to 2015.  Luhnow then brought his analytics and management skills to Houston and proceeded to transform the team into a top contender in a short few years.

Today, just every major sports team makes extensive use of sports analytics, but none more so than Major League Baseball (MLB) teams.  Baseball has long been a game of statistics, collecting and analyzing vast amounts of data going back to the founding of the MLB in the years following the Civil War. 

Top MLB players are constantly compared not just to other contemporaneous players, but to other top players across the long history of the game, - a history that was very nicely depicted in Baseball, Ken Burns excellent documentary miniseries. Babe Ruth, Willie Mays, Mickey Mantle, Hank Aaron and countless other players are never forgotten in the world of baseball statistics.  For those of us who are fans, - as I am, not surprisingly given my Cuban roots, - baseball’s rich history is a major part of our enjoyment of the game. 

Getting on the AI Learning Curve: A Pragmatic, Incremental Approach

After decades of promise and hype, AI is now seemingly everywhere.  Over the past several years, the necessary ingredients have come together to propel AI beyond the research labs into the marketplace: powerful, inexpensive computer technologies; huge amounts of data; and advanced algorithms including machine learning.

While AI is likely to become one of the most important technologies of our era, we’re still in the early stages of deployment, especially outside leading-edge technology companies.  But, as AI continues its rapid progress, it’s not too early to ask a few important questions: What is AI’s overall value to the economy? What are the biggest application opportunities?; and, what are AI’s most serious challenges and limitations?

To address these questions, McKinsey recently published a discussion paper on the marketplace potential of AI.  The paper is particularly focused on machine learning and related technologies, and is based on a detail analysis of more that 400 use cases across 19 industries and 9 business functions.

“Two-thirds of the opportunities to use AI are in improving the performance of existing analytical use cases,” is the paper’s overriding finding.  This is a very interesting insight.  AI is now being successfully applied to tasks that not long ago were viewed as the exclusive domain of humans, - machine translation, natural language processing, defeating the world’s top Go players, - but only 16% of the use cases studied by McKinsey are greenfield cases, where only machine learning techniques can be used.  For the vast majority of the use cases, 69%, the key value of machine learning is to improve performance beyond that provided by traditional analytic techniques.  And, in the remaining 15% of cases, machine learning provided limited additional performance over existing analytical methods. 

Education, Work and US Leadership in the 21st Century

A few weeks ago, the Council on Foreign Relations (CFR) released The Work Ahead - Machines, Skills, and U.S. Leadership in the Twenty-First Century, a report by a CFR-sponsored Task Force to assess the future of work and its implications for the US economy and national security.  The Task Force was led by Penny Pritzker, - former Secretary of Commerce and founder and chair of PSP Partners, and by John Engler, - former Governor of Michigan and interim President of Michigan State University.

Their comprehensive report, - over 150 pages and 276 citations, - explored in great depth the changing nature of work as global competition and advanced technologies like AI, robotics, and smart IoT devices transform jobs and careers.  It states right up front that “The most important challenge facing the United States - given the seismic forces of innovation, automation, and globalization that are changing the nature of work - is to create better pathways for all Americans to adapt and thrive.  The country’s future as a stable, strong nation willing and able to devote the necessary resources and attention to meeting international challenges depends on rebuilding the links among work, opportunity, and economic security.”

For much of the 20th century, technology and globalization helped lead America to its leadership position in the world stage.  Underpinning this US leadership was the American Dream, - the promise that anyone can get ahead and achieve success and prosperity through talent and hard work.  But this promise has been eroding for decades.  For many of its citizens, the American Dream has been steadily disappearing.

Technology advances have led to massive innovations and efficiencies, enabling companies to get the same work done with significantly fewer people.  At the same time, many US-headquartered companies are truly global, doing business all over the world.  Beyond outsourcing jobs to countries with lower labor costs they’ve been investing and adding jobs where the demand is highest, - which has often been in faster growing emerging markets.

The US thus faces two major challenges: “creating new work opportunities, better career paths, and higher incomes for its people, while developing a workforce that will ensure U.S. competitive success in a global economy that will continue to be reshaped by technology and trade.” 

