Last week I wrote about innovation in the digital economy and some of the puzzling questions we are now wrestling with. Is innovation accelerating or slowing down? Have we stopped solving big problems or are we solving bigger problems than ever before? Is innovation in the digital economy fundamentally different from the industrial age innovation of the past two hundred years?
But, there is no more puzzling and important question than whether the link is now broken between innovation, productivity, jobs and the overall standard of living in the US and other advanced economies.
Given the torrid pace of technology advances and new ideas, how come the US is continuing to experience slow economic growth, stagnant wages and high long-term unemployment? Are we now in an economy in which technology and innovation do not necessarily lead to a higher standard of living and quality of life?
The many innovations in the Industrial Revolution led to higher productivity, whole new industries and a significant increase in GDP per capita, a generally used measure of standard of living. According to economist Richard Steckel, from 1820 to 1998 the overall GDP per capita of the world increased by a factor of 8.6, with different regions experiencing widely different increases, ranging from a factor of 3.3 in Africa and India and 5.5 in China, to around 10 in Western Europe, 21.7 in the US and 30.5 in Japan.Mr. W-B's previous piece begins:
“Previous technological innovation has always delivered more long-run employment, not less. But things can change,” is the tag line of an article on the future of jobs in the January 18 issue of The Economist.
“Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers.”
“Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently,” the article adds . “They start from the observation that, across the rich world, all is far from well in the world of work. The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant. In America the real wage has hardly budged over the past four decades. Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade.”
Martin Wolf, associate editor and chief economics commentator at the Financial Times focused on these issues in a February 4 FT article. The article was inspired by the recent publication of The Second Machine Age by MIT’s Erik Brynjolfsson and Andy McAfee. The machines of the industrial economy made up for our physical limitations, - steam engines enhanced our physical power, railroads and cars helped us go faster, and airplanes gave us the ability to fly. The machines of the emerging digital economy, are now making up for our cognitive limitations, augmenting our intelligence and our ability to process vast amounts of information.
They are now being increasingly applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans....MORE
Some Puzzling Questions about Innovation in the Digital Economy
This semester I am teaching the innovation half of a course on Entrepreneurship and Innovation at NYU’s new Center for Urban Science and Progress (CUSP). Teaching forces you to take a fresh look at the subjects you are covering, so I find myself revisiting questions I’ve long been thinking about: What is the essence of innovation in the digital economy and how does it differ from the industrial age innovation of the past two hundred years?...MOREThere was a time when the hot new buzzword in academia was 'multidisciplinary'.
And then there's Irving who's pretty much the embodiment of the concept.
For some reason I think he and the FT's Izabella Kaminska would get on famously.
