Irving Wladawsky-Berger

Are Business Schools to Blame for Wage Stagnation?

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

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

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

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

Is AI (Finally) Coming of Age?

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

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

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

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

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

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

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

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

The History and Current State of Human Progress

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

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

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

The Current State of Service Science

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

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

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

Culture: The Software of the Mind

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

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

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

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

The Latest Trends in Work from Home (WFH)

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

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

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

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

The Recent Impact of AI on Jobs and Economies

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

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

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

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

Human Capital: The Value of Work Experience and Continuous Learning

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

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

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

The 2022 State of AI in the Enterprise

“Rapidly transforming, but not fully transformed - this is our overarching conclusion on the market, based on the fourth edition of our State of AI in the Enterprise global survey,” said Becoming an AI-fueled organization, the fourth survey conducted by Deloitte since 2017 to assess the adoption of AI across enterprises. “Very few organizations can claim to be completely AI-fueled, but a significant and growing percentage are starting to display the behaviors that can get them there.”

AI is increasingly viewed by workers as a trusted assistant. “Within just the last 18 months, AI capabilities have advanced considerably, maturing from what was often experienced as a bothersome critic - telling workers what to do or pointing out their mistakes - to more frequently serving as a copilot, independently executing on insights and trends surfaced through the power and speed of cloud- based data hosting and computation.”

These conclusions are similar to those of Stanford’s 2022 AI Index report, which found that AI was becoming more affordable and higher performing, with lower training costs and faster training times across a number of AI tasks including recommendation engines, image classification, object detection, and language processing. This has led to the widespread commercial adoption and increased real-world impact of AI systems.

The Carnegie Cloud Governance Project

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

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

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

The Powerful Human Forces Driving the End of Globalization

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

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

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

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

The 2001 Hispanic Engineer of the Year Award

In 2001, I had the honor of being named Hispanic Engineer of the Year by Great Minds in Stem (GMiS), - one of the proudest moments in my career. GMiS is an organization dedicated to ensuring that Hispanic students of all ages are inspired to pursue careers in Science, Technology, Engineering and Math (STEM). For 33 years, GMiS has recognized the achievements of the top engineers and scientists in the US Hispanic community that have been nominated in more than 20 categories in industry, government, academia and the military. Winners receive their awards at a gala event that serves as the climax of the annual GMiS conference.

A few weeks ago I received an email announcing that the 2022 GMIS conference will take place in October in Pasadena. A few days later a childhood friend sent me an article about the great Afro-Cuban singer Celia Cruz, whose music I’ve been listening to since growing up in Havana and who like me left Cuba in 1960. It reminded me that when we were asked to pick the walk-in music we wanted played as we approached the podium to receive our award and give our acceptance speech, I picked a song by Celia Cruz. Finally, earlier this year I signed up to 23andMe which confirmed that my DNA is 99.7% Ashkenazi Jewish, not surprising given my parents background.

I went back and looked at the speech I gave over 20 years ago. I hadn’t look at those remarks in a long time, but as I read them, the words still resonated with me, particularly because they reflect my multi-cultural Jewish-Cuban-American heritage. Let me share what I said back then.

Foundation Models: AI’s Exciting New Frontier

Over the past decade, powerful AI systems have matched or surpassed human levels of performance in a number of specific tasks such as image and speech recognition, skin cancer classification and breast cancer detection, and highly complex games like Go. These AI breakthroughs have been based on deep learning (DL), a technique loosely based on the network structure of neurons in the human brain that now dominates the field. DL systems acquire knowledge by being trained with millions to billions of texts, images and other data instead of being explicitly programmed.

These task-specific, DL systems have generally relied on supervised learning, a training method where the data must be carefully labelled, - e.g., cat, not-cat, - thus requiring a big investment of time and money to produce a model that’s narrowly focused on a specific task and can’t be easily repurposed. The rising costs for training ever-larger, narrowly focused DL systems have prompted concerns that the technique was running out of steam.

Foundation models promise to get around these DL concerns by bringing to the world of AI the reusability and extensibility that have been so successful in IT software systems, from operating system like iOS and Android to the growing number and varieties of internet-based platforms.

The Impressive Scope of the Linux Foundation in the 21st Century Digital Economy

Last week, the Linux Foundation held its North America Open Source Summit in Austin. The week-long summit included a large number of breakout sessions as well as several keynotes. Open Source Summit Europe will take place in Dublin in September and Open Source Summit Japan in Yokohama in December.

