Tag Archives: technology

The eclipse of capitalism – or maybe not

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Jeremy Rifkin’s new book, [amazon_link id=”1137278463″ target=”_blank” ]The Zero Marginal Cost Society[/amazon_link], covers lots of interesting territory but isn’t my cup of tea. One reason for that is apparent in the subtitle: “The internet of things, the collaborative commons and the collapse of capitalism” – wide-ranging is good, but ranging wide over such a disparate set of topics is a bit of a stretch.

[amazon_image id=”1137278463″ link=”true” target=”_blank” size=”medium” ]The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism[/amazon_image]

Another reason is that near the start of the book there is an anti-economics rant, economics being characterised by “unquestioning acceptance, and refusal to envision alternative explanations, lead[ing] to a festering of inconsistencies that pile up.” While I certainly agree that economics too often sets environmental constraints to one side – which is what Rifkin’s rant builds up to – I always check the references and bibliography at this point to see how much modern economics the ranter has read. And as is always the case with such critics, Rifkin cites next to no work done in the past 25 years.

The main argument of this book is that near-zero marginal cost activities make up a growing proportion of economic activity, and this signals the inevitable decline of capitalism. Capitalist markets are not an efficient way to organize a society in which most things are free, because the socially efficient price is zero when marginal costs are zero. Rifkin draws on his last book [amazon_link id=”0230341977″ target=”_blank” ]The Third Industrial Revolution[/amazon_link] and adds in the effects of the Internet of Things and smart grids in optimising energy use to apply this argument to energy prices. He cites also MOOCs and 3D printing. It is not a new observation to point out that many activities involve high fixed costs and low marginal costs. Digital or digitally-enabled activities are adding to the roster of industries with this structure, shaking up business models in music, publishing, newspapers and – soon – education; but other industries from aerospace to pharma to broadcasting have long experienced increasing returns. These too challenge the model of small, perfectly competitive firms delivering efficient outcomes through the magic of the price mechanism and the market.

Rifkin does not, for my taste, adequately address the question of how the high fixed costs are to be covered in his post-capitalist world. “Within 10 years every building in America and Europe, as well as other countries around the world, will be equipped with smart meters,” he writes. He predicts huge cost as well as energy savings, citing a Cisco forecast that the Internet of Everything will generate $14.4 trillion in cost savings and revenues. So that’s selling smart meters plus the cost savings from using less energy once they are installed, I guess – and wouldn’t Cisco, purveyor of smart devices, say that anyway? The smart meter installation programme in the UK alone is estimated to have a: “positive net present benefit of £6.7 billion over the period to 2030, by delivering total benefits of around £18.8 billion and costs of around £12.1 billion.” (House of Commons Energy Select Committee estimates.) These order of magnitude smaller estimates for a longer period predate the actual existence of technical standards and operational meters, needing to be installed in every home and business in the country. I’m sure it’s worthwhile, but I’m sceptical about this happening within 10 years, all around the world.

The most interesting chapters in the book cover collaborative efforts and the switch “from ownership to access.” There have been interesting articles and stirrings around just this past week on the sharing economy – from The Economist, from Public CEO, this New York petition, John Kay in the FT. (HT to @johnfingleton1 for the links.) Parts 3 and 4 of Rifkin’s book provide an overview of this territory. By this stage, I had gone into irreversibly sceptical mode, and concluded that it is too early to say that none of the new digital businesses will find a viable business model.

This book would be a good airport read. Rifkin is a clever and widely-read writer. I don’t like the way he opts for polemic over analysis, but that’s me. Others might enjoy this high-level canter over a wide territory – but I’d caution you to take the claims with more than a pinch of salt.

Technology, identity and money

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It would be bad form to review Dave Birch’s excellent new book [amazon_link id=”1907994122″ target=”_blank” ]Identity is the New Money[/amazon_link] here, given that I commissioned him to write it. To entice readers, however, here is his argument in a nutshell: “This book argues that not only is identity changing profoundly but that money is changing equally profoundly, because of technological change; and that the two trends are converging so that all we will need for transacting will be our identities.” It’s thought-provoking, informative and entertaining. Anyone interested in any of money, social networks and/or mobiles should read it – after all, there are few experts who know as much as Dave about the overlap between digital technology and money.

