MIT just launched a new Initiative for the Digital Economy to systematically address the impact of digital technologies on business, the economy and society. The university-wide initiative is being organized by MIT’s Center for Digital Business (CDB), and is led by Erik Brynjolfsson and Andy McAfee, who are respectively the CDB’s director and principal research scientist.
Since the mid 1990s, we’ve been talking about the emergence of an Internet-based digital economy. It has often been said that powerful disruptive innovations like the Internet are overhyped in the short term but under-hyped in the long term. This is certainly the case with digital economy. The term was widely thrown around in the heady dot-com bubble days as people talked about a new economy with eyeballs instead of revenue, profit and cash as key business metrics.
But, over the past decade the Internet has transitioned from the connected world of PCs, browsers and web servers, to the hyperconnected world of mobile devices, cloud computing and broadband wireless networks. The physical and the the digital now blend into each other over porous boundaries, as people, institutions and things are all becoming interconnected. A 21st century digital economy is indeed now emerging in this hyperconnected, inclusive, and increasingly smart world.
In October of 2011 Brynjolfsson and McAfee published Race Against the Machine: How The Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. This excellent short book focused on the impact of digital technologies on jobs, skills, wages and the overall economy.
They wrote about the profound transformations brought about by ever more advanced technologies and innovations. These are bringing many benefits to people around the world as well as creating unprecedented wealth. However, as the technology races ahead, many cannot keep up and are being left behind.
The US recession has been officially over for a number of years, yet the country is still suffering from a jobless recovery. US unemployment rate is still near 8 percent, with almost 40 percent classified as long-term unemployed, - that is, jobless for 27 weeks or more, - and an additional 5 percent working part time but wishing for full time work.
“The percentage of Americans with jobs is at a 20-year low,” observed Kroft. “Just a few years ago if you traveled by air you would have interacted with a human ticket agent. Today, those jobs are being replaced by robotic kiosks. Bank tellers have given way to ATMs, sales clerks are surrendering to e-commerce and switchboard operators and secretaries to voice recognition technology. . .”
“Economic evolution has been going on for centuries and society has always successfully adapted to technological change creating more jobs in the process. But Erik Brynjolfsson and Andrew McAfee of MIT think this time may be different. . .”
“The changes are coming so quickly it’s been difficult for workers to retrain themselves and for entrepreneurs to figure out where the next opportunities may be. . . It’s all part of a massive high tech industry that’s contributed enormous productivity and wealth to the American economy but surprisingly little in the way of employment. . . Everyone agrees that it’s impossible now to short circuit technology. It has a life of its own and the world is all in for better or for worse.”
Technology has been replacing workers and improving productivity ever since the advent of the Industrial Revolution in the second half of the 18th century. In past technology-based economic revolutions, the periods of creative destruction and high unemployment eventually worked themselves out. Over time, these same disruptive technologies and innovations led to the transformation of the economy and the creation of new industries and new jobs.
While we are hopeful that this will once more be the case, there is no way of knowing. As Race Against the Machine repeatedely points out, technology is being increasingly applied to activities requiring cognitive capabilities and problem solving intelligence that not long ago were viewed as the exclusive domain of humans. These technology advances are truly pushing the boundaries between human and machines.
Many workers are learning to co-evolve with our intelligent machines, and as has been the case in the past, they will be ready for whatever new jobs are created. But, our fear is that this time is different and the long predicted era of technological unemployment is finally upon us. Technology advances are running so far ahead that large numbers of people may not be able to keep up, and the future will bring even more serious economic disruptions.
This past December, the Center for Digital Business convened a roundtable on Work and Value in the Digital Economy to further explore where jobs will likely come from and whether the very nature of work will be significantly different as the digital economy plays out in the coming years. Despite the presence of top thinkers on the subject, the answer, in short, is that we truly don’t know.
We are transitioning to a digital economy whose vast implications are not well understood. Perhaps, as has been the case in the past, we lack the imagination to properly perceive the future, and once more our technologies will give rise to new industries and jobs that we can barely being to anticipate today. On the other hand, there may truly not be enough good jobs to go around, a situation with serious economic and societal implications.
These are the kinds of issues that will be addressed in MIT’s new digital economy initiative. Initially, the initiative will have three main objectives: “To rigorously analyze the potential of digital technologies to transform businesses, the economy, and society; to engage students and faculty in educational programs relevant to the digital revolution, . . ; and to make grounded recommendations to industry leaders and policymakers about the digital economy and job growth.”
It will pursue a number of interdisciplinary problems, including the potential for accelerating the transformation of institutions and organizations so they can better keep up with the pace of digital innovation. To effectively do so, it is quite likely that we will need to become a more entrepreneurial society, where large numbers of people will have to invent their own jobs, possibly based on new types of virtual work organizations and digital platforms. New digital business models will likely be required to help entrepreneurs, - whether in startups or larger companies, - quickly implement their ideas in ways that create widespread benefits.
Another major area of study is the need for lifelong education to help workers keep up with rapidly advancing technologies and fast changing job markets. The digital economy requires better educated workers with specific skills requirements. For example, a 2011 study by the McKinsey Global Institute projects a continuous demand for workers with at least a post-secondary education to meet the demands of business. According to McKinsey, employers are already having trouble filling positions requiring technical skills. Many workers will not necessarily have the skills needed for the jobs that are likely to most be in demand.
“The digitization of the economy is one of the most critical issues of our time,” says the online announcement of the Initiative for the Digital Economy. “While digital technologies are rapidly transforming both business practices and societies and are integral to the innovation-driven economies of the future, they are also the core driver of the great economic paradox of our time. On one hand, productivity, wealth, and profits are each at record highs; on the other hand, the median worker in America is poorer than in 1997, and fewer people have jobs. . .”
“While technology is advancing rapidly, organizations and skills advance slowly. What’s more, the gap between swiftly evolving technology and the slower pace of human development will grow quickly in the coming decades, as exponential improvements in artificial intelligence, robotics, networks, analytics, and digitization affect more and more of the economy and society. Inventing effective organizations and institutions for the digital economy is the grand challenge for our time, . . .”