The 2018 Inclusive Internet Index

Earlier this year, the Economist Intelligence Unit (EIU) published the Inclusive Internet Index 2018.  Now in its second year, the Index analyzes and compares the current state of the Internet across 86 countries, ranging from advanced to developing economies and covering 91% of the world’s population.  Its key objective is to help policymakers understand the key factors necessary for the wide, inclusive use of the Internet in their respective countries.

Countries are evaluated based on 54 indicators organized around four major categories:

• Availability,  which captures the quality of breadth of the infrastructure available for Internet access, including network availability, access points for landline and mobile connections, and the basic electricity infrastructure needed to support Internet connectivity in urban and rural areas.
• Affordability, which measures the cost of Internet access relative to income, the competitive environment for wireless and broadband operators and the measures taken to decrease costs and promote access.
• Relevance, which looks at the availability of Internet content in the local language(s) and the value of being connected to get access to relevant services like news, entertainment, health advice and business and financial information.
• Readiness, which examines the capacity to take advantage of accessing the Internet, including level of literacy, educational attainment, cultural acceptance, privacy and security, and trust in the sources of online information.

Each country is assigned a score for each of the four categories, as well as an overall index score. 

Harnessing the Collective Intelligence of Humans and Machines

For over a decade, MIT professor Thomas Malone has been conducting pioneering research on the collective intelligence of groups.  Malone is the founding director of the MIT Center for Collective Intelligence, and has authored and co-authored a number of seminal articles on the subject.  A few weeks ago, Malone published Superminds: The Surprising Power of People and Computers Thinking Together, - a book that nicely explains the concept of collective intelligence and how our increasingly capable machines are now complementing the intelligence of groups of people.  The book illustrates these concepts with a wide variety of examples and case studies.

He defines a supermind as “a group of individuals acting in ways that seem intelligent.”  A supermind has measurable properties just as individual do.  It can have a life of its own beyond those of its individuals constituents.  And, as Malone points out, throughout history, groups of people working together as superminds have been responsible for the vast majority of human achievements. 

Human-Machine Work Teams

Will there be enough work in the future?  What’s the likely impact of our continuing technology advances on jobs?  How will they impact productivity?  These are all-important questions to reflect on as our increasingly smart technologies are now being applied to activities that not long ago were viewed as the exclusive domain of humans.

While no one really knows the answer to these questions, most studies of the subject have concluded that relatively few occupations, 10% or less, will be entirely automated and disappear over the next 10 - 15 years.  Instead, a growing percentage of occupations will significantly change as technologies automate the more routines tasks within those occupations.  People will still be involved, but their jobs will be transformed by the advanced tools they now have to master.  Moreover, a growing technology-based economy will likely create all kinds of new occupations, which will more than offset declines in occupations displaced by automation, - as has been the case over the past couple of centuries.

One would also expect that technology advances will increase the productivity of the workers involved in these new or transformed occupations.  But, if we look at the past 10-15 for guidance, we’ll find that productivity growth has significantly declined over this timeframe, notwithstanding huge technology advances like smartphones, cloud computing, big data and artificial intelligence.  Economist have proposed competing explanations for the declining productivity growth, but have so far failed to reach consensus.  Understanding this productivity puzzle may well hold the key to future productivity improvements and long-term economic growth.

The Promise and Current State of Blockchain

I recently participated in a blockchain panel at a conference of senior supply chain executives from a variety of companies.  I welcomed the opportunity to learn how these real-world executives feel about blockchain, as well as how to best communicate the promise and current state of this emerging and potentially transformative technology.  Let me share a few of my observations.

Before our panel started, the executives were asked how they viewed blockchain.  In general, they felt that there was too much hype surrounding blockchain, were skeptical about its value to supply chain systems, but expressed a wait-and-see attitude.  They were then asked how many were conducting blockchain prototypes in their companies.  The majority raised their hands. 

I thought that their views and subsequent questions and comments during the panel succinctly captures the current state of blockchain in the business world: skeptical, turned off by the hype, but hedging their bets by getting on the learning curve with prototypes and experimentation.

The moderator first asked each panelist to address the audience’s skepticism about blockchain.  What, in our opinion, is the key value of blockchain?  I said that I look at the value of blockchain through two complementary lenses: enhancing the security of the Internet, and reducing the inefficiencies and overheads in applications, like supply chains, involving multiple institutions.

