Driverless cars, industrial robots, 3D organ printing and operating chess-playing computers – a brave new world of endless opportunities or a death knell to our labour force and way of life? We are said to be in the midst of a third industrial revolution, in which the exponentially increasing power of computers is fundamentally changing our economic system. The cheerleaders of the new age claim this wave of disruptive technology is shifting traditional models of capitalism in ever more democratic ways. But there are darker forces at work, too. With the combination of genetics, nanotechnology and robotics comes the threat of biological warfare, intelligent computing brings the ever-lurking danger of cyber security hacks and robots on factory floors are ousting humans. Not everyone benefits from the rise of the robots and the third industrial revolution, so in the new robots wars who wins?
The books
Erik Brynjolfsson and Andrew McAfee
The Second Machine Age: Work, progress and prosperity in a time of brilliant technologies
Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy, and principal MIT research scientist Andrew McAfee review the ways in which digital technologies are transforming our economy. This book is a speedy romp through the opportunities offered by digitisation and the uneven spread of its bounty. Mark Robinson says: “According to Brynjolfsson and McAfee we are moving through an era of technological change that promises to have as profound an influence on human affairs as that of earlier epochs governed by the steam turbine and the electric light. The Age of Digitisation is upon us and has become so pervasive that it is transforming our lives in ways that we either fail to fully recognise, or refuse even to admit."
Jeremy Rifkin
The Zero Marginal Cost Society
Jeremy Rifkin is a senior lecturer at The Wharton School and this fairly utopian vision of our technological future embraces themes from big data to the Internet of Things and sharing versus ownership. Rifkin demonstrates the ways in which the productive power of technology is driving the marginal cost of goods and services to zero, causing a “paradigm shift” in capitalism. His Third Industrial Revolution is a period in which technology has fostered a new form of economy, disrupting our profit-motivated market system and embracing low-cost renewable energy. This is an optimistic, rigorous and philosophical debate about the future of (and maybe end of) capitalism and the way in which tech upstarts are fundamentally changing our economic and social lives.
Martin Ford
The Rise of the Robots: Technology and the threat of mass unemployment
Alex Newman says: “Technological innovation is now proceeding at such a pace that a future of mass unemployment is a distinct possibility. Martin Ford’s survey of this upheaval – a piece of futurology equal parts sober economic analysis and dystopian nightmare – is replete with examples of those innovations, and blunt assessments of their likely impact. Software-based automation, artificial intelligence and robotics are the new desktop computers, globalisation and outsourcing. Some of this is relatively predictable. But much of this disruption is likely to be sudden and unevenly spread, and unlike the technological advances we may be used to, may not empower other workers.” Silicon Valley entrepreneur Ford tackles these issues with vigour in this solid analysis.
The Third Industrial Revolution
We are in the midst of a Second Machine Age and a Third Industrial Revolution defined by a shift from mechanical and electronic technology to a digital age, according to these authors. Just like the first and second industrial revolutions, the Second Machine age is driving seismic changes in the interaction between man and machine and global flow of goods and capital. To understand this revolution we need to trace it back to its roots, at the birth of the computer and development of the internet, and look at the key drivers of change. The first of those lies in Moore's Law. If the Second Machine Age has a mantra, it is Moore's Law - the observation made by Intel co-founder Gordon Moore in 1995 that the number of components in an integrated circuit had been doubling each year since invention in 1958. That might not sound thrilling but the exponential growth in computing power means that in the next 24 months we will add more computer power than in all of previous history. And the speed of that explosive growth is happening so fast as to drive down the costs of fantastical technology and bring it into our everyday lives at phenomenal speeds. Moore's Law is behind the fact that "today hundreds of millions of people are equipped with relatively cheap smart phones with thousand of times more computing capacity than the most powerful mainframe computers of the 1960s", according to Mr Ford. Consider that in 2000 one gigabyte of hard-drive space cost around $44. Just 12 years later that cost has plunged to 7¢. Just consider IBM's first commercially successful mass-produced business computer, launched in 1959 the IBM 1401 was five feet high and three feet wide and came with 4,096 characters of memory, at a rental cost of $30,000. In 2012 the world's cheapest computer, the Rasberry Pi, went on sale for $25.