I’ve been closely involved with open, collaborative innovation and open source communities since the 1990s. In particular, I was asked to lead a new Linux initiative that IBM launched in January of 2000 to embrace Linux across all the company’s products and services.

At the time, Linux had already been embraced by the research, internet, and supercomputing communities, but many in the commercial marketplace were perplexed by IBM’s decision. Over the next few years, we spent quite a bit of effort explaining to the business community why we were supporting Linux, which included a number of Linux commercials like this one with Muhammad Ali that ran in the 2006 Super Bowl. IBM also had to fight off a multi-billion dollar lawsuit for alleged intellectual property violations in its contributions to the development of Linux. Nevertheless, by the late 2000s, Linux had crossed the chasm to mainstream adoption, having been embraced by a large number of companies around the world.

In 2000, IBM, along with HP, Intel, and several other companies formed a consortium to support the continued development of Linux, and founded a new non-profit organization, the Open Source Development Labs (OSDL). In 2007, OSDL merged with the Free Standards Group (FSG) and became the Linux Foundation (LF). In 2011, the LF marked the 20th anniversary of Linux at its annual LinuxCon North America conference. I had the privilege of giving one of the keynotes at the conference in Vancouver, where I recounted my personal involvement with Linux and open source.

How to Build Organizational Resilience to Cyberattacks

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

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

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

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

Can We Trust Our Impressive AI Language Models?

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

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

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

A Human-Compatible Safe, Controllable AI

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

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

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

The Digital Divide in How We Use the Internet

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

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

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

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

(I Can’t Keep No) Satisfaction

(I Can’t Get No) Satisfaction, the Rolling Stones’ 1965 megahit, should have more appropriately been titled (I Can’t Keep No) Satisfaction, wrote social scientist and author Arthur C. Brooks in How to Want Less: The secret to satisfaction has nothing to do with achievement, money, or stuff, - a recent essay in The Atlantic. Brooks has been in the faculty of the Harvard Kennedy School for the past two years, after being president of the American Enterprise Institute from 2009 to 2019.

Satisfaction, he explained, “is the greatest paradox of human life. We crave it, we believe we can get it, we glimpse it and maybe even experience it for a brief moment, and then it vanishes. … In fact, our natural state is dissatisfaction, punctuated by brief moments of satisfaction.”

Our human tendency to pursue satisfaction despite its fleeing nature condemns us to continuously live in a so-called hedonic treadmill. We might not like it, “but Mother Nature thinks it’s pretty great. She likes watching you strive to achieve an elusive goal, because strivers get the goods - even if they don’t enjoy them for long. More mates, better mates, better chances of survival for our children - these ancient mandates are responsible for much of the code that runs incessantly in the deep recesses of our brains.”

The 2022 Work Trend Index: How to Get Hybrid Right

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

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

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

How Can You Trust the Predictions of a Large Machine Learning Model?

Artificial intelligence has emerged as the defining technology of our era, as transformative over time as the steam engine, electricity, computers, and the Internet. AI technologies are approaching or surpassing human levels of performance in vision, speech recognition, language translation, and other human domains. Machine learning (ML) advances, like deep learning, have played a central role in AI’s recent achievements, giving computers the ability to be trained by ingesting and analyzing large amounts of data instead of being explicitly programmed.

Deep learning is a powerful statistical technique for classifying patterns using large training data sets and multi-layer AI neural networks. Each artificial neural unit is connected to many other such units, and the links can be statistically strengthened or decreased based on the data used to train the system. But such statistical methods are not equally suitable for all tasks. Tasks that are particularly suitable for machine learning, exhibit several key criteria, such as the availability of large data sets of well-defined input-output pairs for training ML classifiers, - e.g., carefully labeled cat, not-cat pictures for cat recognition classifiers, and english-french document pairs for machine translation algorithms.

The methods behind a machine learning prediction, - subtle adjustments to the numerical weights that interconnect its huge number of artificial neurons, - are very difficult to explain because they’re so different from the methods used by humans. The bigger the training data set, the more accurate the prediction, but the more difficult it will be to provide a detailed, understandable explanation to a human of how the prediction was made.

A few weeks ago I attended an online seminar, - How Can You Trust Machine Learning? by Stanford professor Carlos Guestrin, - on the difficulty of understanding machine learning predictions. Guestrin’s seminar was based on a 2016 article he co-authored with Marco Tulio Ribeiro and Sameer Singh , “Why Should I Trust You?” Explaining the Predictions of Any Classifier.