The Growing Importance of Resilience in an Increasinsgly Turbulent World

In March of 2017, Northeastern University launched a new interdisciplinary initiative, the Global Resilience Institute (GRI).  GRI is a university-wide research and educational effort to advance the resilience of individuals, communities, economies and societies around the world by strengthening their capacity to adapt to an increasingly turbulent world.  Its key mission is to develop and deploy practical tools, applications and skills to help effectively respond to human-made and naturally-occurring disruptions and disasters.

GRI’s Founding Director is Northeastern professor Stephen Flynn.  In his Director’s Welcome web page, Flynn writes that “Building resilience within and across multiple levels, from individual to societal, requires a comprehensive effort that matches the complexity of the increasingly interdependent systems and networks we all rely on… Our aim is to serve as both a channel and a catalyst for experts in industry, academia, and government to collaborate on solving the world’s most pressing resilience challenges.  These include both slowly emerging disruptions as well as shocks and sudden disasters.”

Most everyone agrees that dealing with our increasingly turbulent, complex world us requires significant enhancements to the resilience of our societies and systems.  But, five critical barriers stand in the way:

• Widespread risk illiteracy and a limited understanding of the new dependencies and interdependencies that pervade our more connected lives;
• Inadequate designs for embedding resilience into systems, networks, and infrastructure at multiple levels;
• Pervasive economic disincentives for investing in proven resilience measures;
• Inadequate governance frameworks and policy guidance to foster resilience; and
• A lack of adequate training and education to support the development and implementation of comprehensive capabilities for advancing resilience.

Human + Machine: The Impact of AI on Business Transformation

Last week I wrote about the impact of blockchain technologies on business transformation.  I now want to turn my attention to the more immediate impact of AI on business, based on Human + Machine: Reimagining Work in the Age of AI, a recently published book by Accenture executives Paul Daugherty and Jim Wilson.

The book reminds us that technology has long been transforming business.  Electricity and standardized processes ushered the first wave of business transformations about 100 years ago.  Manufacturing was decomposed into a set of processes and reassembled into the assembly line, leading to the age of mass production.

Several decades later, IT and process automation brought us the second wave of business transformation.  Mainframes and data processing software enabled the automation of back-office processes in the 1960s and 1970s.  Front-office automation followed in the 1980s with the advent of PCs and client-server systems.  A decade later, advances in networking and ERP software led to  business process reengineering and management. 

“Now, the third wave involves adaptive processes,” write Daugherty and Wilson.  “This third era, which builds on the previous two, will be more dramatic than the earlier revolutions enabled by assembly lines and digital computers, and will usher in entirely new, innovative ways of doing business… This adaptive capability is being driven by real-time data rather than by an a priori sequence of steps.   The paradox is that although these processes are not standardized or routine, they can repeatedly deliver better outcomes.”

The MIT Intelligence Quest

How does human intelligence work, in biological as well as in engineering terms? And how can we use such an understanding of human intelligence to build wiser and more useful machines?  On February 1, MIT launched the Intelligence Quest (MIT IQ), - an initiative aimed at addressing these big questions by advancing the science and engineering of both human and machine intelligence.  MIT IQ aims “to discover the foundations of human intelligence and drive the development of technological tools that can positively influence virtually every aspect of society.”

MIT has been deeply involved in artificial intelligence since the field’s inception in the 1950s.  MIT professors  John McCarthy and Marvin Minsky were among the founders and most prominent leaders of the new discipline.  AI was one of the most exciting areas in computer sciences in the 1960s and 1970s.  Many of the AI leaders in those days were convinced that a machine as intelligent as a human being would be developed within a couple of decades.  They were trying to do so by somehow programming the machines to exhibit intelligent behavior, even though to this day we have little idea what intelligence is about, let alone how to translate intelligence into a set of instructions to be executed by a machine.  Eventually, all these early AI approaches met with disappointment and were abandoned in the 1980s.  After years of unfulfilled promises, a so called AI winter of reduced interest and funding set in that nearly killed the field.

AI was reborn in the 1990s when it adopted a more applied, engineering-oriented paradigm.  The new AI paradigm enabled computers to acquire intelligent capabilities by ingesting and analyzing large amounts of data using powerful computers and sophisticated algorithms.  Instead of trying to explicitly program intelligence, this new approach was based on feeding lots and lots of data to the machine, and then letting the algorithms discover patterns and extract insights from all that data.

