BVC Op Race Against the Machine

The BVC Opinion
Big Picture Summary, Opinion, Thought Provoking Questions, and Applications on Leading Books and Articles by
Rich Steel of Brandywine Valley Consulting January 30, 2012
Race Against the Machine:
How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy
By Erik Brynjolfsson & Andrew McAfee Digital Frontier Press 2011

Opinion:
Good news- Easy enough to read, thought provoking, extremely timely, very well researched, and ultimately hopeful.

Bad news- Too many statistics and therefore enough people won’t read it!

Good news- They offer 19 ideas to help solve the problems, a few stand out and are absolutely worth considering, and as usual, I offer suggestions on applying them right away.

Summary:
Why has median income stopped rising in the US? Why is the share of population that is working falling so rapidly? Why are our economy and society becoming more unequal? Is this 99%-1% phenomenon for real? The popular explanation right now is that the root cause of these symptoms is technological stagnation; a slowdown in the kinds of ideas and inventions that bring about progress and prosperity. In Race Against the Machine, MIT's Erik Brynjolfsson and Andrew McAfee present a very different rationale. Drawing on research by their team, they show that there has been no real stagnation in technology; in fact, the digital revolution is accelerating. Recent advances are the stuff of science fiction. Computers now park and drive cars in traffic, translate between human languages effectively, and beat the best human players on the TV game show, Jeopardy.

As these examples show, digital technologies are rapidly encroaching on skills that used to belong to humans. This phenomenon is both broad and deep, and has real economic implications. Some of these implications are positive; digital innovation increases productivity, reduces prices (sometimes to zero), and grows the overall economic pie. But digital innovation has also changed how the economic pie is distributed, and here the news is not good for the average worker. As technology races ahead, it can leave many people behind. Workers whose skills have been mastered by computers have less to offer the job market, and see their wages and prospects shrink. Entrepreneurial business models, new organizational structures and different institutions are needed to ensure that the average worker is not left behind by cutting-edge technology and cutting-edge machines.

In Race Against the Machine, the authors bring together a range of statistics, examples, and arguments to show that technological progress is accelerating, and that this trend has deep consequences for skills, wages, and jobs. The book makes the case that employment prospects are quite grim for many today not because technology has exploded, but instead because we humans and our organizations are not keeping up.

One example involves automated driving. In 2005, economists suggested that it would be "hard to imagine" computers ever being able to handle driving in traffic. Yet, just 6 years later, Google introduced automated cars that did exactly that. Progress in information technology is very likely to exceed our expectations and surprise us in the coming years.

Other examples include: efficient and systematically optimized offshore production combined with low cost and high volume sales (like Wal-Mart and Home Depot); disintermediation or destruction of local business (like Border’s vs. Amazon); Securities trading and hedge funds dominated by millisecond response trading programs; Creation, packaging and sale of financial instruments that are intentionally too complex and systematically risky to understand, but far too easy to sell in a deregulated environment (from Enron to Credit Default Swaps, to Occupy Wall Street).

Their hypothesis is not based on cheerleading for technology, but thoughtful observation on how computer based capabilities, doubling at Moore's law rates for decades, have enabled changes to the operational models of business, and the economic effect of these changes.
Computer technology investments improve productivity, but the workers who are fired or downsized go beyond the good paying and secure manufacturing jobs which built a strong middle class in developed nations through the end of the last century. Displaced workers include local merchants, sales people, bank tellers, clerks and more. The cost savings of increased productivity are real, as are the innovations in core processes, but they can increase rather than decrease middle class employment, increase income disparity, and in the financial sector increase the dominance of institutions too big to fail.

The authors end with some cautiously optimistic notes on how increased technological capabilities eventually lead to more competition and broadly based economic growth, because that is what has happened in the past. While the problems are laid out clearly and uniquely, some of the solutions offered are pretty conventional. The authors' call for revamping and upgrading schools, for example, is something that just about everyone can agree on. However, even if that occurred, the kids in school today would not enter the workforce for many years, and who knows what technology will be capable of by then?

Applications:
The authors make 19 recommendations (most of which I support) regarding the problem of stagnating median income in four categories all having to do with “accelerating organizational innovation and human capital creation to keep pace with technology.” The categories are: 1.Education, 2.Entrepreneurship, 3.Investment and 4.Laws, Regulation & Taxes. Most of them are suggestions we can pass on to our local, state and national government representatives, but a few are ideas we can influence more directly. I have summarized them all, to be fair to the authors, and chosen the ones that seem to have the most relevant applications for us. My additions and thoughts are in bold.
1. Education
a. Invest in education; pay teachers more (this could apply to Trainers in HR)
b. Pay teachers for performance (ditto above)
c. Focus on learning, not testing in school (ditto again)
d. Keep K-12 kids in school more hours and more days
e. Increase the ratio of skilled workers in the U.S. by encouraging skilled immigrants
2. Entrepreneurship
a. Teach entrepreneurship as a skill not just in Business Schools but throughout higher education. Foster intra-preneurship inside of companies.
b. Boost entrepreneurship in U.S. by creating founder visas like those in Canada.
c. Make it easier to set up businesses through standardization.
d. Make it easier to set up businesses by getting rid of red tape.

3. Investment
a. Invest in infrastructure, especially communications and transportation (if you can in your field)
b. Increase funding for R&D (ditto above)
4. Laws, Regulation & Taxes
a. Resist regulations on hiring and firing (in your company)
b. Make it more beneficial to hire a person than to buy more technology through incentives and tax breaks
c. Make health insurance portable
d. Don’t over regulate Internet Businesses
e. Reduce the home mortgage subsidy to increase labor mobility
f. Eliminate “too big to fail” thinking
g. Reform the very complicated and time consuming patent system
h. Shorten copyright periods increasing the flexibility of fair use