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BIG THINKER
“It’s a disturbing truth that while digital progress grows the pie, there’s no economic law that says we all benefit.”
Erik Brynjolfsson, director of MIT’s Center for Digital Business
The economic challenges sparked by the digital era
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The economic challenges sparked by the digital era

April 2014

The second Industrial Revolution has the potential to create huge wealth — and huge inequality, says MIT professor of digital business Erik Brynjolfsson.

There will be two big economic effects of the second machine age, in which digital technology will do for cognitive capability what the steam engine and its descendants did for muscle power during the Industrial Revolution. The first can be described as ‘bounty’ — the massive increase in productivity and wealth. And that is something we’ve already seen the early stages of in recent years.

That’s the good news, but we're also seeing something else: the ‘spread.’ There’s a spreading out of performance in society, with some people doing much better and others doing much worse than before. In the US, for example, the median income has actually fallen since the 1990s, as has the ratio of people in work.

We see similar trends in Western Europe, Japan and elsewhere in terms of growing inequality, stagnating wages and unemployment. So how can this be, that we simultaneously have this bounty and yet so many people struggling?

“There is no economic law that says everybody’s going to benefit from digital progress.”

Well, when you look at the economic texts, what you realize is a disturbing truth: that while digital progress does grow the pie, there is no economic law that says everybody’s going to benefit from it. In fact, it’s possible that some people, and potentially a majority of people, will be worse off as the pie gets bigger, and that a small group, perhaps 1%, becomes fabulously better off. That’s not inevitable, but it’s possible, and in the past decade or so we have seen a growing spread and growing inequality.

However, the very same technologies that are creating some of these challenges also contain the seeds of the solutions. For instance, in order to mitigate inequality, what we need to do is not just have more and better education, but to reinvent education — just as other industries have been reinvented. And digital technologies are ideal for doing that; they can distribute the very best teacher’s course content and insights to much broader groups, often at very low or even zero cost. More importantly, they can digitize the learning process in a way that allows us to understand what’s working, what learning styles are effective and which ones aren’t. There are a lot of other societal problems in healthcare and elsewhere where digital technologies can make such a big difference. 

Mindful optimist

In that sense I regard myself as a mindful optimist, but the word ‘mindful’ is important. There are techno-utopians who say: ‘Don’t worry, technology always solves our problems, and all these wonderful things that technology can do mean we’re going to be in this future nirvana, where intelligent machines create enormous wealth.’ I don’t feel comfortable assuming that that’s going to happen.

But I also don’t feel comfortable with the pessimists who say smart machines are going to destroy all our jobs, that we’re in for a really rough time and there’s nothing we can do about it. Ironically, I think both those groups make the same mistake of assuming that technology is going to do something to us and all we can do is sit back and watch it happen.

I am a mindful optimist because I think we are going to be able to figure out how to use the technology to create that better world. It’s not inevitable, but if we make changes to our education policy, our entrepreneurship, our growth policy, our own reskilling, our tax policy and a whole set of other changes, then we will put ourselves on the path towards the better rather than the worst outcome.

But people shouldn’t get complacent and think this is by any means inevitable. It very much depends on our choices and on us being mindful about how we shape the future.

The Second Machine Age: Work, progress, and prosperity in a time of brilliant technologies by Erik Brynjolfsson and Andrew McAfee is out now.

First published
April 2014
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About: Erik Brynjolfsson
MIT Sloan School of Management professor and director of MIT’s Center for Digital Business, Erik Brynjolfsson focuses on the economic impact of IT. He is co-author of The Second Machine Age.

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