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 The long-held correlation between job growth and economic growth is no longer valid, the authors contend.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.