With robots like these, who needs humans?
We are in the midst of a Second Machine Age and a Third Industrial Revolution defined by a shift from mechanical and electronic technology to a digital age, according to our three authors. Just like the first and second industrial revolutions, the Second Machine age is driving seismic changes in the interaction between man and machine and global flow of goods and capital. To understand this revolution we need to trace it back to its roots, at the birth of the computer and development of the internet, and look at the key drivers of change. The first of those lies in Moore’s Law. If the Second Machine Age has a mantra, it is Moore’s Law – the observation made by Intel co-founder Gordon Moore in 1995 that the number of components in an integrated circuit had been doubling each year since invention in 1958. That might not sound thrilling but the exponential growth in computing power means that in the next 24 months we will add more computer power than in all of previous history. And the speed of that explosive growth is happening so fast as to drive down the costs of fantastical technology and bring it into our everyday lives at phenomenal speeds. Moore’s Law is behind the fact that “today hundreds of millions of people are equipped with relatively cheap smart phones with thousand of times more computing capacity than the most powerful mainframe computers of the 1960s”, according to Mr Ford. Consider that in 2000 one gigabyte of hard-drive space cost around $44. Just 12 years later that cost had plunged to 7¢. Just consider IBM’s first commercially successful mass-produced business computer: launched in 1959 the IBM 1401 was five feet high and three feet wide and came with 4,096 characters of memory, at a rental cost of $30,000. In 2012 the world’s cheapest computer, the Raspberry Pi, went on sale for $25.
With robots like these, who needs humans?
Computers have the ability to do things they could never do before and are posing a threat to our jobs as a result. Software-based automation, artificial intelligence (AI) and robotics are replacing desktop computers, globalisation and outsourcing in the world of work. The incursion of androids and intelligent computers into offices and robots onto factory floors has already made a swathe of the labour force redundant. The digital displacement of the human worker began in 1960, with the introduction of the computer and industrial robots onto the factory floor. Those early machines were pre-programmed machines trained to do repetitive, ordinary tasks doing dull, dirty or dangerous work. But robots are now encroaching on the areas that humans had dominion over. A paradox in robotics and AI means that while it is comparatively easy to teach computers the high-level reasoning and pattern recognition of an intelligent human, the sensorimotor skills of a three-year old require enormous levels of computation. That inconsistency (Moravec’s paradox) has meant that segments of the workforce have not been under threat from artificial intelligence. But Boston-based company RethinkRobotics has been smashing Moravec’s paradox with Baxter, a new robotic manual worker which, unlike traditional industrial robots, can be taught to perform a variety of tasks quickly and costs far less than a typical US manufacturing worker. Boston Dynamics, another New England start-up, has created the Big Dog – a giant metal mastiff with long legs able to traverse hills and more in order to support American troops in the field and more intelligent, flexible robots are on the way. The Hackett, a back-office employment consultant, estimated that 2m jobs lost in the US and the EU between the onset of the Great Recession and 2013 were in human resources, finance, IT and procurement and more than 50 per cent of those were the direct result of technological change and automation. That is no surprise, considering that sophisticated robots are more productive than human workers and also cheaper. According to Mr Rifkin, between 1995 and 2012 22m manufacturing jobs were eliminated from the workforce but productivity had increased by more than 30 per cent. According to Mr Ford: “The machines are coming for the high-wage, high-skill jobs as well.” Pattern recognition software has grown so sophisticated it is mounting a challenge to high-level workers including radiologists, accountants, middle managers, graphic designers and more. The incursion of automation into legal document reading, and even the writing of snappy prose for sports networks such as The Big Ten Network in the US is proving that no industry is safe.
