A couple of MIT professors have written a wonderful little book that I had the pleasure of reading for the last couple of days. Race Against the Machine (Brynjolfsson and McAfee 2011-10-17) finally puts forth an explanation for our economic situation that begins to make sense.
Nobody else seems to have a clue.
Anyone following the actions of the Fed, (and the dissent among the bankers who run it), or weighed the arguments of Nobel laureate economists, (who can barely agree on the basics), knows that nobody has any idea where the economy is taking us.
One thing seems clear, and bankers, economists and finance professionals all agree – the world wide economy is being affected by structural change. Fundamental mechanisms that used to make the economy run are no longer working. It is impossible to rebuild the consumer economy we had because the mechanisms that made it work no longer exist. That is why there is so much debate among finance professionals about what went wrong, and so much indecision among politicians and policy makers about what to do next.
But a couple of MIT professors may have figured out how those fundamental mechanisms changed, and identified a path for the future.
The authors of Race Against the Machine, Erik Brynjolfsson and Andrew McAfee, take up where Jeremy Rifkin left off fifteen years ago in his book The End of Work (1995). In that book Rifkin advanced the idea that computers and the internet were making jobs held by humans obsolete. New technologies were replacing human workers at such a pace that it was clear to Rifkin that soon very few people would be able to operate all the means of production needed to produce goods for everyone else. Someday almost everyone would be unemployed. It’s a scary and believable thought, and seems to be playing out just as Rifkin predicted.
Brynjolfsson and McAfee agree with Rifkin’s basic premise, but make a convincing argument that work will not end, but be transformed into something new and hardly imaginable. They suggest that the fundamental structural change our economy faces is the transition away from recombining atoms into new physical things and moving toward recombining digital information into new services and products. Our economic future is not in making houses out of trees, or wire out of copper rich rocks, but using our knowledge and intelligence to recombine existing technologies into new ones.
"When businesses are based on bits instead of atoms, then each new product adds to the set of building blocks available to the next entrepreneur instead of depleting the stock of ideas the way minerals or farmlands are depleted in the physical world." (Brynjolfsson, E., & McAfee, A., 2011-10-17, Kindle Location 860-862).
This is already happening, of course, and according to Brynjolfsson and McAfee it is replacing the old economy, but we are not equipped to see it because the tools needed to measure an economy based on a distributed network do not yet exit. We all know people who are making some or all of their living on places like eBay or Amazon Marketplace, but that kind of productivity isn’t counted by traditional economic calculations. Neither are the tens of thousands of Smartphone apps made by independent knowledge workers at their home computer. There is no way to measure the productivity gains from Mechanical Turk that allows anyone with a computer to make small amounts of money doing very small jobs, like proofreading or indexing. Nor can we tell exactly how much of a contribution to GDP Kickstarter makes by putting together creative knowledge workers with sponsors who finance their ideas.
Our economic measurement tools were made for the industries of the19th and 20th centuries – agriculture and manufacturing – and they hardly recognize decentralized networked knowledge workers creating digital goods and services that are replacing the old economy.
We are changing from an economy that creates wealth by organizing armies of workers to manufacture new tangible items to an economy that creates wealth by creating and applying new technologies. The old economy focused on getting lots of people together in one place and repeating a known process in unison; workers in the emerging economy are self directed, can be anywhere, are organized in a constantly changing network, and work on projects that are always different from the one before.
Rhett Butler once said that fortunes can be made both in the destruction of an economy as well as in the creation of a new one. If that is true we are living in the perfect time to position ourselves to take advantages of great opportunities. The world is changing and we can choose to either work to recreate a an economy swept away by the winds of history, or embrace the promise of an astounding future based on technologies that thrive on individual knowledge, initiative and creavity.
Brynjolfsson, E., & McAfee, A. (2011-10-17). Race against the machine: How the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. Digital Frontier Press. Kindle Edition.
Rifkin, J. (1995). The end of work: The decline of the global labor force and the dawn of the post-market era. New York: G.P. Putnam's Sons.