Such a data-driven, machine learning approach produced something akin to intelligence or knowledge.  Moreover, unlike the explicit programming-based approaches, the statistical-based ones scaled very nicely.  The more data you had, the more powerful the supercomputers, the more sophisticated the algorithms, the better the results.  Machine learning and related advances like deep learning, have played a major role in AI’s recent achievements. 

The Vital Role of Culture in Business

The January-February issue of the Harvard Business Review spotlights The Culture Factor, with five articles on the subject.  “Culture is the tacit social order of an organization: It shapes attitudes and behaviors in wide-ranging and durable ways,” notes the issue’s lead article.  “Cultural norms define what is encouraged, discouraged, accepted, or rejected within a group.  When properly aligned with personal values, drives, and needs, culture can unleash tremendous amounts of energy toward a shared purpose and foster an organization’s capacity to thrive.”

In Who Says Elephants Can't Dance?, - his excellent chronicle of the IBM transformation he led as Chairman and CEO from 1993 to 2002, - Lou Gerstner wrote: “I came to see in my time at IBM that culture isn’t just one aspect of the game - it is the game.  In the end, an organization is nothing more than the collective capacity of its people to create value.  Vision, strategy, marketing, financial management - any management system, in fact - can set you on the right path and can carry you for a while.  But no enterprise - whether in business, government, education, health care or any area of human endeavor - will succeed over the long haul if those elements aren't part of its DNA.” 

The Complex Relationship Between Science and the Public

More than ever, scientific and technological innovations touch every aspect of our lives and influence the choices we make in a wide variety of areas.  A 2015 study by the Pew Research Center revealed that most Americans have a positive view of science and of the accomplishments of scientists.  But, despite broadly similar views about the place of science in the country, there were large differences between the general public and scientist across a number of important issues, including genetically modified foods, vaccine safety and climate change.

Two years ago, the American Academy of Arts and Sciences launched The Public Face of Science, an initiative whose objective is to better understand the complex relationship between scientists and the public in America.  A few weeks ago, the Academy released Perceptions of Science in America, the first in a series of reports from the Public Face of Science initiative.  The report aims to analyze the public’s perception of scientists, explore how opinions vary among different populations, and shed light on how public opinions are shaped.  Its analysis is based on survey data from multiple sources, including the Pew Research Center, the National Science Board Science and Engineering Indicators, the National Opinion Research Center, Research!America and ScienceCounts.

What do we mean by science?  “The term science encompasses a range of disciplines in the physical, social, and life sciences, along with applied fields, such as engineering and medicine,” notes the report. “Science can be defined as ‘the use of evidence to construct testable explanations and predictions of natural, as well as the knowledge generated through this process.’”  But, one must keep in mind that the word science is interpreted differently by different individuals, - e.g., medical treatments, technological advances, fundamental research.  “When interpreting the available survey data, it is important to consider the range of responses a question might prompt.”

Human Beings Need a Story

It wasn’t that long ago that we didn’t have much use for probabilities in our daily life, - outside of weather reports, election predictions, baseball and financial markets.  But that’s all changed with the growing datafication of the economy and society.  Probabilities have been playing an increasing role in our work and personal life given our newfound ability to quantify just about anything.  In all kinds of everyday situations, - from medical diagnoses to financial decisions, -  we now have to accept the fact that it’s impossible to predict what will actually happen.  Instead, we have to get used to living in a complex world of uncertainties and probabilities.  We have to learn how to deal with the very messy world of big data, and how to best apply our learning to make good decisions and predictions.

Physics went through such a transition about 100 years ago.  In the deterministic world of classical mechanics, there’s always a real truth.  The same objects, subject to the same forces, will always yield the same results.  Elegant mathematical models can be used to make perfect predictions within the accuracy of their human-scale measurements.  Early in the 19th century, French mathematician and scientist Pierre-Simon Laplace observed that if we knew the precise state of the universe as represented by the position and speed of every one of its particles, classical mechanics would enable us to calculate all past and future states of the universe.

But, this predictable world began to fall apart in the early 20th century.  19th century classical physics was replaced by a kind of 20th century magical mystery tour, ruled by the new principles of quantum mechanics and relativity.   Classical mechanics could not explain the counter-intuitive and seemingly absurd behavior of energy and matter at atomic and cosmological scales.

