How the digital economic revolution will impact industry and jobs

How the digital economic revolution will impact industry and jobs

If we are, as many people tend to think, going through a digital economic revolution, do we know exactly how these new technologies will actually change the economy? We explore how technology is leading to a shift from internal to external intelligence, leading to a distributive era, and the consequences of technological unemployment.

A few years ago, W. Brian Arthur, an external professor at the Santa Fe Institute and visiting researcher at the System Sciences Lab at PARC (a Xerox company), said that digital technologies have created a second economy, a virtual and autonomous one.

Writing recently in the McKinsey Quarterly, he says the main feature of this autonomous economy that it is steadily providing an external intelligence in business — one not housed internally in human workers but externally in the virtual economy’s algorithms and machines. Business and engineering and financial processes can now draw on huge ‘libraries’ of intelligent functions and these greatly boost their activities—and bit by bit render human activities obsolete.

He argues that this is causing the economy to enter a new and different era, a distributive era. “The economy has arrived at a point where it produces enough in principle for everyone, but where the means of access to these services and products, jobs, is steadily tightening. Everything from trade policies to government projects to commercial regulations will in the future be evaluated by distribution.”

Digital is changing the economy every 20 years

Arthur describes how every 20 years or so the digital revolution morphs and brings us something qualitatively different. Each morphing issues from a set of particular new technologies, and each causes characteristic changes in the economy.

The first morphing, in the 1970s and ’80s, brought us integrated circuits, with which the economy for the first time had serious computational assistance. The second morphing, in the 1990s and 2000s, brought us the connection of digital processes, with local and global networks, with which the virtual economy took off, and offshoring became commonplace. Modern globalization had arrived.

The third morphing — the one we are in now — began roughly in the 2010s, and it has brought us something that at first looks insignificant: cheap and ubiquitous sensors by the dozens and hundreds all meshed together into wireless networks to inform us of the presence of objects or of a system’s current status or position, or changes in its external conditions. These sensors brought us data — oceans of data — and all that data invited us to make sense of it.

As a result, in the last ten years or more, we got computer vision, the ability for machines to recognize objects and do natural-language processing. We got digital language translation, face recognition, voice recognition, inductive inference, and digital assistants.

Computers could suddenly do what we thought only humans could do — association.

Shift from internal to external intelligence

Arthur says we now have a shift from internal to external intelligence. He asks, “How is this externalization of human thinking and judgment is changing business? And what new opportunities is it bringing?”

One outcome is that businesses can reach into and use a ‘library’ or toolbox of already-created virtual structures as Lego pieces to build new organizational models. One such structure is the blockchain, a digital system for executing and recording financial transactions; another is Bitcoin, a shared digital international currency for trading. These are not software or automated functions or smart machinery. They are externally available building blocks constructed from the basic elements of intelligent algorithms and data.

The result, whether in retail banking, transport, healthcare, or the military, is that industries aren’t just becoming automated with machines replacing humans. They are using the new intelligent building blocks to re-architect the way they do things.

Businesses can use the new opportunities in other ways. Some large tech companies can directly create externally intelligent systems such as autonomous air-traffic control or advanced medical diagnostics. The components of external intelligence can’t easily be owned, they tend to slide into the public domain. And data can’t easily be owned either, it can be garnered from non-proprietary sources.

Technological unemployment and the distributive era

He then talks about having reached a point where technological unemployment is becoming a reality. However, the problem in this new phase we’ve entered is not quite jobs, it is access to what’s produced. Jobs have been the main means of access for only 200 or 300 years. Before that, farm labor, small craft workshops, voluntary piecework, or inherited wealth provided access. Now access needs to change again.

However this happens, we have entered a different phase for the economy, a new era where production matters less and what matters more is access to that production: distribution, in other words—who gets what and how they get it.

He calls this new era that we have entered as the ‘distributive era’.

The new rules

A new era brings new rules and realities, so what will be the economic and social realities of this new era where distribution is paramount?

  1. The criteria for assessing policies will change. The criteria for measuring the economy will also change. GDP and productivity apply best to the physical economy and do not count virtual advances properly.
  2. Free-market philosophy will be more difficult to support in the new atmosphere. It is based on the popular notion that unregulated market behavior leads to economic growth.
  3. The new era will not be an economic one but a political one. We’ve seen the harsh beginnings of this in the United States and Europe. Workers who have steadily lost access to the economy as digital processes replace them have a sense of things falling apart, and a quiet anger about immigration, inequality, and arrogant elites.

Whether we manage a reasonable path forward in this new distributive era depends on how access to the economy’s output will be provided. One advantage is that virtual services are essentially free. Email costs next to nothing. What we will need is access to the remaining physical goods and personal services that aren’t digitized.

For this we will still have jobs, especially those like kindergarten teaching or social work that require human empathy. But jobs will be fewer, and work weeks shorter, and many jobs will be shared. We will almost certainly have a basic income. And we will see a great increase in paid voluntary activities like looking after the elderly or mentoring young people.

Social issues

We will also need to settle a number of social questions: How will we find meaning in a society where jobs, a huge source of meaning, are scarce? How will we deal with privacy in a society where authorities and corporations can mine into our lives and finances, recognize our faces wherever we go, or track our political beliefs?

And do we really want external intelligence ‘helping’ us at every turn: learning how we think, adjusting to our actions, chauffeuring our cars, correcting us, and maybe even ‘nurturing’ us? This ought to be fine, but it’s like having an army of autonomous Jeeveses who altogether know too much about us, who can anticipate our needs in advance and fulfill them, and whom we become dependent upon.

To read the full article by W. Brian Arthur, click here.

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If we are, as many people tend to think, going through a digital economic revolution, do we know exactly how these new technologies will actually change the economy? We explore how technology is leading to a shift from internal to external intelligence, leading to a distributive era, and the consequences of technological unemployment. A few…
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