However, it pays to remember that intelligent computers and robots are no autonomous alien army (or not yet at least). Important areas of human and economic life remain the preserve of humans. Messrs Brynjolfsson and McAfee say we need to develop skills that complement computers rather than compete with them. Creative pursuits such as writing a novel or composing a piece of music will not be under threat, they say. “We’ve never seen a truly creative machine, or an entrepreneurial one, or an innovative one. We’ve seen software that could create lines of English text that rhymed, but none that could write a true poem.” And as robots and computers increase in intelligence, so there opens up a larger number of complementary jobs in high-level analytical fields to work with them and design new forms of artificial intelligence.
But we are doubtless edging ever closer to that futuristic sci-fi staple fantasy – the development of autonomous machines with super-human intelligence. Scientists, futurists and science fiction writers alike refer to this event as the technological singularity – a physics term for the point in a black hole at which all laws of physics disintegrate. Mathematician Vince Vingue came up with this concept in technology, writing in 1993: “Within 30 years, we will have the technological means to create superhuman intelligence. Shortly after, the human era will be ended.”
| Alphago and Go - an AI tipping point Last month a face-off between a champion and computer over Asian board-game Go proved a watershed moment for artificial intelligence and machine learning. Alphago, a programme built by Google subsidiary DeepMind to beat 33-year-old champion Lee Se-dol at Go, which involves positioning coloured stones on a 19-by-19 board in order to surround and capture opponent pieces. Unlike chess, in which a player can make 28 possible moves on their first go, a Go player has 361 possible options in just one go. There are said to be more possible Go games than there are atoms in the universe. In 1996 IBM’s chess-playing computer Deep Blue won against grandmaster Garry Kasparov, partly by sifting through the entire range of possible moves – the machine could evaluate 200m possible moves a second. But Alphago does not have that luxury. Instead it learns partly through practising alone and teaching itself. Alphago’s victory on 15 March 2016 proved that computers can not only process potential choices and patterns faster than humans but can actually learn by trial, too, taking artificial intelligence one step closer to the processes associated with the human brain. |
Digitisation and big data - the second force of the third industrial revolution
And there is something bigger at work here than a sci-fi battle between workers and robots. What if the Third Industrial Revolution and the ‘Rise of the Robots’ isn’t just changing our workplace but our entire economic system? In Mr Rifkin’s eyes the rise of companies such as Uber and Airbnb, predicated on the sharing of goods and services across a data-fuelled mobile network, are symptoms of a new economic age. They demonstrate a shift from the traditional capitalist model which prizes ownership towards a new sharing economy based instead around access and goods and services made almost free by technological advance. The end of capitalism might sound like a big claim to lay at Uber’s door. But it is undeniable that the digitisation of absolutely everything and spread of big data have resulted in the disruption of traditional business models.
The explosion of big data and the digitisation of everything is the second force driving the Second Machine Age (or Third Industrial Revolution). The exorbitant production of data and sharing of that data between everyday physical objects, devices, buildings and vehicles (the Internet of Things) are leading to a proliferation of new types of consumer and company, say the authors. In 2007 there were 10m sensors connecting every type of human contrivance to the Internet of Things. In 2013 that number was set to exceed 3.5bn. By 2030 it is projected that 100 trillion sensors will connect to the Internet of Things (IoT). The volume of data now surging around our networks is incomprehensible and exponentially increasing. By one estimate the total amount of data now stored globally is measured in thousand of exabytes – each exabyte equal to 1bn gigabytes – and that figure is subject to its own Moore’s Law. Digital information has close to zero marginal cost of production. Unlike material goods in the past, digital goods can be replicated and viewed or used by millions of people at once. “Digital information is not ‘used up’ when it gets used, and it is extremely cheap to make another copy of a digitised resource,” say Brynjolfsson and McAfee. Unlike a physical book, an electronic one can be read by 10 people at once, and costs nothing to replicate online.
