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Wednesday, 1 April 2015

The Second Machine Age (A Review)

By Chola Mukanga

Driveless cars, humanoid robots, 3D printers and the Internet of Things are just a few of the many technological developments that are increasingly converting science fiction into everyday reality. A recent book The Second Machine Age’ by Erik Brynjolfsson and Andrew McAfee argues that as extraordinary as these changes are, these are merely warm-up acts of a broader 'second machine age' that is already transforming us and is poised to sweep us off our feet in the near future!

The first machine age was characterized by muscle power epitomized by the steam engine and its descendants. In the second machine age, computers and other digital advances are increasing use of our brains, enabling us to understand and shape our environments. This is vast and unprecedented boost to mental power means that we are at an “inflection point” in the history of economies and societies. Crucially it is an inflection point in the right direction - bounty instead of scarcity, freedom instead of constraint. 

Three forces that are allegedly driving this new technological leap: exponential growth in computing power; growth in digitisation ; and, rapid innovation. The authors particularly believe that increases in Artificial Inteligence (AI) and ICT is accelerating, with the consequential impact of improving our health, labour productivity, economic prosperity and giving us a greater voice in the democratic process.

However, these drastic changes will also bring its own challenges and choices for individuals and governments. In particular, there is need for greater effort to deal with the inevitable rise in income inequality associated with technological change, which has largely shifted value from labour to capital. It turns out technological change does not lift all boats because of a complex relationship between economic power and political power, coupled with the the prevalence of in elastic demand and negative aspects of globalisation. 

The danger is that faced with rising inequality governments may respond with a Luddite approach. The authors believe a better solution is to actively explore ways in which governments can encourage the bounty of the second machine age while working to reduce or mitigate the harmful effects of income inequality. In the short term, it  means encouraging technology to race ahead while ensuring that as few people as possible are left behind. This can be achieved by growing the economy through basic economics 101 ideas. In the long term, focus should be placed on moving towards rebalancing the tax system to deal with inequality and unemployment.

The arguments are broadly persuasive particularly in relation to the interaction between technological progress and inequality. The authors insights around the the role of network economies play in explaining many manifestations of inequality are particularly insightful. As they note, each time a market becomes digital and networked, “winner-take-all economics” become a little more compelling. For example, executive pay is increasingly higher because direct management via digital technologies makes a good manager more valuable than in earlier times when managers had diffuse control via long chains of subordinates, or when they could only affect a smaller scale of activities.

The book also provides some interesting recommendations on how individuals and governments should seek to positively harness the second machine age. Individuals are advised to “seek to be an indispensable complement to something that’s getting cheap and plentiful”. Governments are encouraged to think innovatively about policies that help maintain technological growth whilst minimising the costs of inequality, though ideas such as : implementing a  negative income tax that combines a guaranteed minimum income with an incentive to work; and,  raising more revenue by increasing marginal tax rates on the highest income earners, for instance by introducing new tax brackets at higher levels.

Like most books, there are several instances where loose drafting and less rigor limits its potency. The authors are particularly prone, in their exuberance, to make sweeping statements that aren't always backed up by data. For example, they claim that “billions of people will soon have a printing press, reference library, school, and computer all at their fingertips”. Except we are not told whether these billions include people in a remote village in Eastern DRC. Unfortunately, these claims highlights another general weakness : this is a very American-centric offering that seems to pay little attention to a wider global evidence. There is little discussion on how technological change would impact cross country inequality and possible geopolitical relationship and global security, apart from the passing mention of the possibility of increased automation in the developing world. Quite ironic for a book that is heralding global change!

Despite these weaknesses, the book is certainly well worth a read. There are plenty of important issues discussed, and though many of recommendations are common sense, experience teaches us that sense isn't always so common, especially within governments.

Chola Mukanga
Copyright © Zambian Economist 2015

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