Skip to main content

Review: The Second Machine Age Work Progress And Prosperity In A Time Of Brilliant Technologies

From time to time one reads a book that is important. The Second Machine Age Work Progress And Prosperity In A Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee is important. In the authors’ view, the confluence of falling technology costs, increased computer processing power, cheap sensors and the quality and ubiquity of networks, are ushering in a revolution equally as potent and far-reaching as the Industrial Revolution.
Drawing parallels to the effect on civilization of the Industrial evolution, and how long its subsequent impact has continued, they see brilliant technologies in the early stage of changing about everything. They provide a historical context on the growth in living standards, starting with the domestication of the horse, development of agriculture, which led to cities, afforded great armies and so on.  Things really didn’t advance much from there until the steam engine was perfected, which created factories, mass transit, electrification and essentially modern life.
They support the case that while innovation drives productivity, it takes time for innovation to be adopted, widespread and then subsequent advancements to leverage combinations of innovations.
The authors identify how those new combinations are occurring. The new revolution starts with the difference in digital goods to traditional goods.  Digital goods can be endlessly copied at a cost that is nearly zero. And falling costs combined with improving power is enabling machines to do things now that researchers weren’t projecting to happen until far into the future – e.g.-Watson beating anyone at chess; driverless cars and Siri. 
And like the Industrial Revolution, there will be sharp winners and losers. Just as motorized looms destroyed jobs in textiles; robots, speech-activated call processing, and tax software replace factory and warehouse workers, call center agents and accountants. Digital downloads replace the CD and reduce musicians income. The authors are concerned that the job loss affect may be longer lasting and more far reaching with this revolution than the Industrial. In the Industrial Revolution, farmworkers displaced by tractors, threshers and combines found work in factories. They make an interesting argument that digitalization makes it possible for everyone to have the best. An example they use is that if one bricklayer can lay X bricks per hour, that doesn’t mean that someone won’t hire the second best bricklayer who can only achieve .9X; perhaps at a slightly lower wage. In the world of digital goods, in some fields everyone worldwide has access to the single best, eliminating work for second and third place. Expanding that argument, in many fields one only had access to providers in one’s area-town, city etc., but in the digital realm one has instant global access. While they foresee a variety of new jobs being created, they find it difficult to envision where an equivalent number of jobs will be created.  Indeed, they pin some of the failure of total employment to return to pre-2008 levels on the widespread adoption of technology reducing staffing requirements.
They cover the types of jobs they see at most and least risk in the race against the machine. More importantly they cover skills and education needed to compete in the future. I hesitate to call out any chapter as particularly informative or intellectually challenging; they are all impressive.  The authors conclude with policy recommendations. Part of the discussion made me nervous; I feared they were heading for a policy recommendation of guaranteed income, or extremely high tax rates on the successful. Instead, they rallied to a defense of work and its importance [They provide a good example of two communities, one where employment was high even if wages were low vs. same income levels from welfare-type programs but low employment. The latter area was blighted].
They conclude with a series of policy recommendations and, as they label it, wild idea s. One is a national mutual fund to make sure everyone has, as one of my bosses used to say, a piece of the rock.  Let me provide my twist to their national mutual fund wild idea. The U.S. needs to invest the funds that come into Social Security. Now, before someone’s hair catches on fire, I didn’t say “privatize”.  (I agree in some small way with Presidential candidate Al Gore’s “lock box” hypothesis). Many states have excellently run pension funds for state employees. (Some of those pension funds may be underfunded, but that isn’t the managers’ fault). Leading examples include Calpers in CA, Wisconsin Teachers and Texas Teachers. What I am talking about is funding Social Security, not privatizing it. It will take a very long term view – fifty or more years. If two percent of the incoming funds into Social Security were invested in the first year, and then increased by an additional two percent each subsequent year, in fifty years the trust would be backed by actual assets.
As with any investment program, diversification would be important.  Our funds should go in to timberland, oil and gas, stocks, bonds, apartment houses, raw land, shopping centers and the like. At that point, every American would be a capitalist, and an owner of the capital deployed in these new technologies.
This is an important book, highlighting topics that affect business, government, education, labor, and personal skills development.

Highly recommended.


Popular posts from this blog

Book Review: What Matters Now by Gary Hamel

Interview of Eric Schmidt by Gary Hamel at the MLab dinner tonight. Google's Marissa Mayer and Hal Varian also joined the open dialog about Google's culture and management style, from chaos to arrogance. The video just went up on YouTube. It's quite entertaining. (Photo credit: Wikipedia)Cover of The Future of ManagementMy list of must-read business writers continues to expand.Gary Hamel, however, author of What Matters Now, with the very long subtitle of How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, has been on the list for quite some time.Continuing his thesis on the need for a new approach to management introduced in his prior book The Future of Management, Hamel calls for a complete rethinking of how enterprises are run.

Fundamental to his recommendation is that the practice of management is ossified in a command and control system that is now generations old and needs to be replaced with something that reflects an educat…
Have you ever watched, or been involved in, a business failure, where, despite the best efforts of hardworking people, the business doesn’t survive? Scott Sonenshein lived through it, as he describes in the Introduction to his engrossing book Stretch.  (In some books, the reader can skip the intro- not this one; the introduction is a must-read part of the book.) He was hired by start-up Vividence in Silicon Valley at the very apex of the tech boom.  Despite prestige VC backers, top-tier hires and $50 million, Vividence didn’t make it. As his career continued, that experience led to an interest in why some well-funded operations don’t succeed, while other, more resource constrained, do. Peter Senge wrote about reinforcing cycles as part of his book The Fifth Discipline, which I consider one of the finest business books ever penned. In it, Senge describes the downward cycle that some companies fall into, and why it is so difficult to reverse. Sonenshein explores those cycles from diffe…

The Acceleration of Asset Lite Business Models

The number of asset lite businesses is steadily increasing, as is the breadth of industries effected.  I first noticed them in the 1970’s, when Baron Hilton sold several flagship Hilton hotels while retaining management contracts that entitled Hilton Corporation to a share of revenue and earnings. Over the next two decades, Marriott Corp copied and then perfected the hotel management agreement business approach, coupling a Marriott franchise with a management agreement for any one of a growing stable of brands (Fairfield Inns, Courtyard by Marriott, Residence Inns, J.W. Marriott, etc. etc.), enabling absentee investor/owners.  It turns out, however, that asset lite business structures date back much earlier.
Franchises and Dealers Early versions of asset lite businesses include franchise and dealer organizations. Soft drink and beer distributors, auto dealers and tire and repair franchises date to the early nineteen hundreds, as manufacturers needed mass distribution. The dealers furn…