The Internet of Things and spread of Big Data is leading to a proliferation of new stable of businesses which includes companies such as Google (US:GOOG) acquisition Nest, which controls heating from a mobile phone, and Apple Watch. It is also contributing to the development of a new sharing economy, or peer economy, predicated on the sharing of goods and services over virtual networks. According to Mr Rifkin’s (arguably optimistic vision) the spread of data is enabling people to quickly respond to requests for goods and services on the move and access over ownership is fast becoming the norm for Millennials. The likes of Uber, Airbnb and HomeAway are tapping into this disruptive trend, which he argues demonstrates a disruption of the traditional capitalist production and consumption model. In 2012 Airbnb bookings were growing at a rate of 500 per cent per year and just three years after launch was expanding the rooms on its site by an astounding 1,000 rooms a day. Mr Rifkin uses the car – a “signature item” of a private-property fuelled capitalist society as a key example. He cites recent evidence from 11 car sharing networks which found that 80 per cent of members sampled who owned a car before joining the network sold it afterwards. A process that started with the digitisation of online music streaming has led to the creation of new business models which benefit those who can tap into a major swathe of new tech upstarts jostling for position in a new environment.
But there are clear winners in this sharing economy and the Internet of Things. The internet is not a democratic ‘common’ in the true sense of the word but a space being carved up into lucrative territories by corporate giants including Twitter (US:TWTR), Facebook (US:FB), Amazon (US:AMZN) and others. Airbnb was valued at over $1.5bn in December last year and Tim Wu, law professor at Colombia University, has asked why the “internet looks increasingly like a Monopoly board”. “Most of the major sectors of the internet today are controlled by one dominant company or oligopoly,” he writes. And those companies are profiting in a big way. Facebook – which still retains over 45 per cent market share – doubled its net income in the fourth quarter of 2015 and in 2012 Google had already topped $50bn in revenue.
So when it comes to chess, robots might be winning. But in the wider world, the real winners will be those who successfully tread the line between artificial and human intelligence. Designing intelligent computers is hard but not as hard as working out what to do with them, how to benefit and how to protect ourselves from the threats they bring. “Technology is not our destiny,” say Brynjolfsson and McAfee, “We shape our destiny.”
Designing intelligent robots is not the real challenge, deciding what to do with them, and how to benefit will be.
| 3D printing - from mass production to production by the masses 3D printing could transform consumers into producers – putting the tools of the means of production into people’s homes and driving down the cost of production even further. All four authors put 3D printing at the heart of new technologies. The University of Bath has already created the Rep Rap, the first open-source 3D printer able to replicate itself by making its own parts. Other devices include the Cupcake, Thing-O-Matic and the Replicator. And now 3D printing is even moving into our human bodies. San Diego-based Organovo, a company specialising in bio-printing has already fabricated experimental liver and bone tissue by 3D-printing material containing human cells. By 2014 the company had already produced a mini liver. The creation of organs suitable for transplant likely remains a decade in the future but the results could eventually be staggering for the tens of thousands waiting for a transplant. |
| The investment verdict Nick Train, director and fund manager at Lindsell Train Perhaps the two questions I’m most often asked by investors these days are – “Why is the economy so sluggish?” and, related, “When will it be right to sell defensive stocks and buy cyclical value?” Jeremy Rifkin’s visionary and provocative book will make you wonder whether those questions have any relevance for 21st century stock markets. His argument is that the internet, renewable energy, 3-D printing and robotics are creating an unprecedented abundance of tangible and intangible commodities. He warns this cornucopia will cause today’s profit margins in many long-established industries to collapse – because those margins are predicated on scarcity. Resist the temptation to dismiss such books as science fiction. There is real danger investors stick their heads in the sand. Even Warren Buffett has waved away the possible impact of driverless cars on his auto insurance business – suggesting their adoption is too far in the future to be a concern. But this misses a commonly ignored truth: investment time horizons are much longer than acknowledged. The ‘duration’ of a share – the period over which its earnings power is assessed – can never be known with the same accuracy as for a government bond. You will hear common complaints about the ‘short-termism’ of investors and, indeed, many market participants actually but erroneously believe they are taking a short-term view. In fact, equity investors are dealing in or holding assets that instantly reflect changing expectations about very remote future earnings. That is why still profitable industries or companies