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

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

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

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

The Tech Trends that Will Most Reshape Companies Over the Next Decade

“In the next decade, we’ll experience more progress than in the past 100 years combined, as technology reshapes health and materials sciences, energy, transportation, and a wide range of other industries and domains,” notes a recent McKinsey study on the The top trends in tech. “The implications for corporations are broad.”

“These trends may not represent the coolest, most bleeding-edge technologies. But they’re the ones drawing the most venture money, producing the most patent filings, and generating the biggest implications for how and where to compete and the capabilities you need to accelerate performance.”

“Unifying and underlying them all is the combinatorial effect of massively faster computation propelling new convergences between technologies; startling breakthroughs in health and materials sciences; an array of new product and service functionalities; and a strong foundation for the reinvention of companies, markets, industries, and sectors.”

The Impact of Open Source on the EU Economy

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

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

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

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

Getting Ready for the 100-Year Life

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

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

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

How Does AI Improve Human Decision-Making?

“Artificial Intelligence (AI) is the newest general-purpose technology (GPT),” wrote Sukwoong Choia, Namil Kim, Junsik Kim, and Hyo Kang in a recent paper, How Does AI Improve  Human Decision-Making? Evidence from the AI-Powered Go Program. “One remarkable characteristic of AI is its ability to provide humans with high-quality predictions at relatively low cost and to automate a wide range of predictions. AI has already outperformed human professionals in many domains - including strategic gameplay, medical diagnosis, and new drug development.” 

“Furthermore, as a GPT, the domains where AI outperforms humans are expanding at a fast pace. The rapid development and adoption of AI thus raise an interesting yet pressing question about how AI affects human tasks in these various domains. Studies of AI and human capital, for instance, have examined the performance gap between humans and AI, highlighting AI’s potential for replacing jobs.” However, we should keep in mind that new technologies have been replacing workers and transforming economies for over two centuries. But, over time, these same technologies led to the creation of whole new industries and new jobs, increasing productivity and economic output, raising earnings, and augmenting the demand for labor.

Workers can increase their productivity and performance when assisted in their jobs by AI-based tools. But beyond its assistant role, AI can play a major instructional role by training human professionals to make better decisions. Recent technology advances have significantly improved the quality and reduced the cost of AI-based predictions.

The paper raises a number of important questions about the use of AI to improve human decisions making. Can we show quantitative evidence that AI-based predictions actually improve the quality of human decisions? If so, by what mechanisms are AI-based human decisions improved? And, do the improvements vary between depending on ones attitude toward AI-based decisions?

The Promise & Peril of Human-Like Artificial Intelligence

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

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

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

The Work of the Future Is Ours to Invent

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

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

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

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

New Ways of Understanding Human Behavior

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

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

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

The Evolution of Enterprise Architecture in an Increasingly Digital World

“What does it take for traditional companies to create value with digital technology?,” asked a McKinsey article published in November of 2018. Based on its research, the article suggested that “successful digital reinventors - digital natives and digitally transformed incumbents - employ a range of approaches, such as investing boldly and adopting cutting-edge technologies at scale.” However, the article warned, such efforts can run into serious difficulties. “In our experience, a push to launch more digital applications can make a company’s technology landscape increasingly complex and difficult to manage, to the point that it impedes transformation programs.”

A few months ago, I wrote about the evolving role of the CIO, based on a survey of over 500 CIOs and related technology leaders. Almost all of the surveyed CIOs agreed that their responsibilities will become more strategic in the coming years, uniting their company’s business and technology strategies and managing increasingly complex and difficult digital transformations.

This strategic role of the CIO is in turn driving the evolution of their enterprise-architecture (EA) teams. Traditionally, enterprise architects have been responsible for translating business needs into IT requirements. A major part of their job is making sure that their company’s IT systems work together to  enable and support the company’s overall digital strategy. And increasingly, EA teams have the primary responsibility for managing the technological complexity inherent in digital transformations.

How to Effectively Manage a Company’s Digital Transformation

The adoption of new digital technologies in response to the pandemic has reached levels that weren’t expected for many year, - and those changes are likely be long lasting. A few months ago, for example, a McKinsey survey of global executives found that the pandemic has accelerated the digitization of their customer and supply-chain interactions, their internal operation, and the share of digitally-enabled products and services in their portfolios by roughly three to four years.

