Cross-posted from the Innovia Ventures Blog by Jonathan Murray & Desiree van Welsum
What impact will the increasingly widespread use of digital tools and information have on our society and economy and how will we deal with the disruptive forces brought to life and amplified by these technologies?
Understanding the nature of this emerging transformation and identifying appropriate responses to ensure we successfully navigate the challenges is critical. Without this we risk a level of social and economic dislocation unseen since our transition to an industrial economy in the 17th and 18th centuries. But whereas the transition from an agricultural to an industrial economy took over one hundred years, the transition from industrial to a cyber-economy will likely take a few decades at most — a rate of change our political and social systems are ill-prepared to deal with.
The impact of social media and digital communications tools on the political landscape is increasingly well understood. There is an emerging and very active discourse about the transformation of the labor force by digital automation and the impact on skills and training. The role of digital tools and access to information in driving increased inequality and asymmetric wealth distribution is also recognized if not fully illuminated in active political debate. What is not well understood is how each of these points of social and economic pressure are interconnected — in effect each of these factors is one component of a self-reinforcing system powered and driven forward with increasing momentum by Moore’s law.
Finding a way through the maze of challenges facing us requires a system-wide view of the impacts of digital tools and technologies and their interrelationship. This is not a problem that will be solved in pieces.
The 'Triple-Threat' framework outlined here is offered as a starting point for a more integrated debate about the ramifications of the coming digital transformation. This approach draws together the three primary stress-points caused by increased adoption and use of digital technology across our society and economy: Wealth inequality, Labor market disruption and Social communication. The nature of each of these digitally driven stress-points can be summarized as follows.
Technology creates great wealth, but it tends to accrue to relatively few people — what Erik Brynjolfsson and Andrew McAfee refer to as 'superstar biased technological change'. Examples include the founders of successful tech companies such as Facebook, Twitter and Airbnb which amass multi-billion dollar valuations but have created relatively few jobs. Nor is that wealth shared with the various agents — Uber drivers, AirBnB property owners etc. — who helped build the successful companies commanding those valuations.
Increasingly sophisticated use of computational tools and resources across the finance industry has lead to accelerated returns on capital vastly outpacing returns on invested labor. Financial institutions can afford the capital expenditures necessary to enable ever more computationally intense derivative modelling which expands the market for financial products.
The ability of wealth to ensure access to higher quality education and early access to digital technology in the home creates a self-reinforcing digital 'divide'. Children brought up with access to wealth have a differential advantage in exploiting digital tools and information to generate economic returns that outstrip those without those inbuilt advantages.
Technology has traditionally replaced jobs through automation, and created new jobs elsewhere. However, with recent technological progress, the scope for the hollowing out of not only blue collar but also white collar/knowledge worker jobs has dramatically increased and has created much anxiety over job destruction.
The jury is still very much out over whether or not the economy will be able to create sufficient new jobs to make up for the ones being displaced. The nay-sayers are hiding from a reality where companies will try to replace workers with software wherever they can (unless a major cultural change is brought about in how companies view and treat their human resources). Going forward, in figuring out what humans will end up doing, finding the complementarities between tasks computers can do better and those where humans still have a comparative advantage will be key.
A new round of manufacturing labor dynamics is already at play with manufacturing leaving developing economies and being substituted for by highly automated manufacturing capacity in developed economies closer to consumers. As manufacturing moves back to developed economies the jobs are unlikely to follow — at least in comparison to those being displaced.
Who is going to take responsibility for skilling the workforce? The structure of the k-12 education system in most developed countries is still based on the needs of an industrial economy and workforce. Educational systems move far too slowly to respond to rapid structural changes brought on by technology.
The 'contract' between employers and the employed has broken down. Jobs are no longer for life and as a result businesses are reluctant to invest in long-term employee skill development. Workers are reluctant to invest in their own skill development because of the uncertain returns.
Google’s CEO Larry Page recently posited that in the future all work will be part-time. That may be so but unless those part-time jobs provide a living wage then workers are likely to be highly dissatisfied with that outcome.