see their share prices crunched well before the secular threats actually hit their earnings. And that is why investors need to read books as stimulating as this. You can’t think too far ahead. Kristof Bulkai, fund manager at Liontrust Asset Management What do intelligent robots mean for me and other professionals in the financial services industry? Will I one day be able to ask a computer to write this response for me while I meet up with a friend for a quick drink at the pub? Will I also be able to instruct it to include some wit and humour? As a fund manager, my job is apparently under attack from ‘robo-advisors’. Given the fallacies of human emotion we are all prone to, there is an increasing trend towards leaving all dealings with money to computers. Low cost ‘robo-advisers’ such as Wealthfront and Betterment have grown significantly over the past few years as investors refuse to pay the high fees charged by traditional private wealth managers. But it is here that I side with Messrs Brynjolfsson and McAfee. New technology must be embraced, and artificial intelligence can be fully integrated into our professional lives. Even if it is a computer that ultimately determines the optimal asset allocation of a portfolio for a given risk profile using historical returns, someone needs to present and explain the methodology to the client. And while low-cost exchange traded funds are very good at replicating the benchmark, we are yet to see one that consistently outperforms it. As an investor, I actually find disruption and change exciting. For a fund focusing on the food, water, agriculture and environmental sectors, investible ideas abound. They include drones that are increasingly being used in farming, regardless of, or perhaps precisely because of the current need to cut costs and thereby gain an edge over competition. Monsanto’s Climate Corp, Dupont’s Encicra, Agrium’s Echelon and IBM’s Deep Thunder already use ‘big data’ and statistical algorithms to forecast the weather, helping farmers manage planting and irrigation decisions, thereby optimising yield. Peter Walls, manager of IC Top 100 fund Unicorn Master Trust There’s plenty of fodder to be found in The Second Machine Age for optimists and neo-luddites alike. There is no denying that the pace of technological advancement is accelerating at breakneck speed and there is plenty of scope for unintended consequences. Unfortunately, Moore’s Law doesn’t apply to equity investment and while the book inspires thought processes that relate to all sectors of the market, including those that cannot be digitised, it should not be taken as a recommendation to put a big chunk of your money into technology funds. As the recent performance of the FANGS and the Nasdaq Biotechnology Index reminds us, equities can be extremely volatile in the short term even if they prove to be highly rewarding in the long term. From a UK-centric viewpoint it remains a pity that the UK struggles to nurture so many of its technology businesses despite early leadership in areas ranging from artificial intelligence and biotechnology to crowdfunding. The investment trust structure is well suited to long-term investment and it is encouraging to see trusts such as Woodford Patient Capital, with its commitment to early-stage healthcare companies, aiming to improve the rate at which the UK’s intellectual property is converted into commercial success. Clearly, though, a great deal more long-term institutional capital will be required if the UK is to win its fair share of the bounty of The Second Machine Age. |
Criticism of the books
“Outlandish claims”
Some of Mr Rifkin’s predictions seem outlandish. He claims the increasing use of renewable energy sources such as solar and wind will eventually lead to the replacement of carbon-based energy generation, currently produced by a relatively small number of sources. He sees a collaborative economy overthrowing major companies and thinks we will all end up freer eventually because machines will take over much of the work. There are obvious holes to be pulled in Mr Rifkin’s arguments. For example, he believes that once everything can be produced for a zero margin cost, people won’t feel the need for greed and hoarding as much as they do now. Yet people could feel an even greater need to have what they can get so easily. Timescales for the replacement of carbon-based technology also do not take into account the disparity between the energy infrastructure in developed and developing economies. However, the value of the book is more in the trends Mr Rifkin pulls together to reach his predictions rather than their accuracy. Emma Powell
“Evangelism and limp conjecture”
The trouble with works devoted to technological change is that the overall tone tends to border on the evangelical; so any notes on tech-induced inequalities in the labour market are too readily trumped by visions of benign, sunlit, corporate uplands. That’s not to say the authors skirt around issues such as labour displacement and increased wage inequality but insufficient emphasis is placed on the behind-the-scenes coding and calibration that makes AI possible in the first place – all courtesy of the naked ape.
Too often, the evangelism gives way to limp conjecture. This [The Second Machine Age] is not an academic work, nor one pitched at that audience and one is compelled to question the validity of the research materials that underpin the authors’ central premise. Mark Robinson