“Faced with the pandemic, firms did things that once seemed impossible - sometimes overnight,” noted Forrester Research in an online event that took place earlier this year. “Under the relentless pressure of new customer realities, the future came into focus: The value of your company depends on how customer-obsessed, resilient, creative, and adaptive you are in jumping to the next growth curve in your industry. … 2021 will be the year that every company - not just the 15% of firms that were already digitally savvy - doubles down on technology-fueled experiences, operations, products, and ecosystems.”

But, what should the vast majority of less digitally savvy companies do to embrace the changes they were forced to make in record time to deal with the immediate crisis? How to Speed Up Your Digital Transformation, a recent Harvard Business Review article by Benjamin Mueller and Jens Lauterbach, provides some answers to this question.

“The pandemic has given many organizations an unexpected crash course in digitalization,” wrote the authors. “While much progress has been made - from hardware and infrastructure to updated work processes and a rejuvenated corporate culture - many organizations are confronting the question of how to integrate fragmented and often makeshift digitalization efforts in a way that’s sustainable. … This is particularly pertinent for small and medium-sized organizations that need to be more targeted in their efforts and may not have the resources to engage in the ‘fail fast’ approach often heralded by the larger poster children of the digitalization movement.”

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

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

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

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

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

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

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

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

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

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

Rethinking Digital Strategy for the Post-Pandemic Era

“One year into the COVID-19 crisis, our newest McKinsey Global Survey on digital strategy indicates that the pandemic has increased the pace of business and that technology capabilities will be critical to companies’ COVID-19 exit strategies as well as to what comes next,” said a recent McKinsey report, The new digital edge: Rethinking strategy for the postpandemic era. The survey was conducted online in January of 2021, and received responses from over 1,100 C-level executives, business unit heads and senior managers from different industries, functions, company sizes and regions.

The survey’s overriding finding is that the pandemic has sped up the adoption of digital technologies by several years. “The imperative for a strategic approach to technology is universal, yet some companies are already leading the pack; their responses show that better overall technology capabilities, talent, leadership, and resources (what we call a company’s technology endowment) are linked to better economic outcomes. At the same time, the results confirm that many organizations could be missing opportunities to invest in the areas of their business models that are most at risk of digital disruption.”

The technology endowments of the top-decile economic performers include cloud adoption and infrastructure, both public and private; a common source of data across the organization; a modern architecture for technology elements; sufficient cybersecurity to mitigate current risks and threats; prioritization of tech resources to the most strategically important efforts; increased investment in talent; filling key technology roles with high-quality individuals; increased R&D spending; and creation of new partnership.

Realizing the Economic Promise of Predictive Analytics

Wikipedia defines predictive analytics as a set of statistical techniques, - such as data mining, business analytics, and machine learning, - “that analyze current and historical facts to make predictions about future or otherwise unknown events.” Increasingly powerful and inexpensive computing technologies, new algorithms and models, and huge amounts of data on almost any subject have led to major advances in predictive analytics over the past two decades.

“Worldwide revenue for ‘big data’ and business analytics solutions is forecasted to reach $274.3 billion by 2022,” wrote economists Erik Brynjolfsson, Wang Jin, and Kristina McElheran in The Power of Prediction, a research article published earlier this year. In principle, such widespread use of predictive analytics should have a positive impact of the performance of firms. “However, these investments have yet to yield productivity gains in the aggregate,” said the authors. “At the firm level, managers struggle to close the gap between the promise of predictive analytics and its performance. These concerns have been difficult to tackle empirically due to the rate of technological change and, ironically, a dearth of data.”

To address these concerns, the authors launched a research study in collaboration with the US Census Bureau to collect information on the use of predictive analytics in a representative sample of the US manufacturing industry, - an industry that’s historically been an early adopter of leading-edge technologies.

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

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

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

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

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

Revitalizing US Manufacturing

“The COVID-19 pandemic has underscored manufacturing’s role in providing products that are critical to health, safety, national security, and the continuity of multiple industries,” said McKinsey in a recent discussion paper, Building a More Competitive US Manufacturing Sector. “It has also revealed the extent to which global supply chains are exposed to shocks and disruptions. All of this has occurred at a moment when new technologies, process innovations, and demand growth are reshaping the sector worldwide. The United States can seize on these developments to make its own manufacturing sector more competitive.”

Manufacturing jobs helped build the US middle class after WWII. In the 1950s, it accounted for roughly 30% of employment and close to 30% of GDP. But manufacturing has significantly declined in the intervening decades, now comprising only 8% of the workforce and 11% of GDP. Manufacturing growth has particularly slowed down over the past 30 years, from 4.9% in the 1990s to 1.4% in each of the past two decades.

