Big Data, the Internet of Things and the Death of Capitalism? [PART TWO]

February 11, 2014

Kruger Elephant.JPGPart 1 introduced the elephant in the room: a few of the ways that current technological advances affect jobs and society.  Here, I probe deeper into the economics.

We in the world of IT and data tend to focus on the positive outcomes of technology. Diagnoses of illness will be improved. Wired reports that, in tests, IBM Watson’s successful diagnosis rate for lung cancer is 90%, compared to 50% for human doctors according to Wellpoint’s Samuel Nessbaum. We celebrate our ability to avoid traffic jams based on smartphone data collection. We imagine how we can drive targeted advertising. A trial (since discontinued) in London in mid-2013 of recycling bins that monitored passing smartphone WiFi addresses to eventually push product is but one of the more amusing examples. Big data can drive sustainable business, reducing resource usage and carbon footprint both within the enterprise and to the ends of its supply chains. Using a combination of big data, robotics and the IoT, Google already has prototype driverless cars on the road. Their recent acquisitions of Boston Dynamics (robotics), Nest (IoT sensors), and DeepMind Technologies (artificial intelligence) to name but a few indicate the direction of their thinking. The list goes on. Mostly, we see the progress but are largely blind to the down-sides.

The elephant in the room seems particularly perplexing to politicians, economists and others charged with taking a macro-view of where human society is going. Perhaps they feel some immunity to the excrement pile that is surely coming. But, surely an important question should be what will happen in economic and societal terms when significant numbers of workers in a wide range of industries are displaced fully or partially by technology, both physical and information-based? As a non-economist, the equation seems obvious to me: less workers means less consumers means less production means less workers. A positive feedback loop of highly negative factors for today’s business models. Sounds like the demise of capitalism. Am I being too simplistic?

A recent article in the Economist, The Future of Jobs: the Onrushing Wave

explores the widely held belief among economists that technological advances drive higher living standards for the population at large. The belief is based on historical precedent, most particularly the rise of the middle classes in Europe and the US during the 20th century. Anyone who opposes this consensus risks being labeled a Luddite, after the craft workers in the 19th century English textile industry who attacked the machines that were destroying their livelihoods. And perhaps that is why the Economist, after exploring the historical pattern at some length and touching on many of the aspects I’ve mentioned earlier, concludes rather lamely, in my opinion: “[Keynes] worry about technological unemployment was mainly a worry about a ‘temporary phase of maladjustment’ as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.”

 “Sorely tested” sounds like a serious understatement to me. The Industrial Revolution saw a mass movement of jobs from Agriculture to Manufacturing; the growth of the latter largely offset the shrinkage in Agricultural employment due to mechanization. In the Western world, the trend in employment since the 1960’s has been from Manufacturing to Services. Services has compensated for the loss of Manufacturing jobs to both off-shoring and automation. But, as Larry Summers, former US Treasury Secretary, mentioned in the debate on “Rethinking Technology and Employment” at the World Economic Forum in Davos in January, the percentage of 25-54 year old males not working in the US will have risen from 5% in 1965 to an estimated near 15% in 2017. This trend suggests strongly that the shrinkage in Manufacturing is not being effectively taken up elsewhere. The Davos debate itself lumbered to a soporific draw on the motion that technological innovation is driving jobless growth. Prof. Erik Brynjolfsson, speaking with Summers in favor of the motion, offered that “off-shoring is just a way-station on the road to automation”, a theme echoed by the January 2014 McKinsey Quarterly “Next-shoring: A CEO’s guide”. Meanwhile, Brynjolfsson’s latest book, with Andrew McAfee, seems to limit its focus to the quality of work in the “Second Machine Age” rather than its actual quantity.
Blind_monks_examining_an_elephant 1.jpgAs in the tale of the blind men and the elephant, it seems that we are individually focusing only on small parts of this beast.

For a broader and deeper view of the business and technological aspects of this topic, please take a look at my new book: Business unIntelligence: Insight and Innovation Beyond Analytics and Big Data