At these scales, the world is intrinsically unpredictable.  Instead of a deterministic world, we now have a world based on probabilities.  You cannot predict all the future states of an electron, for example, based on its present state.  You can map out its behavior, but only as probability distributions of all the possible states it could be at.  Moreover, the Heisenberg uncertainty principle tells you that it’s impossible to know the exact state of a particle.  You cannot simultaneously determine its exact position and velocity with any great degree of accuracy no matter how good your measurement tools are.

Will There Be Enough Work in the Future?

Will there be enough work in the future?  Opinions are fairly divided between those who believe that technology advances will reduce human jobs, and those who believe that technology advances will produce as many jobs as they displace.  It’s easier to predict the jobs that will be automated away by technology, but much more difficult to predict the new jobs that these same technologies will create.  In the end, we don’t really know.

In December of 2017, the McKinsey Global Institute published Jobs Lost, Jobs Gained: Workforce Transition in a Time of Automation, a report that directly addresses this question.  The McKinsey study examined in great detail the work that’s likely to be displaced by automation through 2030, as well as the jobs that are likely to be created over the same period.  It analyzed data from 46 countries comprising almost 90 percent of global GDP, focusing particularly on six countries: China, Germany, India, Japan, Mexico and the US.  For each of this six countries, the study modeled the potential for employment changes in more than 800 occupations based on different scenarios for the pace of automation adoption and for future labor demand.

The report’s overall conclusion is that a growing technology-based economy will create a significant number of new occupations, - as has been the case in the past, - which will more than offset declines in occupations displaced by automation.  However, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”

The Impact of Automation on Everyday Life

This past October, the Pew Research Center released Automation in Everyday Life, a report on what Americans think about advanced technologies like artificial intelligence and robotics, and the impact they expect them to have on their everyday lives.  The report is based on a national survey of 4,135 randomly selected American adults.  To help gauge their opinion on such complex topics, the survey questions were framed around four specific scenarios related to these advanced technologies: driverless cars, workplace automation, robot caregivers, and computer algorithms that evaluate and hire job applicants.

“Americans anticipate significant impacts from various automation technologies in the course of their lifetime,” noted the report.  “Although they expect certain positive outcomes from these developments, their attitudes more frequently reflect worry and concern over the implications of these technologies for society as a whole.”

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

AI and the Productivity Paradox

AI is being successfully applied to tasks that not long ago were viewed as the exclusive domain of humans, matching or surpassing human level performance in more and more domains.  But, at the same time, productivity growth has significantly declined over the past decade, and income has continued to stagnate for the majority of Americans.  This puzzling contradiction is addressed in Artificial Intelligences and the Modern Productivity Paradox, a working paper recently published  by the National Bureau of Economic Research (NBER).

The paper’s authors, - MIT professor Erik Brynjolfsson, MIT PhD candidate Daniel Rock, and University of Chicago professor Chad Syverson, - note that “aggregate labor productivity growth in the U.S. averaged only 1.3% per year from 2005 to 2016, less than half of the 2.8% annual growth rate sustained from 1995 to 2004…  What’s more, real median income has stagnated since the late 1990s and non-economic measures of well-being, like life expectancy, have fallen for some groups.”

This productivity puzzle isn’t confined to AI.  “Few topics in economics today in most large economies generate as much debate as the productivity puzzle,” said McKinsey in a March, 2017 report.  “In  the United States, productivity growth has declined sharply since 2004 yet digital technology has been widely apparent during this period…  The answer to this puzzle holds the key to future prosperity because now more than ever our economy depends on productivity improvements for long-term economic growth.  Economists have proposed competing explanations for declining productivity growth and so far have failed to reach a consensus.” 

The Rise of Winner-Take-All Urbanism

Earlier this year, Richard Florida published Why America’s Richest Cities Keep Getting Richer in The Atlantic.  Florida is a leading urban studies author and researcher, professor at the University of Toronto and Director of Cities at its Martin Prosperity Institute.

“The most important and innovative industries and the most talented, most ambitious, and wealthiest people are converging as never before in a relative handful of leading superstar cities that are knowledge and tech hubs,” wrote Florida.  “This small group of elite places forge ever forward, while most others struggle, stagnate, or fall behind.  This process is one I like to call winner-take-all urbanism.”

Winner-take-all urbanism is another manifestation of the winner-take-all economics of the past few decades, in which a relatively small number of players reap a very large share of the rewards, upending whole industries with their outsized returns.

