To predict the future, study the past; hindsight develops foresight. Repetitions and remixing do happen in history. Jane McGonigal, director of research at the Institute for the Future in Palo Alto, California, the world’s oldest future forecasting organization, gives this advice (McGonigal 2011, 5). The social upheavals caused by the industrial revolution may best evoke the present, a second machine age.
Carl Benedikt Frey and information engineer Michael A. Osborne from the University of Oxford published an estimate that 702 occupations would soon be computerized out of existence. The jobs included
- animal breeders,
- locomotive engineers,
- taxi drivers,
- loan officers,
- tax preparers,
- and roofers.
Frey and Osborne put about 47 percent of American jobs at risk due to advances in artificial intelligence, data mining and machine vision.
Whether you agree with the Oxford study or not, something strange is happening to the U.S. job market; since the end of the Great Recession job creation has not kept pace with population growth. Since 2000, corporate profits have doubled, but median household incomes have fallen from $55,986 to $51,017.
Business are making more profits with fewer workers.
The Second Machine Age
Business researchers Erik Brynjolfsson and Andrew McAfee from the Massachusetts Institute of Technology call this historic shift the “great decoupling”. Brynjolfsson and McAfee argue in their recent book The Second Machine Age that technological advances are destroying jobs, primarily low-skill jobs, faster than they are creating them. Between 2001 and 2011,11 percent of routine jobs disappeared.
The outdated metrics used to measure economic wealth do not provide the kind of data needed to settle this debate. Productivity is no longer a good proxy of economic vigor; the focus needs to change to a measure of the well-being of people (DiChristina August 2014, 10).
The industrial revolution put us on the path to prosperity, and inadvertently to global warming. Today robots and computers consume labor jobs, particularly routine, repetitive tasks, and Apple and others may offshore for now to find cheap labor, but robots will bring those manufacturing plants back home, re-shoring those jobs but with robots replacing workers.
For Apple money grows on trees, but trees planted by Foxconn on Chinese soil. Foxconn, the Chinese company that assembles iPads and iPhones, employs more than a million low-income workers who do routine, repetitive tasks, but an army of robots has begun to replace them. The manufacturing jobs exported to China are now disappearing there too! As work stops chasing cheap labor, the manufacturing will gravitate to the final market, because that will add value by shortening delivery times, reducing inventory and the like. (Brynjolfsson, McAfee, and Spence July / August 2014, 46)
Apple has become the most valuable company in the world with a market capitalization of more than $500 billion. Apple and other large-global enterprises, medium-sized firms and even “micro-multinationals” have been riding the two great forces of our era globalization and technology to profits. Technology has sped globalization forward by dramatically lowering communication and transaction costs and moving the world much closer to a single, global market for capital, labor and other inputs for production. (Brynjolfsson, McAfee, and Spence July / August 2014, 45)
Superstar-based Technical Change
Besides skill-based technical change (where more skilled workers benefit over less skilled workers) and capital-based technical change (which favors capital relative to labor), a third type of technical change is upending the global economy: superstar-based technical change. The returns in a superstar-based technical changed society follow a distinct pattern known as a power law or Pareto curve, where a small number of players reap a disproportionate share of the rewards. Network effects, where a product gains value when more people use it, also generate these kinds of winner-take-all or winner-takes-most markets.
Andrew McAfeein a Vimeo video at the Roosevelt Institute two years ago coins the word “techonomy” to describe the marriage of technology and economy that characterizes the world today. McAfee comments that two very bright M.I.T. scholars in 2004 wrote in a book that described two aspects of human ability would never be overtaken by computers or robots: pattern matching and complex communication.
These scholars used the example of driving a car in traffic as a prime example of complex pattern matching. In 2010, the Google car appeared on their company blog, and now a fleet of these cars drive the American highways, without any accidents. With incredible speed science fiction is becoming reality.
In the video McAfee quotes Liam Myers from Reddit.com, with a tech joke that presents the problem:
“Ten years ago we had Steve Jobs, Bob Hope and Johnny Cash. Now we have no jobs, no hope, and no cash.”
High education does correlate with real income, which means a graduate degree or higher. This may be the first time in human history that technology will destroy more jobs than it will create. Computer stuff (speed, power, memory etcetera) doubles each 18 months, following Moore’s law. An amazing upside is that so many amazing products are now online, and free. When Watson, the IBM computer beat the stellar Jeopardy champion Ken Jennings, Jennings indicated the new regime change in his final, humorous answer, where he welcomed the new computer overlords.