[amazon_image id=”1907994122″ link=”true” target=”_blank” size=”medium” ]Identity is the New Money (Perspectives)[/amazon_image]

Trail over, I was interested to read this article by Paul Laity about Penguin’s revival of the Pelican imprint, its series of accessible, reasonably short non-fiction books on a wide range of subjects of contemporary interest. Sound familiar? Our Perspectives series got there a year ago, albeit sadly without Penguin’s marketing budget. Still, I agree with their sense that the ‘thirsty public’ is back – even though non-fiction book sales have apparently been declining. Surely [amazon_link id=”067443000X” target=”_blank” ]the Piketty phenomenon[/amazon_link], if nothing else, will reverse that in 2014’s figures?

One of the first Pelican titles will be Ha Joon Chang’s [amazon_link id=”0718197038″ target=”_blank” ]Economics: A User’s Guide[/amazon_link]. I found the style of his [amazon_link id=”0141047976″ target=”_blank” ]23 Things They Don’t Tell You About Capitalism[/amazon_link] irritating but it was nevertheless well worth reading. I’m sure the new one will be equally valuable.

[amazon_image id=”0718197038″ link=”true” target=”_blank” size=”medium” ]Economics: The User’s Guide: A Pelican Introduction (Pelican Books)[/amazon_image]

Money and me – and you

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It’s an exciting moment – the advance copies of Dave Birch’s book, [amazon_link id=”1907994122″ target=”_blank” ]Identity is the New Money[/amazon_link], have arrived here at Enlightenment Economics Towers.

OK, as series editor, I’m biased, but this is an exciting book. Dave’s one-man expertise on the technological issues involved in both identity security and digital money have converged in an absolutely illuminating and highly entertaining read. He argues that there is no trade-off between our financial/data security and our privacy; the marriage of mobiles and social networks means we can have both. As the infrastructure is put in place, cash use will evaporate – and a good thing too, in his view.

[amazon_link id=”1907994122″ target=”_blank” ]It’s available for pre-order on Amazon[/amazon_link] and will be shipping soon!

Welcoming the overlords

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[amazon_link id=”023116856X” target=”_blank” ]Smart Machines: IBM’s Watson and the Era of Cognitive Computing[/amazon_link] is by a couple of IBM-ers, Director of Research John Kelly, and Steve Hamm. It shows. This short book is all about the promise of current massive increases in computers’ abilities rather than the disruption it will cause. It mentions Brynjolfsson and McAfee’s [amazon_link id=”0984725113″ target=”_blank” ]Race Against the Machine[/amazon_link], but it would be good to read this book alongside their new one, [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link]. With that caveat, it’s interesting to read this short book about what the insiders think is likely to happen.

[amazon_image id=”023116856X” link=”true” target=”_blank” size=”medium” ]Smart Machines: IBM’s Watson and the Era of Cognitive Computing (Columbia Business School Publishing)[/amazon_image]

The book starts with the famous victory by IBM’s Watson over two humans in the TV game show Jeopardy. One of the defeated men, Ken Jennings, famously said afterwards: “I for one welcome our new computer overlords.” The introductory section explains the key difference with the next generation of very powerful computers, the move away from the Von Neumann architecture – with its key bottleneck of moving data to and fro between CPU and memory – and instead having more parallel calculations with memory and processing more closely integrated. This will increase the machines’ capacity and enable them to go beyond specific programmes for specific tasks. They will be able to learn. Having just read Gerd Gigerenzer’s [amazon_link id=”0141015918″ target=”_blank” ]Gut Feelings[/amazon_link], though, I now feel a bit more optimistic about the complementarity between humans and robots – it’s hard to see how even smart machines can be taught or can acquire intuition given the way logic is integral to their structure and programming.

Later chapters of the book look at big data, at the new physics of computing – what future microchips could be like – and specifically at cities and the potential for cognitive computers to make them better places for their inhabitants. A key issue, given both the tendency for political power to shift from nation state to city level and the continuing move by humanity into cities. I suspect computer experts will be familiar with the material in this book, but I didn’t and it was an enjoyable travel read.

Robots, floods and the Kobayashi Maru

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The discussion at the core of [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies [/amazon_link]by Erik Brynjlofsson and Andrew McAfee is whether or not the benefits of the current wave of digital and digitally-enabled technologies will outweigh the costs – or not.

