Labor Revisited, Part Two: A Different World

Much of our work right now is still physical, but we have all witnessed a lot of manual labor vanish into the digital world of sensing, digital communication, and intelligent response. Physical jobs are disappearing into the second economy, and guest columnist W. Brian Arthur believes this effect is dwarfing the much more publicized effect of jobs disappearing to places like India and China.

Last month we began to explore how automation and technology are finally starting to make the impact that we all thought would come sooner or later, by transforming the daily jobs and lives of everybody. Any person that has not been automated out of a job yet is still capable of doing something that machines cannot do. But as the entire business world competes through more automation and higher technology, fewer people everywhere will have physical jobs. And that’s a pretty big deal, especially considering the skills shortages and hiring challenges that currently face our metalworking industry.

Last month economist and technology researcher W. Brian Arthur began to explain why he believes this “deep and slow and silent” transformation is actually the digital economy beginning to supplant the physical economy. He began sharing insights from his provocative article “The Second Economy” that appears in the October 2011 issue of the McKinsey Quarterly. In the discussion that follows, Arthur concludes his examination of why he believes this transformation is likely to succeed the Industrial Revolution.

THE SECOND ECONOMY: PART TWO – A NEURAL SYSTEM FOR THE ECONOMY
Recall that in the digital conversations I was describing last month, something that occurs in the physical economy is sensed by the second economy – which then gives back an appropriate response. A truck passes its load through an RFID sensor or you check in at the airport and a lot of recomputation takes place, with appropriate physical actions being triggered.

There’s a parallel in this with how biologists think of intelligence. I’m not talking about human intelligence or anything that would qualify as conscious intelligence. Biologists tell us that an organism is intelligent if it senses something, changes its internal state, and reacts appropriately. If you put an E. coli bacterium into an uneven concentration of glucose, it does the appropriate thing by swimming toward where the glucose is more concentrated. Biologists would call this intelligent behavior. The bacterium senses something, “computes” something (although we may not know exactly how), and returns an appropriate response.

No brain need be involved. A primitive jellyfish doesn’t have a central nervous system or brain. What it has is a kind of neural layer or nerve net that lets it sense and react appropriately. I’m arguing that all these aspen roots – this vast global digital network that is sensing, “computing,” and reacting appropriately – is starting to constitute a neural layer for our economy. The second economy constitutes a neural layer for the physical economy. Just what sort of change is this qualitatively?

Think of it this way. With the coming of the Industrial Revolution – from roughly the 1760s, when Watt’s steam engine appeared, through around 1850 and beyond – the economy developed a muscular system in the form of machine power. Now it is developing a neural system. This may sound grandiose, but actually I think the metaphor is valid. Around 1990, computers started to talk to each other seriously, and all these connections started to happen. The individual machines – servers – are like neurons, and the axons and synapses are the communication pathways and linkages that enable them to be in conversation with each other and to take appropriate action.

Is this the biggest change since the Industrial Revolution? Well, without sticking my neck out too much, I believe so. In fact, I think it may well be the biggest change ever in the economy. It is a deep qualitative change that is bringing intelligent, automatic response to the economy. There’s no upper limit to this, no place where it has to end.

I’m not interested in science fiction, or predicting the singularity, or talking about cyborgs. None of that interests me. What I am saying is that it would be easy to underestimate the degree to which this is going to make a difference.

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 15 years from now, it will likely be a driverless car in a flow of traffic where my car is 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.

A DOWNSIDE
Of course, as with most changes, there is a downside. I am concerned that there is an adverse impact on jobs. Productivity increasing, say, at 2.4 percent in a given year means either that the same number of people can produce 2.4 percent more output or that we can get the same output with 2.4 percent fewer people. Both of these are happening. We are getting more output for each person in the economy, but overall output, nationally, requires fewer people to produce it.