THE GOLDEN AGE OF INTELLIGENT MACHINES
Advances in affordable and powerful computing technologies are fuelling the expansion of new digital industries across the globe. Tech cities like San Francisco, Helsinki and Tokyo are strong magnets for international experts with skills that are driving up levels of innovation. Year-on-year rises in the number of patents granted show that countries at all income levels are innovating more and more. Emerging technologies in a complex of important fields such as neuroscience, energy and agriculture are demonstrating that innovation is a nucleus for human development.
When economists discuss innovation, they are talking about the development of new products and production processes that impact society. Innovation draws in knowledge that can be shared across companies, institutions and cities to create new economic growth. This in turn promotes the wellbeing of society.
Professor Alberto Galasso is an innovation economist at the University of Toronto. His research focuses on the determinants of innovative activity, the management of innovation and the functioning of markets for technology.
‘One thing that we [economists] agree on is the concept of innovation as a “public good”. In theory, investment by one firm has benefits that spill over to other firms and people in that economy… this spill-over effect also takes place across countries,’ said Galasso.
WHEN INNOVATION ECOSYSTEMS BECOME SELF-INFLATING BUBBLES
With productivity, profit and investment at an all time high, there appears to be no downside to innovation. However, the benefits are not as widely disseminated as we might expect. Intelligent machines (artificial intelligence) are expected to eliminate 6 per cent of jobs in the US in the next decade. ‘The problem isn’t the technology or the innovation’, said Galasso; ‘the problems come after the invention. It’s about how to manage the diffusion of innovation.’
A recent report by the California Budget and Policy Center shows that wealth creation over the last twenty years has been entirely captured by high-income households[1]. Of the three million homeless people in the USA, one third are in California. Where startups proliferate, those cities quickly become very expensive to live in. Economists discovered that for every $1 billion of venture capitalist investment, rents increased by $100 per month for a two-bedroom apartment[2]. San Francisco shows just how innovation ecosystems quickly become self-inflating bubbles.
PUSHING AGAINST PROGRESS
The dilemma for states is the need to stimulate innovation for growth, while at the same time to mitigate the impact of digital disruption on vital infrastructure such as industry, social welfare and national security.
Donald’s Trump’s victory in the 2016 US Presidential Elections, following Britain’s historic decision to leave the European Union, represents a mass pushback by voters against globalisation. Leaders in the democratic west who have been overconfidently pursuing the status quo are now being forced to think differently about liberal policies.
Voters have blamed liberal trade policies for the loss in manufacturing jobs, but there has been no mention of digital disruption, no smashing up of machines. As Galasso puts it, ‘you can vote against trade, but not technology. It is easy for us to say we are not going to trade with this or that country’.
The free movement of capital, goods and people is considered one of the great achievements of the post war era. Globalisation created the conditions for the proliferation of small, agile companies offering niche digital services within a “business ecosystem” of multinational giants. It has also caused a shift in economic and industrial power to the Asia Pacific region.
COULD LIBERAL DEMOCRACIES LEARN FROM ILLIBERAL STATES?
China is perhaps the world’s greatest beneficiary of globalisation outside the liberal west, and is a rapidly growing Internet power. Its reputation is as an imitator of western technology, rather than an innovator. However, the success of homegrown tech companies such as Alibaba, WeChat, Huawei and Xiaomi has enabled China to catch up with its competitors, Facebook and Amazon.
The country is making strides in protecting Intellectual Property and demonstrating a different model for innovation based on ‘hybrid structures’ that allow access to ‘capital and talent’ from outside the country. It is tipped to become the world’s next ‘innovation hotbed’. Might it be the case that the west could learn from an illiberal state how best to manage innovation?
Karsten Luc is the Managing Director of Think Asia Group[3]. He advises on the development and adaptation of western technologies in China. He said if there is one thing western leaders can learn from China, it is ‘to think big'.
‘China is benefiting from its experiences in dealing with solutions concerning big data. These include social media, E-commerce financial transactions or online peer-to-peer lending. But it’s not just the technology that makes E-commerce companies such as Taobao or JD.com successful; it’s the offline infrastructure’, said Luc.
Uber Technologies, the worldwide online taxi network company, has been a major disruption to the traditional taxi industry. In China taxi-calling apps were integrated into the existing taxi industry from the start. ‘Chinese companies are skillful at adapting existing infrastructures rather than just creating new ones, as did Uber’, said Luc.
A ROBUST STRATEGY FOR INFRASTRUCTURE INVESTMENT
Kent Deng, professor in Economic History at the London School of Economics said, ‘The west is often overconfident in terms of growth and development. Also, companies are dictated by profit-making. China plays a different game of longer-term and lower returns. It is for China's well-being in the long run.’ He added, ‘China has been quite clever in identifying investment areas which the west does not want to touch such as sport stadiums and roads. These projects do not make quick returns in monetary terms but very quick returns in non-monetary ways.’
As a concrete example, how should we prepare for the coming of driverless cars? According to Business Insider Intelligence, by 2020 it is estimated there will be ten million driverless cars on the world’s roads[4]. Firms will substitute people with machines, leading to lower costs with fewer errors and accidents. On the other hand, professional drivers will lose their jobs.
The ever-present challenge for policymakers is to come up with creative strategies for introducing this technology which reduce the negative impact on those for whom driving is their livelihood. Given the dramatic, recent push against globalisation and the consequent risk of failing growth, might it be time for the west to consider much longer-term, infrastructural strategies?
Written by Bianca Pascall