The Second Machine Age (2014)
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Second Machine Age or Fifth Technological Revolution? Different interpretations lead to different recommendations – Reflections on Erik Brynjolfsson and Andrew McAfee’s book The Second Machine Age (2014). Part 4 The historical patterns of bounty and spread Carlota Perez June 2017 Blog post: http://beyondthetechrevolution.com/blog/second-machine-age-or-fifth-technological- revolution-part-4/ The recurrence of bounty: successive leaps in productivity and paradigm shifts .................. 2 The recurrence of spread: inequality ...................................................................................... 5 The recurrence of spread: winner-take-all processes ............................................................ 7 The recurrence of spread: technological unemployment ..................................................... 10 Can we trust history to provide valid lessons? ..................................................................... 13 This is the fourth instalment in a series of posts (and Working Paper in progress) that reflect on aspects of Erik Brynjolfsson and Andrew McAfee’s influential book, The Second Machine Age (2014), in order to examine how different historical understandings of technological revolutions can guide policy recommendations in the present. The previous post discussed the limitations imposed by dividing industrial history into two broad time periods, and argued for recognising the present moment as a regular occurrence in the historical pattern of techno-economic diffusion – the ‘turning point’ of the ICT revolution rather than simply the ‘inflection point’ leading to a second machine age. Here, I take two key concepts used by Brynjolfsson and McAfee in their evaluation of future wealth creation and distribution, ‘bounty’ and ‘spread’, and examine them in the context of that historical pattern. Income polarisation and technological unemployment are two of the greatest concerns regarding our economic future at present, and I argue that understanding the recurrent patterns of ‘bounty’ and ‘spread’ is key, not only to mitigating those fears, but also to setting policy directions for a future that benefits the many. 1 The historical patterns of bounty and spread A central idea in The Second Machine Age is the definition of the consequences of the new technologies as a combination of ‘bounty’ and ‘spread’. With the concept of ‘bounty’, Brynjolfsson and McAfee refer to the wealth-creating capacity of information and communications technologies (ICT), particularly in terms of significantly increasing productivity. In discussing the ‘spread’ of this bounty, they refer to increasing inequality and to the ‘winner-takes-all’ polarisation of the wealth created. These are indeed two key characteristics of what has happened up to now in the ICT revolution. In this section I will argue that both elements correspond to a pattern that has repeated itself with each surge. And rather than accept such consequences as being a peculiar feature of the current new technologies, I will hold that they are in the nature of the capitalist system and of the specific manner in which it assimilates major technical change. Nevertheless, the fact that those typical features are taken to an extreme by digital technologies does pose new challenges that merit special attention. In this post, I will discuss the historical recurrence and, in the next, the uniqueness and its implications. The recurrence of bounty: successive leaps in productivity and paradigm shifts Brynjolfsson and McAfee rightly reject the pessimistic view of the ‘new wave of worries about the “end of growth” by economists, journalists, and bloggers’,1 which interprets the slow increase in productivity in the 1970s and 1980s and/or the reduction in its growth after 2005 as a sign of the end of the impact of ICT on the economy. Considering the paradox noted by Solow2, who claimed that he saw ‘the computer age everywhere except in the productivity statistics’, they counter with studies that show the much greater productivity of those who produce or intensively use ICT and those who do not3. In addition, they make a historical parallel between the lagged impact of electrification from the end of the 19th century and that of ICT now. Using a study by Chad Syverson4, they show that it took thirty years in the US for the impact of electricity on productivity to really take off and make a significant impact. I agree with this point, but would argue that it was not electricity alone, but a whole system of technologies and infrastructures, involving cheap steel, transcontinental railways and telegraph (and eventually the telephone) together with heavy engineering (metallurgical, electrical, chemical, civil and naval) that came together to gradually provide the general leap in productivity observed by Syverson. 1 Brynjolfsson, Eric and McAfee, Andrew (2014) The Second Machine Age. New York and London: W.W. Norton and Company, Kindle edition, p.104 2 Solow, Robert (1987) ‘We’d Better Watch Out,’ New York Times Book Review, July 12. 3 Brynjolfsson, Erik and Hitt, Lorin (1996) ‘Paradox Lost: Firm Level Evidence on the Returns to Information Systems’, Management Science 42, no. 4: 541–58. 4 Syverson, Chad (2013) ‘Will History Repeat Itself? Comments on “Is the Information Technology Revolution Over?”’ International Productivity Monitor 25 pp. 37– 40. 2 Indeed, that is how it has always happened. As discussed in the previous post, each of the five technological revolutions to date has featured a combination of new all-pervasive infrastructural networks, new interrelated industries, products and technologies, as well as a new cheap source of energy and/or a new material. It takes a long time not only to install all the new technologies, and for the process of Schumpeterian creative destruction to replace or modernise what existed before, but also for the new technological paradigm to propagate and be assimilated. The canals and turnpike roads, water wheels and machinery of the first surge began to diffuse across Britain in the 1770s, but only made a real difference to the economy after the turn of the century. Similarly, the railway mania of the 1840s made its most significant impact on the British economy during the years known as the Victorian boom, after the Great Exhibition of 1851. As noted in a previous post, the 1880s and 1890s saw the start of the first globalisation, as feats of naval and civil engineering inter-connected the whole world, while one industry after another mechanised and integrated from supplies to sales. However, the overall impact of this on productivity, and in the forging ahead of the American and the German economies, did not occur until after 1900. And then, from 1913 in the USA, mass production, cheap oil, petrochemicals and the automobile provided another technology system for a leap in productivity, which only revealed all of its wealth-creating power during WWII and in the post-war boom. This pattern, I claim, is the same one we have been experiencing with ICT and with its still unused potential for transforming all other industries and activities. Thus, while I agree with Brynjolfsson and McAfee in seeing the great bounty of ICT as being still ahead of us, my point is that there is not one historical parallel from which to learn about the lag in the productivity impact on the economy – but four. The other argument given by the authors for expecting a delay in the productivity benefits is the need for complementary innovations. They cite the path-breaking work of Paul David to argue that successful adoption involves important ‘business process changes and organizational co- inventions’.5 The example provided by David refers to the adoption of electricity, which originally maintained the centralised model of power typical of the steam engine. It took another generation to understand that, with electricity, each machine could be powered individually. More generally, this is the idea that Chris Freeman and I have been raising since the 1980s: a technological revolution is ‘a combination of interrelated product and process, technical, organisational and managerial innovations, embodying a quantum jump in potential productivity for all or most of the economy and opening up an unusually wide range of investment and profit opportunities […] Such a paradigm change implies a unique new combination of decisive technical and economic advantages’. 6 We understand this complex combination as a ‘techno-economic paradigm’; a major change in managerial and organisational common sense that evolves as the new technologies propagate7. In 5 David, Paul A. (1990) ‘The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox’, The American Economic Review, Vol. 80, No. 2, pp. 355-361. 6 Freeman, Chris and Perez, Carlota (1988) ‘Structural crises of adjustment, business cycles and investment behaviour’, in Dosi et al. (eds.) Technical Change and Economic Theory. London: Pinter. http://www.carlotaperez.org/downloads/pubs/StructuralCrisesOfAdjustment.pdf 7 Perez, Carlota (1985) ‘Microelectronics, Long Waves and World Structural Change: New Perspectives for Developing Countries’. World Development Vol. 13, No. 3, pp. 44-463. http://www.carlotaperez.org/pubs?s=dev&l=en&a=microelectronicslongwavesandchange 3 my 2002 book, I attempt to identify the different sets of principles that have guided innovation, investment and organisation in each of the five surges (see table 1). The irony is that, when the innovation potential of the prevailing