Bill Gatesâ€™s Paradox

Copyright © Erik Brynjolfsson

Erik BrynjolfssonMIT Center for Digital Businesshttp://digital.mit.edu/erik

MIT Information Technology ConferenceApril 24-25, 2012

Generous support for this research was provided by the NationalGenerous support for this research was provided by the NationalScience Foundation and the MIT Center for Digital Business.Science Foundation and the MIT Center for Digital Business.Copyright © 2012 Erik Brynjolfsson.

How the Digital Revolution is Accelerating Innovation,Driving Productivity and Irreversibly transformingEmployment and the Economy

Bill Gates’s Paradox:

“Innovation is faster than ever before…

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… yet Americans are more pessimisticabout the future.”

- NewYork Times, March 4, 2012


The Bounty: Productivity is Accelerating

Copyright © 2011 Erik Brynjolfsson 3

U.S. Job Creation

Source: BLS4Copyright © 2011 Erik Brynjolfsson


The Spread: Individuals

5

18%28%

35%43%

65%

278%

0%

50%

100%

150%

200%

250%

300%

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile 81st-99thPercentiles

Top 1 Percent

Percent Change

Growth in Real After -Tax Income, 1979 -2007

Source: Congressional Budget Office


Business Cycle

“All the facts suggest thathigh unemployment inAmerica is the result ofinadequate demand—fullstop”

7Copyright © 2011 Erik Brynjolfssonand Andrew McAfee

Stagnation

“We have been living offlow-hanging fruit for atleast three hundredyears. ... Yet during thelast forty years, that low-hanging fruit starteddisappearing… we are ata technological plateau…That’s it. That is what hasgone wrong.



Our View

“Digital technologieschange rapidly, butorganizations and skillsaren’t keeping pace.

As a result, millions ofpeople are being leftbehind. Their incomes andjobs are being destroyed,leaving them worse off …than before the digitalrevolution..”

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Computers are getting dramatically cheaper andmore powerful

Copyright (c) Erik Brynjolfsson

IT Investment Over Time

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What are the Economic Consequences ofthis Rapid Digitization of the Economy?

GDP per capita vs median Income



Three Sets of Winners andLosers1. High Skilled vs. Low Skilled workers

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Three Sets of Winners andLosers1. High Skilled vs. Low Skilled workers

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Skill Disparities

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Three Sets of Winners andLosers

1. High Skilled vs. Low Skilled workers2. Superstars vs. Everyone Else

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Superstars

Source: Piketty and Saez


Three Sets of Winners andLosers

1. High Skilled vs. Low Skilled workers2. Superstars vs. Everyone Else3. Capital vs. Labor

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Capital

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… vs. Labor

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Our View

“Computers are now doing manythings that used to be the domainof people only. The pace andscale of this encroachment intohuman skills is relatively recentand has profound economicimplications.

Perhaps the most important of theseis that while digital progressgrows the overall economic pie,it can do so while leaving somepeople, or even a lot of them,worse off.”



State of Understanding, 2004

Human Abilities- Pattern Matching- Complex Communication

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The bakery truck driver is processing a constantstream of [visual, aural, and tactile] informationfrom his environment… to program this behaviorwe could begin with a video camera and othersensors to capture the sensory input. Butexecuting a left turn against oncoming trafficinvolves so many factors that it is hard to imaginediscovering the set of rules that can replicate adriver’s behavior.


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The Digital Frontier

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Second Half of the Chessboard

1958 + 32 * 1.5 = 2006

We enter second half of thetechnology chessboard?

US BEA starts trackingIT

Moore’s Law doublingperiod (years)

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The Opportunity

Digital technologies will continue to accelerate.Our skills, organizations and institutions are lagging.Business as usual won’t solve this problem.

We need to Race With Machines, not against them

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Education and EntrepreneurshipAttack both sides of skill/work mismatch

1) Education Fundamentally transform education and skill development

K - 12, University, Vocational and on-the-job

• Kahn Academy, MITx, Udacity

Invest more: higher teacher salaries

Increase accountability: separate teaching from evaluation and certification

2) Entrepreneurship Entrepreneurs lead creative destruction

• Ford, Edison and others created new work as American left farms

Lower barriers to business formation

Create templates like eBay and app economy

• Instagram was the work of 15 people working 15 months, leveraging existing toolsand platforms

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Every generation has perceived the limits to growththat finite resources and undesirable side effectswould pose if no new ... ideas were discovered. And every generation has underestimated thepotential for finding new … ideas. - Paul Romer

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To learn more about related research,please visit:

http://digital.mit.edu/erik

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The Center for Digital Business

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MitsubishiBTCiscoGeneral MotorsGoogleHewlett-PackardIntelMcKinseySAPSASSuruga Bank

Mission StatementTo be the leading academic source of innovation in management

theory and practice for digital business

Research Groups• Digital Marketing

• Digital Productivity

•Digital Services

Key DeliverablesResearch

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Networking Events

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Bill Gatesâ€™s Paradox