It seems common knowledge that a growing sense of dystopia is rising every day in the Western world. A large block of seemingly alienated, angry voters are rebelling against the establishment, mainstream parties. Radicals everywhere are emerging as viable leaders. The list is already well established -- Donald Trump, Jeremy Corbyn, Alexis Tsipras, Viktor Orban, etc. Will Marine Le Pen be next?
Many analysts have tried to explain this phenomenon. Certainly, it is partly cultural -- the large levels of immigration, for example, in Europe are creating xenophobic reactions, and generally nationalism is in ascendance. There is also politics -- like successive generations of U.S. administrations doing little for those other then the relatively well to do on both the East and West Coasts. Conventional economic explanations are also given -- for example in terms of lack of global risk appetite, certainly post credit crisis, leading to low interest rates, lack of investment and stagnant incomes.
But beneath all this, a few argue [and I am going to argue], is something different -- namely, the nature of technology innovation or revolution.
There was a curious anomaly about the economic impact of technological change noticeable even 30 years ago. Even in the 1980s, there was scant evidence that technology was bringing significant productivity growth. MIT economist Robert Solow, wrote as early as 1987 that, "you can see the computer age everywhere save in productivity statistics." At that time many people put it down to the early stage of tech evolution, but 30 years later -- the OECD has continued through a long sclerotic period of low growth. Technology does not seem to have delivered the type of pop in GDP that the car, or plane or electricity did.
So why is GDP growth so slow? In trying to answer this question we can perhaps start to address the original question -- the possible causes of growing disenfranchisement in our population.
The arguments fall into two categories: a demand driven argument and/or a supply driven argument.
The supply side
The supply side argument suggests that GDP growth has slowed because technological innovation has never been quite the growth machine it was hoped to be. The computer is indeed everywhere, but it isn't a technology that can match the huge GDP push in the 20th century from electricity, oil, autos, aircraft, etc. This push ended in the U.S. probably as early as 1975, and since then, we have basically had growth only through globalization [the same technologies spreading globally]. What is effectively happening now is that the rest of the world has begun to catch up to where the U.S. was in 1975, so we have global stagnation, flat real incomes and an increasingly disaffected populace.
In other words, computer and communications technology has been the only material innovation in town, but on its own, it hasn't been enough to generate dynamic growth. In fact, what may be the point is that in the early 20th century you had multiple innovations simultaneously [cars, electricity, planes, etc.], whereas all we now have is tech transformation. In this case, we simply don't have any place where we can invest the kind of money we used to invest, and macro returns are low. This is the core of Robert J. Gordon's views and others.
In this scenario, the only solution is further/deeper innovation, but innovation that has the same dramatic effect as innovation earlier in the 20th century.
One solution is proposed by my colleague Andy Singleton, a leading tech entrepreneur and thought leader in this space. He observes that the most successful companies of the modern era are those like Amazon, Google, Facebook and Microsoft that sell systems, not inventions. He calls them Apex Competitors [although Apple, as a device maker, is an outlier from this group]. It is a focus on systems, rather than single inventions, that Singleton believes is the key to breaking the productivity blockage.
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That is, our economy may have exhausted many of the gains from making individual inventions. But now we must focus on things like logistics rather than airplanes, transportation rather than cars, conversational systems rather than say disconnected calculators, health care rather than drug discovery [one of the most disappointing areas of modern R&D], education rather than books. In this innovation environment, big companies have an advantage because they can rapidly test improvements at the scale of systems. For example, Amazon can easily extend its vast ordering and logistics system to drone delivery, whereas a startup would only be able to make a drone. Thus, big companies can offer innovation, and this could perhaps make a critical productivity difference.
The demand side
The demand side argument says machines eliminate jobs, which eliminates income, which removes demand from the economy. Thus, the economy suffers from increasing inequality, permanent overcapacity and even declining production. A few people become rich, and others starve.
This would happen if we really are experiencing a second technological revolution [we might say the automation of the mind vs the automation of labor of the original industrial revolution] - i.e., one which, at least to date, has effectively been destroying jobs while simultaneously handing much of the value of the technological revolution to a small number of people who own critical IP rights.
This is certainly the view of, for example, Carl Benedikt Frey and Michael A. Osborne from Oxford Martin School & Faculty of Philosophy in the UK. And the tech revolution does this because vast numbers of jobs turn out to be done better by computers or intelligent robots than they are by humans. It is a phenomenon seen in virtually every sector, particularly where repetitive, algorithmic or large data problems are concerned. Frey and Osborne consider 47% of all current U.S. jobs are at risk due to automation. Meanwhile, those who own the IP rights become wealthier, thus increasing the gini coefficient [per, for example, the data on increased wealth in equality produced by Thomas Picketty and others]. This naturally creates significant disaffection among much of the population as money flows from labor to capital.