[amazon_image id=”0393239357″ link=”true” target=”_blank” size=”medium” ]The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies[/amazon_image]

The book has three parts. The first describes digital technology, explains why it is only now that its consequences are becoming dramatic, and describes some of the impending technological advances. There is a useful survey of (mainly) robotics and AI advances, and a very clear explanation of ‘why now’ when computers and the Internet and even the web have now been around quite a while. The timing is partly due to the nature of exponential doubling. Moore’s law says computing power roughly doubles roughly every two years. If you start with one grain of rice on one square of a chess board and double it for every successive square, it isn’t until the second half of the chess board that the number of grains soars to an incomprehensible degree. It is also due to the need for organisational and infrastructure investments alongside technology investment. This section draws on the work of economic historian Paul David as well as Brynjolfsson’s own excellent work on how firms use the technology to increase productivity, by reshaping processes and work. In short, human institutions move far more slowly than technology progresses.

The second part of the book divides the consequences of technology into two types, which the authors call bounty and spread. Bounty is the potential for human progress, the almost science-fiction fruits of technology that are just starting to emerge in fields from medicine to driverless cars. By ‘spread’ they mean inequality or dispersion of outcomes. (I found this a counter-productive term as ‘spread’ to me carries the automatic word association of ‘evenly’, as in a million recipes I’ve used over the years: ‘Spread the icing evenly over the top of the cake.’) This section of the book has attracted much attention in reviews and articles. It discusses the well-known underlying economics – skill-biased technical change, Sherwin Rosen’s ‘superstar’ effect, and winner-take-all dynamics when there are high fixed costs and increasing returns.

There is an inevitable tension between progress for many humans and costs for a few humans. For example, IBM is getting its Watson computer to absorb all the world’s published medical information and use it to diagnose and recommend treatments. It would apparently take a human 160 hours of reading time every week just to keep up with the literature. The computer will produce far, far better patient outcomes. But what will happen to doctors’ careers? This is just one of many examples underlining the current angst about the ‘race’ between humans and robots. This is of course also the theme of Tyler Cowen’s excellent recent book, [amazon_link id=”0525953736″ target=”_blank” ]Average Is Over[/amazon_link].

The Second Machine Age has a chapter on measurement about which I want to get a bit picky, having just published my own book [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link]. Brynjolfsson and McAfee rightly point out that GDP does not measure adequately the welfare benefits of innovation, and specifically the digital goods freely available. After all, if there’s no price, it isn’t part of economic activity at market prices. But they are unclear about the distinction between GDP and consumer surplus, the latter never having been measured. For example, to cite a Tim O’Reilly example, if you dry your clothes in a dryer, you’re contributing to GDP and if you hang them on the line in the sunshine (remember that?), you’re not. It is probably true that the wedge between GDP and consumer welfare has been increased significantly. The authors are also astonishingly uncritical of alternatives to GDP, even describing Bhutan’s cynical PR effort to emphasise Gross National Happiness in place of GDP as ‘promising’.

The third section of the book turns to policies that might minimise the costs of ‘spread’ while retaining the ‘bounty’. The recommendations could be summed up as more and better education, to ensure that humans and robots are complements rather than substitutes, and a minimum income or – better in their view – a negative income tax.

These are obviously valid and interesting suggestions. Do they really address the massive technology-driven structural change described in the first two thirds of the book? As so often, my mind turned to the Star Trek Kobayashi Maru example – a Star Fleet training exercise designed to test the character of a trainee captain in a situation where failure and death are inevitable. But Kirk reprograms the test in order to save the crew. This is where we’re at. We need to reprogram society’s institutions. To use a more topical metaphor, if it rains torrentially for two months, there’s going to be flood water – but the damage it does will depend on the landscape it washes over, the kinds of structures that have been built, river-management institutions.

As [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link] makes clear, rising inequality has occurred everywhere. It is indeed driven by the tidal waves of technology and globalisation. But these are interacting with economic and social institutions. Policy prescriptions will need to look at the minimum wage; at the ownership of assets especially the intangible kind – what are the intellectual property rights in a drug that has been tested on thousands of humans and draws on taxpayer-funded basic research?; at public service provision and the tax base to pay for it; and so on. The institutional revolution that meant the Industrial Revolution ultimately benefited everyone is little-studied ((Douglas Allen’s [amazon_link id=”0226014746″ target=”_blank” ]The institutional Revolution[/amazon_link] is an exception) but just as important.

Anybody interested in these questions will want to read [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link]. I wholly agree with the conclusion: “We need to think much more deeply about what it is we really want and what we value, both as individuals and as a society. Our generation has inherited more opportunities to transform the world than any other. That’s a cause for optimism but only if we’re mindful of our choices. Technology is not destiny. We shape our destiny.”