After several years of debate about the job market, whether we need to create new jobs and save old ones through stimulus or pull back on spending and go for austerity, it’s good to escape that well-worn debate and find a new perspective, one that approaches the unemployment problem with a longer lens. Two MIT professors, Erik Brynjolfsson and Andrew McAfee have takena different look at why the unemployment problem has become such a chronic one. They find a major culprit in the progress of various digital technologies.

In Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, Erik Brynjolfsson and Andrew McAfee team up to argue that the root cause of the unemployment problem is that we are in the early stage of a “Great Restructuring.” The long-held correlation between job growth and economic growth is no longer valid, the authors contend. It is technology—its widespread use across all industries, especially in the last decade or so—that has precipitated a major “displacement” of jobs. The recession simply accelerated the pace, making the connection between the stagnation in the job market and technology more obvious as the job losses rose and high unemployment has persisted.  GDP, they point out, continues to rise while median income stagnates. And since the end of the recession, companies have increased their spending on equipment and software by 26% but payrolls have remained basically flat.

What’s more, there’s a growing disparity between the rate at which machines improve and the rate at which humans can change, a disparity which will only make things worse in the future. Moore’s Law continues to prevail for hardware, which saw processing speeds improve by a factor of 1000 from 1988 to 2003. During the same period, however, software algorithms improved by a factor of 43,000. Brynjolfsson and McAfee believe that such improvement rates have brought us to the inflection point where huge strides can be achieved very quickly. They cite Watson winning on Jeopardy! and Google’s self-driving cars as prime examples of recent breakthroughs that seemed decades away even a few years ago.

The authors identify three structural changes that have been unfolding for more than a decade and that are creating more unemployment problems:

(1)    Technology is replacing the jobs of lower skilled workers, with everything from robots that manufacture cars to voice-recognition software that answers telephones and resolves customer problems. Even in low-wage countries like China, robots are taking over the jobs of unskilled and semi-skilled workers. The electronics company Foxconn plans to buy one million robots over the next three years to replace most of its workforce. The company currently has 10,000 robots and expects to have 300,000 within the next year.

(2)    Digitization means write once, read many, and this has created the “superstar” effect, where individuals and corporations benefit from the replication of everything from hit songs to advanced intellectual property. As a result single individuals can have a huge impact—and reap equally huge rewards—through their skills and decisions. The superstars overpower some very good competition that just can’t get to the top. It’s becoming a winner-take-all marketplace.

(3)    The division between labor and capital is also shifting.  As the input of human labor decreases in a particular business process, the owners of the capital equipment gain a proportionately larger amount of the bargaining power and the income. As a result, for example, corporate profits have rebounded and risen dramatically since the end of the recession.

Brynjolfsson and McAfee arguethat the digital frontier we have entered represents the third industrial revolution, after steam and electricity. Those who will succeed in this new frontier may well, the authors claim, be the ones who compete not against  the machine but with the machine. Learning how to use computers to improve organizations and to make sure that workers have the right skills for the future are key. The authors also advise people to cultivate the skills that computers will not be able to master, including leadership, team building, complex communications, and creativity. Entrepreneurs should find opportunities that take advantage of cheaper technology and (it is implied) cheaper mid-skilled unemployed workers to create new business models, bringing together people and computers in new and unexpected ways and creating new marketplaces.

The two researchers had originally begun their joint research on a book that would explore the opportunities for innovation in the “Digital Frontier.” The last part of their book does return to that theme, offering visions of entrepreneurial success. They also supply a social roadmap (with no less than 19 points!) for revamping education and government to support innovative and fast-changing organizations. Still even they admit that there are limits to their visions. Not everyone is cut out to be an entrepreneur and not all entrepreneurial businesses create lots of jobs, especially today,  presumably because of the widespread use of more technology and fewer people in those businesses.

After such compelling arguments about the deep economic restructuring that is going on because of technology, I find it hard to be as optimistic as the authors about reviving the job market. The nineteen points are broad ranging. They include some oft-discussed issues such as investing in our educational system to improve it in various ways and revamping the visa system to encourage skilled workers and people with advanced to degrees to remain in this country. Other less common and very good ideas include teaching entrepreneurial thinking at all levels of education and creating databases and sets of standardized business processes for new entrepreneurs to use. Still, the progress of technology has left so many people in the dust at this point that it’s hard to even calculate how long and hard the road to employment recovery might be.  

Every new major information technology looks like it could change the world and to change it for the better. For more than a century, one information technology has succeeded another in a disruptive way, overshadowing and displacing the previous dominant one with something better and faster. And as Tim Wu points out in his new book The Master Switch: The Rise and Fall of Information Empires, each of these new technologies, from the telegraph to the telephone to radio and television and beyond, has also promised to improve the lives of individuals or of society as a whole. When the telegraph seemed an interesting novelty to most, Samuel Morse was already driven by the idea that the telegraph would revolutionize communication. Theodore Vail, the driven visionary of the early AT&T, actually believed that enlightened monopoly should be the basis for the public utility of the future. Such a monopoly was necessary to make the United States the best connected nation in the world and bring the connection of voice communication into every household. For Vail, in fact, monopoly was downright patriotic. And when radio came along, it too was seen as a medium for positive social change. People believed that radio would create a virtual community, knitting together people throughout the country and eventually throughout the world.