AI and The Future of Work

Last month I attended AI and the Future of Work, a conference hosted by MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL) and its Initiative on the Digital Economy (IDE).  The two-day agenda included over 20 keynotes and panels on AI-related topics, and around 60 speakers and panelists from academia and business.

New technologies have been replacing workers and transforming economies over the past two centuries.  But, over time, these same technologies led to the creation of whole new industries and new jobs.  While the technologies of the industrial economy helped to make up for our physical limitations, the technologies of the digital economy are now enhancing our cognitive capabilities.  They’re being increasingly applied to activities that not long ago were viewed as the exclusive domain of humans.  Will the AI revolution play out like past technology revolutions, - short term disruptions followed by long-term benefits, - or will this time be different?

Conference participants generally agreed that AI will have a major impact on jobs and the very nature of work.  But, for the most part, they viewed AI as mostly augmenting rather than replacing human capabilities, automating the more routine parts of a job and increasing the productivity and quality of workers, so they can focus on those aspect of the job that most require human attention.  Overall, a small percentage of jobs will be fully automated, while many more will be significantly transformed.

Conference participants also generally agreed that the more advanced AI-based transformations will not happen rapidly, but are likely decades away.  Much progress has been recently made in the ability to extract features from all the data we now have access to, as well as in machine learning algorithms that give computers the ability to learn by ingesting large amounts of data instead of being explicitly programmed.  While such statistical pattern recognition approaches can be applied to many tasks, they’re no substitute for model formation, the main approach used by humans, - from toddlers to physicists, - to understand how the world works.  We’re a long way from the development of AIs that truly learn and reason like people. 

Human-AI Decision Systems

I recently read The Human Strategy, a very interesting article on Human-AI decision systems by MIT Media Lab professor Sandy Pentland.  Pentland is the faculty director of MIT Connection Science, - with which I’m associated as a Fellow, - as well as director of the Human Dynamics Lab.  In 2014 he published Social Physics: How Social Networks Can Make Us Smarter.

“Perhaps the most critical function of any organization or society is its decision systems,” wrote Pentland.  “In modern societies, decision systems provide a leader the ability to make informed and timely decisions, supported by a complex enterprise of distributed information and communication systems that provide situational awareness.  Traditionally, decision systems have been confined to individual physical domains, such as logistics, physical plant, and human resources, and more recently virtual domains such as cyber, by both policy and technology, resulting in challenges with the integration of information across disparate domains.”

But, despite the increasingly complex decisions that organizations are called upon to make, decision-making remains human-intensive and anecdotal.  Few organizations have applied social network analysis to help them scale the size and expertise of the decision-making group.  Nor have they integrated the large amounts of data, analytical tools and powerful AI systems now at our disposal into their decision making systems. 

The MIT 2017 Inclusive Innovation Challenge

The MIT Initiative on the Digital Economy (IDE) was organized in 2013 by Erik Brynjolfsson and Andy McAfee to examine the impact of digital technologies on the world.  Understanding the future of work and jobs is one of the major areas of research being address by IDE.  What will the workforce of the future look like?, Where will jobs come from in the coming years, especially for the workers must impacted by automation?,  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, real-world answers to these tough questions, IDE launched the MIT Inclusive Innovation Challenge (IIC) last year.  The Challenge aims to identify, celebrate and award prizes to organizations around the world that are developing innovative approaches for improving the economic opportunities of middle- and base-level workers.

Now in its second year, the IIC introduced the winners of its 2017 competition at an event held on October 12 as part of Boston’s annual HUBweek.  Over $1 million was awarded to the winners in four categories: job creation and income growth, skills development and matching, technology access and financial inclusion.  The grand prize winner in each category received $150,000, while the three runners up in each category received $35,000.  The awards were funded with support from from Google.org, The Joyce Foundation, ISN and Joseph Eastin.

Jobs, Skills and Education

Earlier this year the communications firm Burson-Marsteller along with research firm PSB interviewed 1,500 Americans from all walks of life to shed light on their feelings about the current state of the economy and their expectations for the future.  “Americans are concerned about the present, but optimistic about the future,” was the survey’s overriding finding.  “However, opinions about the economy and the future are somewhat driven by education level.”