Despite its dramatic decline, manufacturing continues to have a disproportionate impact on the US economy, accounting for 35% of productivity growth, 55% of patents, 70% of R&D spending, and 60% of exports. According to McKinsey, these outsize economic contributions uniquely position manufacturing to strengthen the US recovery over the long term.

The Evolving Role of the CIO

“CIOs and other technology leaders have led heroic work to help their companies stay in business during the pandemic,” said a recent report, Pilots, co-pilots, and engineers: Digital transformation insights from CIOs for CIOS. “The question now is where will the focus of CIOs and their organizations be in the future?” To shed light on this question, the professional services firm Genpact surveyed 500 CIOs and technology leaders in partnership with the MIT Sloan CIO Symposium and Babson College professor Tom Davenport. Their findings were presented at the 2021 MIT Digital Symposium.

“We found a surprising level of commonality in terms of the technologies on which they are focused, the infrastructure they are attempting to build, and their view of expanding responsibilities,” was the report’s overriding finding. “High proportions of CIOs, for example, are focused on artificial intelligence (AI) and advanced analytics, moving to the cloud, and architecture modernization. There is, however, a lack of consensus on a critical issue: the role of the CIO in business transformation.”

I’ve had a window into the evolution of the CIO role over the past decade through my involvement with the MIT CIO Symposium. In the past, the primary responsibility of many CIOs was operating their companies’ IT infrastructures while keeping costs down. Given their role, they often reported to the COO or the CFO. But increasingly, CIOs have been given responsibility for their companies’ overall digital strategy working closely with senior executives across the business.

“The role continues to evolve,” notes the Genpact report. “Almost all CIOs expect their roles to expand. Almost all report to or interact with the CEO regularly. And many are exploiting the cloud, advanced analytics, and automation. The big future bet that unites all CIOs is artificial intelligence (AI). And to access new talent and skill sets, many are exploiting their external ecosystem partners. All of which bodes well for the CIO’s future transformational activities. In addition to flexing their technology muscles, many CIOs are still building their transformation muscles, which must include strength in change management and business knowledge.”

The Three Types of AI: Artificial, Authentic, and Augmented Intelligence

“The history of work - particularly since the Industrial Revolution - is the history of people outsourcing their labor to machines,” notes a recent article in the Harvard Business Review, - AI Should Augment Human Intelligence, Not Replace It, - by National University of Singapore professor David De Cremer and chess grandmaster Garry Kasparov. “While that began with rote, repetitive physical tasks like weaving, machines have evolved to the point where they can now do what we might think of as complex cognitive work, such as math equations, recognizing language and speech, and writing. Machines thus seem ready to replicate the work of our minds, and not just our bodies.”

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 does indeed substitute for labor. However, automation also complements labor, raising economic outputs in ways that often lead to more long-run employment, not less.

Most jobs involve a number of tasks or processes. Some of these tasks are more routine in nature, while others require judgement, social skills and other human capabilities. The more routine, rules-based the task, the more amenable it is to automation. But just because some of the tasks have been automated, does not imply that the whole job has disappeared. To the contrary, automating the more routine parts of a job will often increase the productivity and quality of workers by complementing their skills with machines and computers, as well as enabling them to focus on those aspect of the job that most need their attention.

What Musical Mindsets Can Teach Us About Business Innovation

In their recently published book, Two Beats Ahead: What Musical Minds Teach Us About Innovation, Panos Panay and R. Michael Hendrix argue that “the mindsets developed by musicians make them good entrepreneurs.” Panay is currently Senior VP for Global Strategy and Innovation at the Berklee College of Music. On June 22, he was appointed Co-President of the Recording Academy effective August, 2021. Hendrix is a Partner and Global Design Director at IDEO.

“[T]he creative mindset is more than a unique approach to entrepreneurship, more than drawing upon the improvisation of jazz or practicing until our fingers bleed,” write Panay and Hendricks. “As musicians, we believe that there is something instructive here for our work as entrepreneurs and business leaders. Musicians know how to create moments that break patterns, fill gaps, capture our attention, and inspire not only because of skills they have developed at a keyboard or a microphone, but because they have honed their ability to listen.”

The book is based on interviews with musicians, songwriters and producers who’ve succeeded as both performers and entrepreneurs. The authors interviewed a number of musicians, including Justin Timberlake, Pharrell Williams, Imogen Heap, T Bone Burnett, and Desmond Child. In addition, they surveyed the careers of Björk, Dr. Dre, Jimmy Iovine, Gloria and Emilio Estefan, and others who’ve had a major impact on the music industry as creative artists and business leaders.