Given this historical context, it is not really surprising that Facebook’s founder Mark Zuckerberg and the social network company’s general spirit includes a sense of large and revolutionary purpose. David Kirkpatrick, in his perceptive history of the first years of Facebook, The Facebook Effect, recounts that a driving force behind Facebook was the drive to create significant cultural change based on the belief that the world was moving toward greater and great transparency. The company embraced the radical belief that “an inevitable enveloping transparency will overtake modern life.” This transparency would promote greater social good: As Zuckerberg explains, “A more transparent world creates a better governed world and a fairer world.”

So why does each new information technology inspire this type of hope? And do subsequent developments validate that hope? Tim Wu suggests that information technologies seem to promise positive social change because they improve, and often broaden access to, communication between people. Such improvements, many people believe, will promote better understanding within the populace and provide more information for addressing social ills. However the history of communications for the past hundred years or so has not shown this to be entirely true.

As Tim Wu expertly points out, technologies that begin as open and free eventually become controlled by one or more large corporations that are bent not just on dominating the marketplace but on making large profits in the process. Thus Facebook’s motto “Don’t be lame,” like Google’s “Don’t be evil,” speaks well of initial intentions but does not anticipate the pressures of our market-driven society. In spite of good intentions both companies have been hit with mounting piles of lawsuits from organizations and political entities both in the US and abroad. While Google’s legal issues are manifold, including copyright laws, antitrust regulations, and privacy rights, Facebook has encountered primarily the privacy issue. Its development platform gave companies a way to promote their goods, but it also extends to those advertisers the right to “share” information about individual users who “like” or “recommend” their products. Thus initial goals of openness and transparency get murkier, and potentially more sinister. David Kirkpatrick points out that even when it first began, the company’s avowed intentions were aggressive and many felt arrogant: “They had the best thing in the world and they were going to dominate everyone.” One can only surmise that the current $50B valuation of the company and its much anticipated IPO will put the full pressures of the market place, quarterly earnings, and the bottom line on this still young but very large company.

Of all the contradictions and paradoxes in the short history of Facebook one of the most telling ones is how Facebook developed its business model and where founder Mark Zuckerberg was at the time. Mark Zuckerberg spent the company’s first few years focusing on adding features to the user experience and expanding the user base. He ignored those who kept pressing for a business model, a plan for how the company was going to make money. Growth first, he told everyone, and then worry about making money. Yet the every expansion of the user base and experience that he sought required more money, a conundrum Google had faced as well when the company realized that in order to expand their search capabilities.

Zuckerberg’s advisors had been pushing him to get a chief operating officer and especially one who was an expert in online advertising.  Soon thereafter Zuckerberg met Sheryl Sandberg at a party. She was then an executive at Google and she had built its highly successful self-service ad business. Within a few months Zuckerberg had hired her. In his book The Facebook Effect, David Kirkpatrick describes Sandberg as a person of “immense experience with advertisers at Google and a deep appreciation of the importance and potential of ads on the Net.” (To read my review of Kirkpatrick’s book, which is just out in paperback, click here.) Yet he observed there was still a widespread ambivalence toward advertising at Facebook, an ambivalence fostered by Zuckerberg himself.

Within weeks Sandberg had planned a series of brainstorming meetings for Facebook management to define what business the company was going to be in and exactly how it would go about “monetizing” their user base, which is a roundabout way of answering the question: “How are we going to turn the user base into money?” These meetings took place over a series of weeks during which time Mark Zuckerberg himself wasn’t even in the country. He was taking a solo trip around the world—to Berlin, Istanbul, an ashram in India, Japan, and other locations. While it’s unclear whether this was a deliberate absence on Zuckerberg’s part, it seems obvious that he did not want to be a part of this “monetizing” process.

Yet even in his absence the management team worked under the assumption that Zuckerberg in the end would have to approve of whatever they came up with and that in order to gain his approval, the business model had to fit in with the founder’s long-term plan for Facebook. Thus, in need of money to support his long-term plans for improving the customer experience and enlarging the user base, Zuckerberg was forced to accept advertising, just as Google founders Page and Brin before him had to. In both cases, too, it was unfortunate because the youthful idealism of these founders was genuine. Yet the business cycle of Internet technologies appears inescapable. Innovation is necessarily followed by commercialization, even if going public is avoided, or at least delayed. And growth has other pitfalls, as Google’s path to success has already indicated. But more on this later.