Pilots, physicians and other professionals routinely navigate unexpected dangers with great aplomb but little credit. Even in our daily routines, we perform feats of perception and skill that lie beyond the capacity of the sharpest computers. Google is quick to tell us about how few accidents its autonomous cars are involved in, but it doesn’t trumpet the times the cars’ backup drivers have had to take the wheel. Computers are wonderful at following instructions, but they’re terrible at improvisation. Their talents end at the limits of their programming.
We will not all stop seeking new things and new ideas even if a network of intelligent machines will often replace traditional human labor. As a society, we need to start thinking about new public and private policies to create employment opportunities around those new possibilities. At the very least, that should keep us busy for a while
And it’s happening everywhere, all the time, almost entirely out of sight. By Arthur’s estimation, even though the second economy produces nothing tangible, it will be as large as the first, physical, economy by transactions and dollar value in the next few years.
Arthur: Right now, I’m sitting in an office at Xerox PARC in Palo Alto — in other words, in the middle of Silicon Valley. It therefore makes sense for me as an economist to take a closer look at the so-called digital revolution, which most people associate with two things: computers and the increasing level of networking between them. Still, it seems to me that something more complex is going on, namely that more and more business processes are being carried out by machines without any human involvement whatsoever. In other words, a second digital economy in which servers “talk” to each other and conduct transactions is now taking shape alongside the economy we’re familiar with — the one that involves physical objects and services provided by people. That’s what I mean by the “Second Economy.”
The Gross Domestic Product for the United States in 2011 was around $15 trillion.
There are a little over 130 million non-farm employees. So each worker adds a little over $100,000 to the domestic output. The numbers are quite
different for a Google employee. Google has a little more than 32,000 employees and its $38 billion in revenues means it generates about $1.2 million
per employee. The numbers are similar for Facebook.
Walmart has some two million employees, and annual sales of around $200 billion. Given that many work part-time, I figure that the company has sales of
around $100,000 per employee. With 56,000 employees in 2011, Amazon generated a little over $800,000 per employee.
New economic growth is also occurring. New businesses have been created: Google, Facebook, OpenTable, and Zynga. I, for one, buy more books because
shopping at Amazon is so convenient and buying eBooks so easy. Others are watching more movies and TV reruns.
There are parallels with what has happened before. In the early 20th century, farm jobs became mechanized and there was less need for farm labor, and some decades later manufacturing jobs became mechanized and there was less need for factory labor. Now business processes—many in the service sector—are becoming “mechanized” and fewer people are needed, and this is exerting systematic downward pressure on jobs. We don’t have paralegals in the numbers we used to. Or draftsmen, telephone operators, typists, or bookkeeping people. A lot of that work is now done digitally. We do have police and teachers and doctors; where there’s a need for human judgment and human interaction, we still have that. But the primary cause of all of the downsizing we’ve had since the mid-1990s is that a lot of human jobs are disappearing into the second economy. Not to reappear.
I think that for the rest of this century, barring wars and pestilence, a lot of the story will be the building out of this second economy, an unseen underground economy that basically is giving us intelligent reactions to what we do above the ground. For example, if I’m driving in Los Angeles in 15 years’ time, likely it’ll be a driverless car in a flow of traffic where my car’s in a conversation with the cars around it that are in conversation with general traffic and with my car. The second economy is creating for us—slowly, quietly, and steadily—a different world.
Let me begin with two examples. Twenty years ago, if you went into an airport you would walk up to a counter and present paper tickets to a human being. That person would register you on a computer, notify the flight you’d arrived, and check your luggage in. All this was done by humans. Today, you walk into an airport and look for a machine. You put in a frequent-flier card or credit card, and it takes just three or four seconds to get back a boarding pass, receipt, and luggage tag. What interests me is what happens in those three or four seconds. The moment the card goes in, you are starting a huge conversation conducted entirely among machines. Once your name is recognized, computers are checking your flight status with the airlines, your past travel history, your name with the TSA11.
Transportation Security Administration.
(and possibly also with the National Security Agency). They are checking your seat choice, your frequent-flier status, and your access to lounges. This unseen, underground conversation is happening among multiple servers talking to other servers, talking to satellites that are talking to computers (possibly in London, where you’re going), and checking with passport control, with foreign immigration, with ongoing connecting flights. And to make sure the aircraft’s weight distribution is fine, the machines are also starting to adjust the passenger count and seating according to whether the fuselage is loaded more heavily at the front or back.
James Beniger’s work is the definitive document on how the essence of the ‘control revolution’ has been an attempt to take economic activity out of the sphere of direct influence of the market. But that is not all – the long process of algorithmisation over the last 150 years has also, wherever possible, replaced implicit rules/contracts and principal-agent relationships with explicit processes and rules. Beniger also notes that after a certain point, the increasing complexity of the system is an endogenous phenomenon i.e. further iterations are aimed at controlling the control process itself. As I have illustrated above, after a certain threshold, the increasing complexity, fragility and deterioration in performance becomes a self-fulfilling positive feedback process.
Many commentators have pointed out that the process of automation has coincided with a deskilling of the human workforce. For example, below is a simplified version of the relation between mechanisation and skill required by the human operator that James Bright documented in 1958 (via Harry Braverman’s ‘Labor and Monopoly Capital’). But till now, it has been largely true that although human performance has suffered, the performance of the system has gotten vastly better. If the problem was just a drop in human performance while the system got better, our problem is less acute.
This is the same statement the government used to mail you every year, showing your annual earnings history and your estimated monthly payment if you retire at your “full” retirement age (based on your year of birth), or if you retire early, at age 62. It also tells you what your survivor benefits will be and your benefits if you become disabled.