Leveraging Cloud Computing to Enhance the Nation’s Cybersecurity

There’s clearly an urgent need to significantly improve the security and resilience of IT systems and applications in light of the growing threat of cyberattacks, which FBI director Christopher Wray recently compared to addressing the challenge of global terrorism following the 9/11 attack. Earlier this week, the NY Times published this front page article - Once, Superpower Summits Were About Nukes. Now, It’s Cyberweapons, that said: “The rising tempo and sophistication of recent attacks on American infrastructure - from gasoline pipelines running up the East Coast, to plants providing a quarter of America’s beef, to the operations of hospitals and the internet itself - has revealed a set of vulnerabilities no president can ignore.” On May 12, President Biden issued an Executive Order to Improve the Nation’s Cybersecurity, a welcome and very important step.

Cloud-based technologies and Cloud Service Provides (CSPs) can play a major role in improving the nation’s cybersecurity. Over the years, CSPs have invested billions in cloud security, hired thousands of top cyber experts, and developed an array of new tools and methods. CIOs generally agree that the security on cloud platforms is superior to that of in-house data centers, a major reason why the top IDC prediction for the post-pandemic new normal was that “By the end of 2021, based on lessons learned, 80% of enterprises will put a mechanism in place to shift to cloud-centric infrastructure and applications twice as fast as before the pandemic.”

“Cloud computing drives innovation and productivity across the economy, just as the electric grid did a century ago - yet it is more capable and dynamic.” This is the overriding message of Secrets From Cloud Computing’s First Stage: An Action Agenda for Government and Industry, a report by Bill Whyman that was recently published by the Information Technology & Innovation Foundation (ITIF). As someone who’s long been following and writing about cloud computing, I found the report quite instructive. It includes a very good introduction to cloud computing, its economic impact and market dynamics, and the areas where cloud particularly excels. But, it also addresses the key challenges that cloud must overcome to fully achieve its benefits, as well as the need for a policy agenda for cloud computing, - a very important area that hasn’t received as much focus.

Cloud’s Trillion Dollars 2030 Potential

“Thanks in part to cloud, Moderna was able to deliver the first clinical batch of its vaccine candidate (mRNA-1273) to the US National Institute of Health for phase one trials just 42 days after the initial sequencing of the virus,” wrote the authors of a recent McKinsey article, - Cloud’s trillion dollar prize is up for grabs. When the COVID-19 pandemic hit, “The company was well positioned to quickly design research experiments and to harness its automated laboratory and manufacturing processes and enhanced drug-discovery pipeline.”

Over the past year, a number of articles have pointed out that, in response to the pandemic, digital adoption by business and consumers has already reached levels that weren’t expected for many years. “More companies are starting to see the real benefits of cloud, which has been long heralded as a catalyst for innovation and digital transformation, thanks to its ability to increase development speed and provide near-limitless scale,” adds the McKinsey article. “While Moderna’s success illustrates the business opportunities that cloud makes possible, it only scratches the surface of the potential value at stake. A detailed review of cloud cost-optimization levers and value-oriented business use cases foresees more than $1 trillion in run-rate EBITDA [an accounting measure of a company’s overall financial performance] across Fortune 500 companies as up for grabs in 2030.”

To quantify cloud’s 2030 trillion dollar potential, - an estimate with a range of $0.7 to $1.2 trillion, - McKinsey analyzed the impact of cloud on worldwide IT spending based on independent surveys of over 1,000 organizations. As part of its research, it assessed over 700 use cases across 19 industries to help them forecast the revenues and financial performance of Fortune 500 companies by 2030.

The research looked at cloud adoption along three dimensions, - rejuvenate, innovate, and pioneer. It estimated the specific drivers of value across the first two dimensions and the likely growth opportunities for the third. Let me summarize the article’s key findings.

Can We Look Forward to a New Decade of Innovation?

Can we  look forward to a new decade of innovation, asked The Economist in its January 16 issue. “The 2010s were marked by pessimism about innovation,” notes the issue’s overview article. “Productivity growth was lackluster and the most popular new inventions, the smartphone and social media, did not seem to help much… Promising technologies stalled, including self-driving cars, making Silicon Valley’s evangelists look naive.”

