Beyond the Technological Revolution
Second Machine Age
Second Machine Age or Fifth Technological Revolution? (Part 7). The limits of the Brynjolfsson and McAfee policy recipes: Proposals on science, technology and infrastructures
Second Machine Age of Fifth Technological Revolution? Different interpretations lead to different recommendations – reflections on Erik Brynjolfsson and Andrew McAfee’s book The Second Machine Age (2014)
Part Seven: The limits of the Brynjolfsson and McAfee policy recipes: Proposals on science, technology and infrastructures
In this post I continue to discuss the policy recommendations in Erik Brynjolfsson and Andrew McAfee’s influential book, The Second Machine Age (2014), examining their proposals in the light of the richer understanding of the social assimilation of technological revolutions discussed in this series. The previous post focused on human capital: education, employment and ‘brain gain’. This one looks at their suggestions in the fields of science, technology, innovation, production and infrastructure, analysing the limitations of their framework and putting forward ideas for a more systemic approach to policy change.
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Technology and production: research, innovation and infrastructures
SCIENCE: fund basic research only or act as an innovative ‘entrepreneurial state’?
As is customary among orthodox economists, Brynjolfsson and McAfee claim that the role of government is to fund ‘basic’ research, i.e. the scientific foundation for technologies, and let the private sector do the rest.
“After rising for a quarter-century, U.S. federal government support for basic academic research started to fall in 2005. This is cause for concern because economics teaches that basic research has large beneficial externalities. This fact creates a role for government, and the payoff can be enormous” (p.217).
Yet when making their argument for increased funding in the pure science direction, Brynjolfsson and McAfee actually include many government-funded technologies, which only received private investment when they were already at the market development stage, far down the line from basic research. This was the case with internet; with GPS and even SIRI. The same is happening in the pharmaceutical sector. As has been recently argued forcefully by Fred Block (2011) and Mazzucato (2013); the truly risky research projects tend to be initially funded by government and taken to a point where they are ripe for use by the potential Steve Jobs’ of the private sector. Even far back, during the ‘Industrial Revolution’ at the end of the 18th century, the British government handed over production of most naval ships to the private sector but kept to itself the responsibility – and risk – of constructing the biggest and most complex ones.
This is currently also true of the successful policies of the Chinese government. In order to climb up from low-cost assembly industrialisation, they are investing heavily in ‘riskier’ green and artificial intelligence technologies, from the early scientific research to the finished ‘innovation’. Today’s orthodox economists have decided to be blind to this reality, in order that their image of the world fits their models – but experienced engineers like the authors of the Second Machine Age do not need to delude themselves. They know perfectly well that it was government procurement that fuelled the exponential development of microelectronics – the cheap input behind the entire ICT revolution – as well as the internet itself.
INNOVATION: Prizes for individual innovations or give a prize to all potential innovators by tilting the playing field?
Brynjolfsson and McAfee do give a role to government in promoting innovation through competitions that result in big prizes for the winner, as the US Defence Department (DARPA) has done with self-driving cars – a gambit that hearkens back to the years leading up to the big bang of Industrial Revolution, when the British Parliament set up an award to encourage the development of the marine chronometer – an invention that would revolutionise shipping and therefore trade. Although this is another prescription at the fringes of the problem, such encouragement is a good idea and there should be more of it. However, wouldn’t a bigger prize be the enablement of massive profit-making opportunities to all potential entrepreneurs and innovators?
Their list of conditions for successful innovative competitions does include “inspire risk-taking by offering a level playing field” (p. 218-19). In this they pick up another one of the favourite recipes of orthodox economists. However, there is a huge difference between a ‘level’ playing field, meaning that all have equal opportunities to compete, and a ‘directionless’ playing field meaning that there is no convergence and no shared synergies when investing or innovating along common routes. That is what the Victorians enabled with urbanisation and the opening of world markets; what the US and German governments provided from the 1870s by protecting agriculture and their infant industries; and what Western government provided for the post war boom with suburbanisation and the Cold War, as directions for innovation in mass production and frontier technologies. The playing field was level for competition, but it was both defined and tilted! We now have a global opportunity to provide a context that both in taxation and regulation is strongly favourable to innovation in the productivity of resources and energy, in revamping the built environment, in intangible products, in bio-materials, in healthcare, in local production, in the creative economy, the sharing economy and other elements of what can be called ‘smart green growth’ (see also the section on infrastructure, below).
Indeed, the emerging and developing countries will soon confront resource and environmental limits if they are to copy the ‘American Way of Life’. They will need to innovate in more sustainable directions and, as they do, they will also be creating opportunities for the advanced countries to provide engineering, education, equipment and infrastructures redesigned to adapt to climates and cultures in a new digital plus green world. Promoting full global development is another way of creating profitable opportunities for innovation and investment for the advanced countries. It can be another direction for systemic policies. I will return to the potential of ‘smart green growth’ in the context of full global development in the concluding post.
INFRASTRUCTURE: Stick with revamping the old networks or also promote the new ones?
It is rather astonishing that at the end of a book that is all about the new digital world, Brynjolfsson and McAfee list only the traditional infrastructures when arguing for infrastructural investment.
“It’s almost universally agreed among economists that the government should be involved in building and maintaining infrastructure— streets and highways, bridges, ports, dams, airports and air traffic control systems, and so on. This is because, like education and research, infrastructure is subject to positive externalities” (p. 219).