Is The Second Economy The End Of Human Labor?

Recently, there have appeared some analyses that point to a shift from traditional human production to machine production.

In a McKinsey Quarterly article (

), W. Brian Arthur, a visiting researcher at the Palo Alto Research Center (PARC) and an external professor at the Santa Fe Institute, focused on the “second economy”.  The subtitle of his article sums up the message: 

“Digitization is creating a second economy that’s vast, automatic, and invisible—thereby bringing the biggest change since the Industrial Revolution.”  He continues, “we can say that another economy—a second economy—of all of these digitized business processes conversing, executing, and triggering further actions is silently forming alongside the physical economy… human beings may design it but are not directly involved in running it. It is remotely executing and global, always on, and endlessly configurable.”

A recently there appeared a new book, “Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy” by Erik Brynjolfsson and Andrew McAfee.  I suppose, as a form of testament to their thesis of an accelerating digital revolution, their book will only be available in e-book form.

The arguments in both the book and the paper are that an increasing amount of traditional human labor is being carried out by machines that are connected via the global Internet.  The idea of machines as the cause of unemployment is not new.  It goes back, at least, to the industrial revolution.  (Indeed, some of the classical Greek philosophers complained about the introduction of writing systems that they claimed diminished the capacity of people to remember – and, perhaps, led to unemployment of those who were the carriers of society’s oral tradition.  How many town criers are left these days?)

The concern about automation has been counterbalanced by the realization that this is a reflection of increasing human productivity, since after all these are our machines that we choose to create and deploy.  In the past, automation has allowed each of us to produce more and thus live better.

The question now is whether the use of technology is so great that it allows only a few people to reap the economic benefits of increased productivity.   The increasing inequality of income and wealth in the US and other advanced economies over the last four decades is often offered as evidence that the benefits will accrue to only a minority.   

However, this trend seems to have been more aligned with changes in redistributive public policies than a result of technology.  After all, even as late as the 1990s, economists (like Robert Solow) were still seeking proof of the increased productivity that was supposed to have come from the massive investment that companies had made in technology.  That productivity seems to have eventually arrived in this century.

It would not seem to make sense to ameliorate income inequality by reducing income as a whole for all of society, but instead it may be time to revisit the role of public policy in sharing the wealth.  The current political climate is not receptive to much of a debate on this.  However, as more human labor is devoted to intangible services and knowledge, which often have the feel of being more like public goods and less like private goods, the question of who gets credit for such goods will become harder to answer – and the idea of sharing the credit and the wealth generated may become more acceptable.

More important, there is an end-of-history feel to some of the arguments being put forth.  It is as if we are all headed to a life of desperate poverty or grand leisure.  Or perhaps something akin to the horrendous future envisioned in the “Time Machine.”

Such a vision, I think, is based on a limited view of what drives people to labor and a failure to recognize the how expansive human desires can be.  As Steve Jobs famously said, people often don’t know what they want until you give it to them.  

How many things that we consider today to be necessities were unknown years ago?  How much new knowledge that we are seeking was considered an unnecessary luxury or even unknowable in previous centuries?

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 😉   

© 2011 Norman Jacknis


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