Wednesday, November 02, 2011

We may be half-drowning, but we're not stagnating

Some months ago, in an encounter with Tyler Cowen's ebook The Great Stagnation, I questioned Cowen's premise that technological transformation of human life has slowed down in recent decades, that is
whether we're living in an era in which transformative technological innovation is in short supply. Cowen does allow "the Internet" as the great exception, but points out that the leading-edge tech companies employ relatively few people, and that Internet innovation has been notoriously difficult to monetize. He is strangely silent, though, about the impact of interactive technology and computer technology more generally on production and commerce of all kinds -- just-in-time factory production, product customization, bar coding, all the incredible efficiencies of large-scale retail operations that wring out large profits on tiny margins -- and on interactive technology's role in globalizing production. He also doesn't consider transformative technologies hiding in plain sight: personal computers themselves (never mind the Internet) and cell phones. It's true, as Cowen says, that the basic physical components of middle class life in America don't look that much different than they did in the 1960s. But they are much different. And the differences have generated a lot of wealth, even if  the U.S. middle class hasn't garnered as large a share as it did in he previous generation.
That demurral is advanced at book length by MIT scholars Erik Brynjolfsson and Andrew McAfee in Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. Brynjolfsson and McAfee argue that computer and network technology is indeed, like the steam engine and electricity before them, a "general purpose technology" (GPT), that is, one that accelerates economic progress in a world-transforming way.  IT's transformative power is an inevitable effect of Moore's Law: we have lived through a time of sustained exponential growth in processing power, which has brought us to the brink of self-driving cars, chap robots that function more or less as mini-factories, and viable automated translation and communication. While the landscape may not yet have been as visibly transformed as it was by prior GPTs, as Cowen argues, business processes have. Regarding  the Web and enterprise resource planning and CRM software, for example:

The former gave companies the ability to tap new markets and sales channels, and also made available more of the world's knowledge than had ever before been possible; the latter let firms redesign their processes, monitor and control far-flung operations, and gather and analyze vast amounts of data (loc. 345).
Regarding the current malign effects of technology on income and employment,  Brynjolfsson and McAfee argue:
The stagnationists correctly point out that median income and other important measures of American economic health  stopped growing robustly some time ago, but we disagree with them about why this has happened. They think it's because the pace of technological innovation has slowed down. We think it's because the pace has sped up so much that it's left a lot of people behind...(loc. 147)
Without naming Richard Florida, they support his claim that we are in a "Great Reset" -- a fundamental restructuring of the economy:

And computers (hardware, software, and networks) are only going to get more powerful and capable in the future, and have an ever-bigger impact on jobs, skills, and the economy. The root of our problems is not that we're in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring.

The problem is not that the pace at which technology is transforming our lives has slowed.  The problem is that the pace at which new technologies are creating new jobs -- or beyond jobs, new ways to reward people for their work -- is outstripped just now by the pace at which new technologies are destroying jobs

How can the transformation of business processes, human interaction, knowledge tranasmission and entertainment ultimately begin to share the wealth? The authors provide a glimmer of an answer:
Fortunately, digital technologies create enormous opportunities for individuals to use their unique and dispersed knowledge for the benefit of the whole economy. As a result, technology enables more and more opportunities for what Google chief economist Hal Varian calls "micromultinationals"--businesses with less than a dozen employees that sell to customers worldwide and often draw on worldwide supplier and partner networks. While the archetypal 20th-century multinational was one of a small number of megafirms with huge fixed costs and thousands of employees, the coming century will give birth to thousands of small multinationals with low fixed costs and a small numbers of employees each. Both models can conceivably employ similar numbers of people overall, but the latter one is likely to be more flexible (loc. 854).

Over to Hal Varian (link in passage above):
Just as the mechanical innovations of the 19th century led to dramatic changes in our way of life, the still-evolving computing and communication innovations of the early 21st century will have a profound impact on the world's economy and culture. For example, even the smallest company can now afford a communications and computational infrastructure that would have been the envy of a large corporation 15 years ago. If the late 20th century was the age of the multinational company, the early 21st will be the age of the micromultinational: small companies that operate globally.

Silicon Valley today seems to be overflowing with these enterprises. They can already draw on email, chat, social networks, wikis, voice-over-Internet protocol, and cloud computing -- all available for free on the web -- to provide their communications and computational infrastructure. They can exploit comparative advantage due to global variation in knowledge, skills, and wage rates. They can work around the world and around the clock to develop software, applications, and web services by using standardized components. Innovation has always been stimulated by international trade, and now trade in knowledge and skills can take place far more easily than ever before.
To a degree, Brynjolfsson and McAfee are simply driving home the obvious.  How could computer processing power have increased a zillionfold in our lifetimes without transforming economic and social life?  To a degree, too, they are not entirely out of sync with Cowen, since they suggest that the more dramatic and visible impacts --along with the benefits of creative destruction that at the moment in the developed world feels more destructive than creative -- are yet to come. Their policy prescriptions are rather cursory and anodyne. Yet their 30,000-foot view of the IT-driven transformation of which we're in the midst provides a useful orientation.

No comments:

Post a Comment

Share