Not everyone agrees with this view, e.g. David Autor or [surprise, surprise] Hal Varian, the chief economist at Google. For a start they point to the fact that, say in the U.S., unemployment levels are low so people must be finding jobs. But of course, this itself may be deceptive. While people may still be finding some type of job, the pay in these jobs is generally on a downward slope in real terms. For most U.S. workers, real wages have been flat or even falling for decades, and meanwhile the real income gini coefficient keeps rising.
The reality may be slightly more nuanced. What some have suggested is that under the current configuration of the tech revolution, we are indeed seeing job destruction, but with certain fairly fundamental changes to the technology industry and our society at large, we could release the value potential in the technology revolution in a positive way.
If the problem is indeed the current structure of the technology industry and our society, then how do we fix it? This itself is a multi-layered onion and needs careful analysis. Let's briefly run through some issues and possible solutions.
The industry is largely dominated by big global oligopolists [owned by a limited number of people] to whom we are all constantly paying rents whenever we use our IT gadgets or systems. These are of course household names like Microsoft, Apple or Google. In this case, then surely the solution is to start breaking these firm's oligopolistic positions via a bit of good old trust busting. Alas, this is not as simple as it seems since these companies have established a limited number of global system protocols, and there are few alternatives. There may be solutions to this, but again, these solutions are also far from developed
Why don't we nationalize these big oligopolists so their riches are shared across the nation? This too has been mooted, but it has its issues. Nationalization would potentially damage the dynamism of these companies as rents are transferred to bureaucraticgovernments.
However, if we are correct that it is specifically intellectual property and automation of the mindthat is causing inequality, then some suggest we must focus our solution on IP rights. And here we might be getting to a more interesting solution. We can selectively redistribute IP rights. This solution will be more focused, and it will have the advantage that any given bit of IP can have infinite copies, so we can distribute a great deal of it.
One way to redistribute tech IP is to make it "open source."
This concept is not that different to the way we treat patents. After a certain while, the creator of the patent looses his unique right over a given invention, and it is then made available to all. This creates a balance between the incentive for private investment provided by the patent rights, and the interests of society in shared use and development of technology. This principle could and should be applied to copyrights and any other sort of intellectual property. Over a certain scale of use, society benefits more from open sourcing than from the investment incentive created by the copyright. The wider use at much lower costs is a direct benefit, and a broader community of innovation, and extension is a secondary benefit.
Under this solution, we would increasingly experience software not as code that we can share and run, but in the form of centralized, "cloud-based" systems. The way to share their riches is through what is now called "hyperscaling" -- making certain services available as centralized services [in the metaphoric "cloud"], with very large scale, at low prices. This is a solution particularly favored by companies like maxos.ai. The cloud economy is so efficient that we already experience many services this way. Society would benefit if those services become available to all, and modifiable by all, after they reach a certain scale.
Likewise even, telecommunications networks are currently the domain of large companies that can connect and serve millions of customers. However, as these customers get smarter devices, they may begin to mesh with each other and route around any obstacles with no need for the big telco in the middle. At a certain point, this mesh may drive down network pricing to the point where we have an abundance of access for everyone.
The demand side solution can also ultimately blend with the above supply side solution. If we distribute IP and the rights to modify the IP widely enough, then people will take that IP and create new products and services. The supply of system innovation might then increase. Perhaps ultimately we even replace the role of big companies with "testbeds" -- environments where smaller companies can test their change and co-evolve as part of a system.
Some of these solutions may still seem strange and radical, but they are practical because they are not expensive. In this view, we are redistributing IP, which is a good that we can copy infinitely. We can slow it down, but we can't run out. We can much more easily afford to distribute IP than money.
Whatever is the core of and solution to our problem, technology change will continue marching on in one form or another. But I believe that the issues above [whether more dynamic innovation on the supply side or a more equitably structured IT sector reducing wealth inequalities/job destruction on the demand since] will need serious focus and solutions. It will not just be a subject for techie nerds but something that our mainstream politicians and political economists need to get up to speed on and address in material ways. It will require also significant investment in greater tech education for much of our population. This is one of the keys to the problem identified by Brynjolfsson and McAfee [other leading thinkers in this field] in their book, The Second Machine Age. It may take a generation to resolve these challenges. But until that happens, dystopic voting patterns, and large blocks of disenfranchised voters, could continue selecting radical leadership promising simple solutions in a vain hope for quick solutions.
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With special thanks to Andy Singleton for his contributions and insights into this article.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Jeremy Josse is a partner at Brock Capital and the author of Dinosaur Derivatives and Other Trades,an alternative take on financial philosophy and theory [published by Wiley & Co]. He has spent more than 20 years in the financial services industry with a range of leading firms including KPMG, Schroders, Citigroup and Rothschild. Josse is also a visiting researcher in finance at Sy Syms business school in New York.