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The Second Machine Age and Economic Development

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Upon finishing The Second Machine Age, written by MIT's Erik Brynjolfsson and Andrew McAfee, it feels like innovation is swiftly overtaking the world -- ready or not. As Wired's Kevin Kelly puts it, "technology is overturning the world's economies, and [this] is the best explanation of this revolution yet written."

This isn't just happening in the so-called "developed" world, either. As the authors put it:

Today, people with connected smartphones or tablets anywhere in the world have access to many (if not most) of the same communication resources and information that we do while sitting in our offices at MIT...In short, they can be full contributors to the world of innovation and knowledge creation.

The heart of their argument centers on the digital nature of the current machine age -- in contrast to the first machine age, which was mechanical. As Brynjolfsson and McAfee argue, "The first machine age augmented our muscles; the second, our minds." However these changes can profoundly disrupt societies and economies. The internet, for instance, has raised productivity more slowly than it has destroyed old players in the retail and publishing industries.

Like the steam engine or electricity, the internet is a "general purpose technology (GPT)" whose effects cut across almost all sectors of the economy...But digital technologies differ from mechanical ones in a profound way: their ability to scale and improve at a breakneck speed. Unlike the steam engine, digital tech "continues to improve at a remarkably rapid exponential pace...creating even more opportunities for combinatorial innovation."

The book's arguments are compelling, but even more fascinating it's how the authors support them, taking the reader through hundreds of start-ups and innovative companies that are personify the "digitalization of everything". It feels almost like reading the science fiction of Asimov -- but this time the futuristic changes are really happening, and might have surprised even Asimov himself.

And the implications go far beyond Silicon Valley. In Latin America, for example, this is a must read book, as these trends impact every level of our economies. After more than a decade of economic stability and commodity-based growth, the region is sorely in need of innovative ways to boost productivity and move higher on the global value chain. There is a young generation of innovators in the region, in the manufacturing and service industries there is a dire need to incorporate new technologies. Government services, and education and health, in particular, face a digital deficit that is weakening their ability to deliver.

All of this also impacts our daily lives and work. In one sense, it can be the perfect age for workers with the right skills -- and integrating these technologies into education would allow everybody to create and capture more value. But on the other hand, it's one of the worst moments to be a worker with skills that can be easily replaced by new technologies.

As Reid Hoffman, a founder of LinkedIn puts it,

As massive technical innovation radically reshapes our world, we need to develop new business models, new technologies and new polices that amplify our human capabilities, so every person can stay economically viable in an age of increasing automation.

The question is -- how? How to make sure that all can benefit from this second machine age?

On this point, Brynjolfsson and McAfee are at their least optimistic. While "innovators, entrepreneurs, scientists, tinkerers and many other types of geeks will take advantage of this cornucopia to build technologies that astonish us, delight us, and work for us," many others won't be able to participate in these transformational changes. A revolution in human capital is needed to adapt workers to this innovation revolution.

The authors mention four other primary risks. The first is that as information technology integrates more and more systems, production processes, delivery networks and payments, any minor flaw can have a huge negative cascading impact. Second, as we have seen, complex systems provide opportunities for hackers and other criminals. Third, technologies can enhance the abilities of authoritarian regimes to monitor, control and repress their population. And finally, in a digital and connected world, privacy is not the default, and thus we must pursue it more intentionally.

Brynjolfsson and McAfee conclude on a philosophical note by considering that in a world where more and more work is done by machines, there is an important debate to be had about where and how humanity will apply its ingenuity. Will it ultimately unleash our energy and limit our time spent doing unsatisfying manual work? Will we spend that time exploring ideas, fostering our creativity, and spending time with family and friends? In this way, The Second Machine Age raises fascinating questions about the purpose of human life, and the proper place of work in that life.