Erik Brynjolfsson, Andrew McAfee – The Second Machine Age

In 1996 the U.S. government developed the then fastest supercomputer in the world. The project cost about $55 million and occupied a floor space of about 80 percent of a tennis court. The machine reached the power of 1.8 teraflops. Just nine years later another computer hit this benchmark. The difference: It could fit into every living room and cost only about five hundred dollars. The computer was the PlayStation 3, developed by Sony.

This is just one example which displays the rapid technological change of this time. But what are the characteristics of this change? What are the positive effects, what the negative ones? What can an individual do to be prepared for the future? This are some of the questions Erik Brynjolfsson and Andrew McAfee want to address in their book The Second Machine Age. Both are scientists at the MIT with their main research focus on digital development.

In the eyes of the authors the First Machine Age (also known as the Industrial Revolution) started with the invention of the steam engine in the 18th century. This invention led to a rapid change in human life, which can be seen in the rapid growth of the human population and in human social development. With further inventions like factories, railways and electricity the mechanical power of mankind was enhanced dramatically. The Second Machine Age started in the 20th century with the invention of microchips and computers. It differs from the First Age because of the enhancement of mental capabilities instead of muscle power. Computer nowadays are able to beat the best humans in games like chess or in quiz shows like Jeopardy. And just like the invention of the steam engine marked the beginning of an essential change, computers are just the beginning of the Second Machine Age with many new inventions to come.

The Second Machine Age is characterized by bounty and spread. Bounty defines the digitalization of nearly everything. Digital Products are easier to access and distribute than their physical counterparts, just think about information (e.g. Wikipedia), videos (e.g. YouTube) or books (e.g. e-books). Consequences of bounty are more and cheaper products that are easier to access for everyone. Spread describes the growing differences among people, in income, wealth and other important circumstances in life. An example that is shown in the book is the differences between Kodak and Instagram, now part of Facebook. At one point in time, the company Kodak with focus on analog photography employed 145,300 people. Today the company is filling for bankruptcy. It took fifteen people to create the app Instagram, which was sold for over $1 billion to Facebook. Facebook creates several times more market value than Kodak ever did by only employing about 13,000 people (2015). Because products become digital, are easier to access and distribute, a company can be run by tremendously less employees which result in job losses for an economy. Consequences are less employed people and economic growth which is not displayed in the GDP, because all digital products are not produced physically (and therefore contributing significant less to the GDP).

The authors argue that spread explains the real reason of growing inequality in the U.S. and other developed countries. This automatically leads to winners and losers. Winners are a few people that can become superstars overnight. Examples might be Bill Gates, Mark Zuckerberg or Joanne K. Rowling. Because of digitalization and globalization their products can reach billions of customers around the globe, making them rich and famous. But not everyone is profiting from digitalization. In the app economy only 4 percent of developers are making over a million dollars. Most of them, 75 percent, are only earning less than thirty thousand dollars a year. People with lower graduation will find less and worse paid jobs, because of machines doing their tasks. But also jobs that require higher education aren’t spared from being replaced by machines. When a simple and cheap app like TurboTax can do one’s tax computation in a satisfying way, a lot of (human) tax consultants may not be needed anymore.

There are solutions to the problems. At the individual level one should accept that it is not a battle of humans versus computers. Rather than that, individuals should learn to work together with machines and focus on their strengths. Fields in which humans still have comparative advantages above machines are ideation/innovation, large-frame pattern recognition, complex communication and professions which involve a lot of sensorimotor work (e.g. cooks, gardener, repairmen). They should also be able to work and interact with computers and all that goes with it.

At the collective level good policy should focus on maximizing the bounty while minimizing the spread. Recommendations involve more spending on education and science, schools and universities that encourage students to think innovative, promoting startups, upgrading the infrastructure and attracting well-educated foreigners. While it would be favorable if people still could be supplied with enough jobs, this might not be always possible anymore. In that case a basic income (or a negative income tax) can help people to live a life with dignity especially if they aren’t able to find fitting jobs.

The Second Machine Age is a well-written book which comes up with a lot of thought-provoking ideas. While the first chapters involve too much covert advertisement in my view, the rest of the book compensates for this fact. The authors present a reasonable alternative to the globalization thesis with their own thesis that in the last decades a lot of jobs in developed countries were lost because of the spread. If this theory is the main exploration remains to be seen. A plus point is that the authors are also presenting ideas for the solution of the upcoming challenges.

Brynjolfsson, Erik/McAfee, Andrew (2014): The Second Machine Age. Work, Progress, and Prosperity in a Time of Brilliant Technologies, Norton & Company, New York.

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