“Today a dawn of technological optimism is breaking,” adds the article. Some giddily predict a new decade of progress, - a kind-of 21st century roaring Twenties. While some of this optimism may be overblown, “there is a realistic possibility of a new era of innovation that could lift living standards, especially if governments help new technologies to flourish.”

There are historical precedents for such optimism. The Roaring Twenties was a decade of economic growth and widespread prosperity, as the country recovered from the dual devastations of World World I and the Spanish flu pandemic. Technological advances like electrification, consumer appliances, the mass production of cars, and the advent of commercial aviation transformed the US into the richest country in the world.

Then following World War II and the onset of the Cold War, the federal government significantly expanded its support of R&D in the private and public sectors, making the US the undisputed leader in science, engineering, medicine and other disciplines. The blueprint for R&D in post-war America was laid out by presidential science advisor Vannevar Bush in his 1945 report, Science The Endless Frontier: “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 Urgent Need for Wide-Scale Upskilling

Few topics are as important as the future of work in our 21st century digital economy. In the spring of 2018 MIT President Rafael Reif commissioned a task force on the Work of the Future to address whether our rapidly advancing technologies will not only raise economic output and the wealth of nations, but enable people to attain higher living standards and better working conditions. After working across MIT for over two and a half years, the task force released its final report in November, 2020.

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

Similar conclusions were reached by Upskilling for Share Prosperity, a report published in January, 2021 by the World Economic Forum (WEF) in collaboration with PwC. “Millions of people are already being left behind because of volatile market conditions, the effects of COVID-19, or because they work in industries that are being replaced by new sectors,” said the report… There is an enormous opportunity to reconfigure the world of work at this critical juncture and embark on an upskilling revolution that will give people across the world the ability to participate fully in the future of work, whatever that might be.”

Will AI Ever Be Smarter Than a Baby?

I recently listened to a fascinating podcast where NY Times columnist Ezra Klein interviewed Berkeley psychologist Alison Gopney. Professor Gopney is best known for her research in cognitive science, particularly the study of children’s learning and development. She’s written extensively on the developmental phases of the human brain from babies to adults.

Gopnik, a member of the Berkeley AI Research group, has also been exploring the differences between human and machine intelligence, more specifically, what babies can teach us about AI. She’s long argued that babies and young children are smarter than we might think. In some ways, they’re even smarter than adults, let alone way smarter than the most advanced AIs.  

What do we mean by intelligence?

In 1994 the Wall Street Journal published the Mainstream Science on Intelligence, an article that included a definition that was agreed to by 52 leading academic researchers in fields associated with intelligence:

“Intelligence is a very general mental capability that, among other things, involves the ability to reason, plan, solve problems, think abstractly, comprehend complex ideas, learn quickly and learn from experience. It is not merely book learning, a narrow academic skill, or test-taking smarts. Rather, it reflects a broader and deeper capability for comprehending our surroundings - ‘catching on,’ ‘making sense’ of things, or ‘figuring out’ what to do.”

A New Contract with the Middle Class

“The U.S. is a middle-class nation,” says the opening sentence of A New Contract with the Middle Class, an essay by Richard Reeves and Isabel Sawhill that was recently published by the Brookings Institution. “Since our nation’s founding, the American Dream has always been based on an implicit understanding - a contract if you will - between individuals willing to work and contribute, and a society willing to support those in need and to break down the barriers in front of them.” The essay is part of the Future of the Middle Class initiative launched by Brookings in November, 2018.

Why focus on the middle class? The reason, notes the essay, is that this is how the majority of Americans define themselves. “An aristocratic leisure class and a welfare-dependent underclass are equally unappealing to most Americans.” It’s why paid work is seen as so important. Americans want a society where everybody has the chance to “make something of themselves.” Joining the middle class is the very core of the American Dream, - the promise that anyone can get ahead and achieve success and prosperity through talent and hard work.

Who is in the middle class? While there are multiple definitions, most are based on income, partly because data on income are widely available, and it’s easier to come up with concrete, quantifiable definitions. But also because income tends be highly correlated with other attributes of social class, such as educational level, job status, consumer preferences, behaviors, aspirations, and cultural tastes.

The essay defines middle class as those in the middle 60% of household income distribution. “To be middle class, a household of three would have an income between $40,000 and $154,000,” - neither poor nor prosperous. “The middle class, by our definition, is diverse: 59 percent white, 12 percent Black, 18 percent Hispanic, and 6 percent Asian. Within a few decades, whites will make up the minority of middle-class families.”