Digital labor continues to replace human labor, to do the job better, with zero marginal cost. As a result the rift between the poor and rich continues to expand, a problem that everyone, despite their political stripe, fully appreciates. A Russian phrase captures our reality:
“Today is worse than yesterday, but better than tomorrow.”
Software is eating the world, and the bundle of discretely human skills continues to shrink. (Roosevelt Institute 2012)
The success of Instagram the photo-sharing platform, created by 14 people with little unskilled labor and physical capital, exemplifies this change. Due to network effects, Instagram caught on very quickly, and they sold it for nearly three quarters of a billion dollars after only a year and a half. Ironically, this sale occurred only months after the bankruptcy of Kodak, a company that held billions of dollars in capital assets and employed 145,000 people at its peak.
The top performers in business, music, sports and other areas have likewise seen their reach and income grow since the 1980s, directly or indirectly riding the same trends upwards. In America CEO pay was in decades past on average 70 times as large as the salaries of ordinary workers; in 2005, it was 300 times as large.The same trend has appeared all around the world. Erik Brynjolfsson and Heekyung Kim have linked a portion of this growth to the greater use of information technology. Technology expands the potential reach, scale and monitoring capacity of a decision-maker, increasing the value of a good decision maker and magnifying the potential consequences of his or her choices. (Brynjolfsson, McAfee, and Spence July / August 2014, 49-51)
After decades of broken promises, the Oculus Rift virtual reality headset created by Palmer Freeman Luckey, a home-schooled tech whiz should sell for only $350 each. Earlier sets also cost about $10,000 each. In March of 2014 Facebook bought Oculus Rift for a whopping $2 billion. Mark Zuckerberg CEO of Facebook has promised to continue to invest heavily in this technology.
With built in motion sensors, gyroscopes and algorithms that can predict a user’s movement, Rift overcomes two key problems plaguing earlier attempts
- and nausea.
The Rift offers stereoscopic 3-D, a 110 degree field of view and 360-degree visuals, completely immersing the mind of a user in the virtual world it creates.
In 2012 Luckey launched his company with money raised by Kickstarter. Already used successfully in Australia for special needs children, the educational potential seems an immense untapped frontier, but Oculus Rift headsets are not currently available on the consumer market, but about 75,000 prototype kits are in circulation.
Oculus Rift should enter the consumer market in 2015.
The creator of Minecraft, Markus Persson, wants to use VR (virtual reality) but not in partnership with Facebook because nothing in their history will secure his trust. Two tech giants in Asia also have VR headsets readying for market: Sony and Samsung. Artists and writers have begun to line up to create stories for Rift, and in Hollywood major Directors have expressed an interest in the technology:
- James Cameron,
- Guillermo del Toro,
- and Alfonso Cuarón.
The ability to get uncomfortably close to a fictional character creates one of the most uncanny aspects of virtual reality. It is no longer clear how a director or VR artist controls point-of-view or advances the plot.
This long-awaited, affordable birth of a new medium, one that will be bigger than the advent of sound or color in TV and Film has brought two Titans together: Hollywood and Silicon Valley. (Chocano October 2014; Herold 26 August 2014)
Reading about the monumental shifts caused by the Industrial revolution provides an exciting plot. It soon may come to life for us in this second machine age. In the future VR may allow people to experience the tortuous events in a controlled environment, an option not available for the historical agents – us.
Erik Brynjolfsson and Andrew McAfee caution that the changes are upon us, are immense, far-reaching, inexorable and fast-paced.
Are you braced for the storm?
Brynjolfsson, Erik; Andrew McAfee, and Michael Spence. “New World Order: Labor, Capital, and Ideas in the Power Law Economy.” Foreign Affairs July/August 2014: 44-53. Print.
Chocano, Carina. “The Last Medium.” The California Sunday Magazine. October 2014. Web. 10 October 2014.
DiChristina, Mariette, editor in chief. “Will Work for Machines.” Scientific American August 2014: 10. Print.
Herold, Benjamin. “Oculus Rift Fueling New Vision for Virtual Reality in K-12.” Education Week. 26 August 2014. Web. 10 October 2014.
McGonigal, Jane. Reality Is Broken: Why Games Make Us Better and How They Can Change the World. New York: Penguin Books, 2011. Print.
Roosevelt Institute. Andrew McAfee Lecture. Vimeo. 24 April 2012. Web. 13 October 2014.