The third great wave

The earlier inventions of the automatic loom, cars, electricity have changed the world. These inventions changed people’s lives & transformed society. They created economic opportunity on a mass scale, with plenty of new work to replace the old.

A 3rd great wave of invention & economic disruption, set off by advances in computing, & information & communication technology (ICT) in the 1990s, promises to deliver a similar mixture of stress & economic transformation. It is driven by a handful of technologies – including machine intelligence, the web & advanced robotics- leading to unmanned vehicles; pilotless drones; machines that can instantly translate hundreds of languages; mobile technology that can eliminate the distance between doctor & patient, teacher & student.

Commercially available computing power continues to get cheaper. Both Google & Amazon are slashing the price of cloud computing to customers. Better use of algorithms & better processors have increased effectiveness of computers infinitely. Efficiency has been growing exponentially but still looks negligible.

Soon, this growth will become unmanageable. (In the rice/chessboard example, we are now reaching the 33rd square)

Computing problems that looked insoluble a few years ago have been cracked. Apple’s Siri responds accurately to many voice commands, & can take dictation for e-mails & memos. Google’s translation program is lightning fast & increasingly accurate & the company’s computers are becoming better at understanding just what its cameras are looking at (to compile Google Maps).

One recent study says that 47% of employment in the US is at risk of being automated away in the next 10-20 years. The study wonders whether human workers will be able to upgrade their skills fast enough to justify their continued employment.

The digital revolution is opening up a great divide between a skilled & wealthy few & the rest of society. More manufacturing work will be automated & no longer can governments count on a growing industrial sector to absorb unskilled labour from rural areas.

Productivity

Progress in ICT is less transformative than any of the earlier  three major technologies- electrification, cars & wireless communication. ICT’s increase in productivity will henceforth increase exponentially. Today, it feels as though the productivity has so far not been high. For, real wages in the US have increased annually by only 1% between 1991 & 2012. Similar figures for Britain & Germany are 1.5% & .6% respectively. Italy & Japan saw hardly any increase at all. But for the highest earners, it soared.

Productivity growth has always meant cutting down on labour. In 1900 some 40% of Americans worked in agriculture, & just over 40% of the typical household budget was spent on food. Over the last century automation reduced agricultural employment to below 5% & food costs dropped steeply.

The demand for individuals with high abstract reasoning, creative & interpersonal skills will be high. Such qualities are beyond most workers. Most rich economies have made a poor job of finding lucrative jobs for workers displaced by technology, & the resulting glut of cheap, underemployed labour has given firms little incentive to make productivity-boosting investments. The impact on workers is already clear.

The privileged few

If more & more cars become automated, what will happen to drivers? Already cars can do parallel parking & smart cruise, which can maintain a steady distance between cars. The drivers of horse carriages became the drivers of cars. The change in vehicle did not disturb the job of the drivers. But the economy no longer seems to work that way. The big losers have been workers without highly specialised skills. Many workers, like the large numbers of modestly skilled labourers that might once have worked in the factory floor, are being squeezed out of such work & are now having to compete for low-skill & low-wage jobs. Labour has been on the losing end of technological change for several decades.The automation of routine tasks is becoming irresistible. Most workers are being forced into competition both against each other & against machines. Their share of the economic pie is getting smaller all over the world.

Only 10 years ago driving a car was seen as the sort of complex task that was easy for humans but impossible for computers. Driving taxis, delivery vans or lorries has been one of the few occupations in which people without qualifications could earn a decent wage. Driverless vehicles could put an end to such work.

Highly skilled work has become increasingly concentrated in jobs requiring complex cognitive (intelligence, reason, insight, comprehensive,perception, discernment) or interpersonal tasks: managing a business, developing a new product or advising patients.

Arrested Development ( The model of development through industrialization will not work)

For most of recent economic history, “industrislised” meant rich. And indeed most countries that were highly industrialised were rich, & were rich because they were industrialised. But if industrialization depends on cheap labour, then countries like China did very well. But if the labour is no longer cheap, then some other poorer country will start manufacturing & China will become uncompetitive. If this happens quickly, let’s say in 10-15 years, what happens to the workers in China? In fast-developing & rapidly ageing China workers are becoming increasingly expensive, as well as hard to find. Automation (ICT) provides a means to hold on to work that might otherwise pack up & move to another country. Unless the economies concerned quickly build up their workers’ skills & infrastructure, wage increases will soon lead manufacturers to move to cheaper locations.

Early loss of industry (called  premature non-industrialisation) is a distressing trend. An industrialising export sector is like a speedboat that pulls the rest of the economy out of poverty.

But loss of industry at low income levels, by contrast, caps the contribution that manufacturing can make to domestic living standards. That is no small problem: there is no obvious alternative strategy for turning poor countries into rich ones.

Silver Lining (New opportunities)

The spread of e-commerce around the globe opens up a huge new reservoir of customers. Companies like eBay & Amazon can be a part of the sales channel for the manufacturer.Craft based entrepreneurs can offer housewares, artwork, clothing & many more creative items. Classified ads, car-boot sales & flea markets are moving online.  This increases the scale of the market & raises the odds of achieving a match between a buyer & seller. Apple app stores, since 2008, are distributing the apps created by smaller (third party) developers. The “app economy” has since grown by leaps & bounds. In 2013, about 7,50,000 people got work in the US for apps alone. Angry Birds & Flappy birds are 2 addictive games that have earned millions for the creators.

E-tailers allow artists to self-publish & market their works around the world. YouTube offers a platform to video producers, makers of comedy clips etc. Airnb allows householders to earn money by letting their homes while they are away. The “sharing economy” is increasingly indistinguishable from the mainstream economy. Things that can now be borrowed via online apps include server space, home appliances, bicycles & tools. Other services connect people who own pets with those willing to look after them while their owners are away.

New firms can rent computing power from Amazon through the cloud rather than having to buy expensive servers.

Informal online education is already a widespread & underappreciated aspect of modern economic life. YouTube is a treasury of how-to’s, from making the perfect Bolognese to pronouncing words in an unfamiliar language. For the price of a computer  & an internet connection, motivated learners could work their way through several lifetimes’ worth of university degrees & save millions of dollars.

The cost of communicating with friends & family, watching many videos & listening to many kinds of music is now close to zero.

The above kinds of innovation will allow highly motivated, talented & conscientious individuals to claw their way into a small elite of very well-paid workers but others may find little to do in the new economy.

The technological revolution could still hold many surprises. It may create vast numbers of jobs nobody has yet imagined, or boost the productivity of less-skilled workers in entirely novel ways. But for now, & despite the opportunities opened up by new tech-based ventures, a generation of workers the world over is facing underemployment & stagnant pay.

Conclusion

Technologies are tools without an agenda of their own, but their influence on society is never neutral. They blindly sweep aside the livelihoods of some people & enrich others. Automation will lead to wealth without workers but then you will have workers (uneducated) without wealth.