Social & Mass Communication
The 'double edged' nature of the evolving impact of technology on our societies can be most clearly seen in the domain of mass and social communications. An arms race is currently underway between those in power and those that seek to undermine that power. The 'Arab Spring' uprisings across the Middle East clearly demonstrated the organizing power of today’s social communications tools but also their limitations. Meanwhile new social communication tools and can be deployed as asymmetric networks of mass influence for those in power of for the «loudest» most well financed voices.
The technologically savvy, well informed and well-financed have an even more powerful tool now to influence the masses. At the same time, communication technologies also provide tools for individuals to get organized. For example, with companies increasingly using contract and part-time workers, unionization or other means of protecting workers through traditional channels have been eroded. However, these individual workers now also have the ability to self-organize using mobile social communication technologies, creating a stronger voice and more bargaining power.
It should be a source of concern that people appear to be increasingly disenfranchised not only from the businesses that employ them, but also from the political structures and governments that ultimate only functional well with their participation. Falling voter turnout across developed economies speaks to a growing dissatisfaction with the political class and a growing gulf between them and the citizens they serve. An increasingly disaffected and disenfranchised citizenry is likely to co-opt social communication tools and networks to wrest control back from those perceived as not understanding their needs or acting in their best interests.
It is already apparent that less-democratically inclined governments are investing significantly in the technological tools required to control this growing digital conversation. China continues to demonstrated a very sophisticated ability to control the flow of information and political debate within its borders. The ability of democratic regimes to find the appropriate balance between control of these new communication channels and protected freedoms of expression will be more challenging and the prescription less obvious. The growing use of these communication tools by external threats to our democratic systems is already raising serious political debate about the level of control and inspection citizens will accept.
An Integrated Threat
In isolation each of the technologically driven challenges — Wealth Inequality, Labor disruption and Social and mass communications — pose a significant threat to existing economic and social order. But none of these factors operates in isolation. They can all be viewed as parts of a self-reinforcing system.
Individuals or firms with capital can buy outsized influence over populations through the use of new social and digital mass communications tools. Capital rich firms are able to use their wealth to support an investment cycle of ever greater automation that increasingly displaces labor. A citizenry increasingly under stress from labor market disruptions and growing inequalities will use social communications tools and networks to self-organize in an attempt to wrest or rebalance power from the wealthy and political classes.
Politicians and policy makers need to be aware that the digital future is not necessarily only rosy. It would be irresponsible to not acknowledge that the disruptive forces described in this article have the potential to seriously impact people’s lives, and societies as a whole. An effective response will require an integrated approach, taking into account not just the individual drivers of the dislocation outlined but the means by which these drivers interact and reinforce each other.
An integrated approach to the 'Triple-Threat' will require policy responses that span the width and depth of political structures, from education, social and labor departments to deal with the consequences of growing inequalities and labor disruptions, to justice and competition departments to deal with protecting people’s 'digital lives', without impeding on the ability of businesses to innovate and continue to transform the way the economy operates. The benefits of making the economy more efficient should be shared.
Failing to address the dislocations brought on by an ever expanding digital transformation will have dire consequences. Unresolved, these disruptive forces may well lead to outcomes that are not sustainable, creating tremendous social and economic pain and yet further disruption.
Many observers point out that we have lived through similar transformative cycles in the past and in each case our societies, economies and political structures have adapted. That may well be true again but all of those previous transformations provided us with many decades and even centuries to adapt. We are not likely to have that luxury this time round. The pace of technological change and the speed with which those changes are impacting us will be measured in a few tens of years. Whatever the outcome that rapid pace of deep structural change is likely to be very painful to live through.
The transformation from agricultural to industrial based societies eventually led to far better outcomes for the citizenry but Charles Dickens still built a literary legacy based on documenting the squalor, deprivation and challenges of those forced to live through the transformation. However positive the outcome of the digital transformation we are now living through, the process of transformation is likely to be deeply challenging for many in our societies.