While only 33% said that the country is headed in the right direction, 67% said that they were somewhat or very optimistic about the future.  To a large extent, this optimism is based on the belief that their jobs are safe over the next 5 years, with 62% believing that they won’t be laid off and 60% that a machine couldn’t replace them.  In their opinion, the high cost of living, unemployment and jobs, the gap between rich and poor and taxes are the top issues facing the US economy, ahead by a fairly wide margin over corporate corruption, loss of manufacturing jobs, and falling or stagnant wages.

Their feelings about the future differed by educational level.  71% of Americans with a college education or more said that they have the right skills to succeed in the 21st century, compared to 42% of those with a high school education or less.  Only 14% of survey participants with a college education worried that their jobs could be automated within five years, compared with 30% of those with high school or less.  And 55% of Americans with college or more felt that technology will improve overall employment compared to 45% of those with high school or less.

Artificial Intelligence is Ready for Business; Are Businesses Ready for AI?

AI is now seemingly everywhere.  In the past few years, the necessary ingredients have come together to propel AI beyond the research labs into the marketplace: powerful, inexpensive computer technologies; advanced algorithms and models; and most important, oceans and oceans of data.

“Artificial intelligence is getting ready for business, but are businesses ready for AI?,” asks McKinsey in a recently published report - Artificial Intelligence: the Next Digital Frontier.  “AI adoption outside of the tech sector is at an early, often experimental stage,” is the report’s succinct answer.  “Few firms have deployed it at scale.”

The report is based on a survey of over 3,000 AI-aware C-level executives across 10 countries and 14 sectors.  Only 20 percent of respondents had adopted AI at scale in a core part of their business.  40 percent were partial adopters or experimenters, while another 40 percent were essentially contemplators.

AI encompasses a broad rage of technologies and application.  It’s often viewed as the leading edge of IT.  As soon as AI is successfully applied to a problem, the problem is no longer a part of AI.  The McKinsey report is focused on five technologies being increasingly deployed in business, that most everyone agrees are part of AI: robotics and autonomous vehicles, computer vision, language, virtual agents, and machine learning.

The Productivity Puzzle

Last year, Foreign Affairs focused its March/April issue on Surviving Slow Growth.  “The first decade of the twenty-first century was a time of unprecedented economic growth,” said the issue’s introductory article.  “The rich world got richer, and the developing world raced ahead: by 2007, the emerging-market growth rate had hit 8.7 percent… Then came the fall… growth 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.”

Economic growth has two main components, productivity growth and the growth of the labor force.  Fewer workers is one of the key reasons for our stagnant economic growth.  The labor force is still growing in some developing countries like India, Nigeria and the Philippines, but it’s already shrinking in China, Japan and Germany.  In the US, the labor force is growing very slowly.

Over the coming decades, the labor force is expected to shrink in most parts of the world as fertility rates continue to decline.  The 2016 US fertility rate was the lowest it’s ever been.  Increasing productivity is thus more crucial than ever to promote economic growth.  But, in the US and other advanced economies, productivity growth has significantly slowed down over the past few decades.

Robocalypse Now? Technology, Productivity and Employment

Is the Robocalypse upon us?, asked MIT economist David Autor in his presentation at a recent Forum of European central bankers.  His presentation was based on a paper co-written with Utrecht University economist Anna Salomons.  “Is productivity growth inimical to employment?,” they asked in the paper’s abstract.  “Canonical economic theory says no, but much recent economic theory says maybe  - that is, rapid advances in machine capabilities may curtail aggregate labor demand as technology increasingly encroaches on human job tasks.”

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 Luddites, - textile workers who in the 1810s smashed the new machines that were threatening their jobs.  But, “In the end, the fears of the Luddites that machinery would impoverish workers were not realized, and the main reason is well understood,” noted a 2015 article on the history of technological anxiety.

“The mechanization of the early 19th century could only replace a limited number of human activities.  At the same time, technological change increased the demand for other types of labor that were complementary to the capital goods embodied in the new technologies.  This increased demand for labor included such obvious jobs as mechanics to fix the new machines, but it extended to jobs for supervisors to oversee the new factory system and accountants to manage enterprises operating on an unprecedented scale.  More importantly, technological progress also took the form of product innovation, and thus created entirely new sectors for the economy, a development that was essentially missed in the discussions of economists of this time.”

Automation fears have understandbly 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 a 2014 Economist article.  “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.”