The Post-Pandemic Outlook for Technology, Jobs, and Skills

“The COVID-19 pandemic-induced lockdowns and related global recession of 2020 have created a highly uncertain outlook for the labour market,” said the World Economic Forum (WEF) in The Future of Jobs Report 2020. The pandemic has caused labor markets to change significantly faster than previously expected. What used to be considered the future of work has already arrived. As McKinsey noted in a May, 2020 article: “we have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks.”

The WEF report aims to shed light on the post-pandemic outlook for technology adoption, jobs and skills over the next five years, including detailed quantitative profiles on 15 industry sectors and 26 advanced and emerging countries. The report is based on a survey of senior executives from nearly 300 global companies which collectively employ 8 million workers. The survey asked 49 questions on the outlook for their companies’ workforce through 2025, including major trends affecting the labor market, the technologies their companies are adopting, the expected evolution of jobs and skills, their training and reskilling programs, and the near-term impact of the pandemic on their workforce.

“The global shift to a future of work is defined by an ever-expanding cohort of new technologies, by new sectors and markets, by global economic systems that are more interconnected than in any other point in history, and by information that travels fast and spreads wide. … As a new global recession brought on by the COVID-19 health pandemic impacts economies and labour markets, millions of workers have experienced changes which have profoundly transformed their lives within and beyond work, their well-being and their productivity. One of the defining features of these changes is their asymmetric nature - impacting already disadvantaged populations with greater ferocity and velocity.”

The Increasing Economic Value of Digital Capital

A firm’s financial statement comprises two distinct types of assets. Tangible assets are mostly physical in nature, and include vehicles, land, plants, equipment, and furniture, as well as financial assets like stocks, bonds, account receivables, and cash which have a concrete contractual value. On the other hand, intangible assets aren’t physical. They include patents, copyrights, trademarks, goodwill, brand value, human capital, R&D, software, and data. Intangibles do have a monetary value since they represent future potential revenue, but they’re more difficult to value because, unlike tangibles, their costs and market values are hard to determine.

The economic value of intangible assets has truly exploded over the past several decades. According to a 2019 research report , the overall value of the S&P 500 in 1975 was $715 billion, of which 17% was intangible. By 1995, intangibles had risen to 68% of a $4.6 trillion S&P value. The value of intangibles continued to climb in our 21st century digital economy, reaching 84% of the $25 trillion overall S&P value in 2018. The reason for this fast rising valuations is that intangible capabilities are a major source of a company’s long-term competitive strengths, and are generally quite complex to build and replicate. Yet, conventional accounting treats these capabilities not as company investments but as expenses, which means that their funding isn’t reflected as capital on balance sheets.

“For digitally-focused firms, investments in the intangible assets needed to realize value from new technologies – like cumulative investment in skills training, new decision-making structures within the firm, management practices, and software customization – often account for significantly greater total costs than the technologies themselves,” notes Digital Capital and Superstar Firms, an NBER working paper published in December, 2020.

The paper is focused on the digital capital that’s required to create value out of a company’s investments in hardware, software, and other IT assets that are recorded as tangible capital investments on a company’s financial statement. It introduces a set of methods for quantifying the value of digital capital investments, as well as their impact on a company’s long term productivity and growth.

The Changing Nature of the Liberal Arts in the Digital Economy

What is meant by the liberal arts? Here is a succinct dictionary definition: “The academic course of instruction intended to provide general knowledge and usually comprising the arts, humanities, natural sciences, and social sciences, as opposed to professional or technical subjects.” And, here is a more thorough explanation: “A liberal arts education is by nature broad and diverse, rather than narrow and specialized…  [it] is not intended to train you for a specific job, though it does prepare you for the world of work by providing you with an invaluable set of employability skills, including the ability to think for yourself, the skills to communicate effectively, and the capacity for lifelong learning.”

Over the past few decades, business, engineering, and other professions not previously associated with the liberal arts have embraced a number of its attributes. A few years ago, for example, I came across an 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.” Such a transformation would require business schools to move into territory more traditionally associated with the liberal arts.

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.”

A few years ago, USC’s Annenberg School of Communications and Journalism conducted a study to better understand the key competencies companies were looking for. Future leaders, the study found, must be strong in quantitative, technical and business skills. But to advance in their careers, they also need to be good strategic thinkers and must have strong social and communications skills. Companies were looking for so called T-shaped professionals who combine deep quantitative, technical, problem solving hard skills with broad multidisciplinary, communications, and social soft skills that enable them to collaborate with experts in other fields.