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1 MIT Initiative on the Digital Economy
The Second Machine Age
Erik Brynjolfsson
MIT Sloan School
Director, MIT Initiative on the Digital Economy
@erikbryn
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The Second Machine Age
2
Changing the world requires two things: • Physical Power: move or transform things • Mental Power: decide where and how
Industrial Revolution = Physical Power • Steam engine (and Internal combustion engine, Electricity) • Mostly a complement to humans
Second Machine Age = Mental Power • Computers, Software, Big Data, Machine Intelligence • Complement or substitute?
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State of Understanding, 2004 Uniquely Human Abilities - Autonomous mobility and fine motor
control - Language and complex communication - Pattern matching and unstructured
problem solving
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Machine Intelligence Interacting with physical world
• Fine and gross motor control • Vision and other senses
Language • Voice recognition • Natural language processing • Creating narratives
Problem Solving • Answering unstructured questions • Rule based analysis • Pattern recognition and classification
We’re in the midst of the greatest “one-time” event in history!
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Interacting with physical world
• Fine and gross motor control • Vision and other senses
Language • Voice recognition • Natural language processing • Creating narratives
Problem Solving • Answering unstructured questions • Rule based analysis • Pattern recognition and classification
Machine Intelligence
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Siri Voice recognition
Lionbridge Translation
Narrative Science Authoring News Stories
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Machine Intelligence Interacting with physical world
• Fine and gross motor control • Vision and other senses
Language • Voice recognition • Natural language processing • Creating narratives
Problem Solving • Answering unstructured questions • Rule based analysis • Pattern recognition and classification
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The Digital Frontier
Accuracy and Questions Answered on Jeopardy! 100%
90%
80%
70%
60%
50%
40%
30%
20%
10% 0%
0% 20% 30% 40% 50% 60% 70% 80% 90% 100%
10%
Percent Answered
Acc
urac
y
11/2010 04/2010 10/2009 05/2009 12/2008 08/2008 05/2008
12/2007
12/2006
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The Digital Frontier
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The Digital Frontier
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What does this mean for the economy?
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The Bounty
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$300 BILLION PER YEAR
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GDP, Profits, Investment, and Employment
Leve
l of G
DP,
Pro
fits,
and
Inve
stm
ent (
Jan-
95 =
100
)
Trends in US GDP, Profits and Investment
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GDP, Profits, Investment, and Employment
Empl
oym
ent-P
opul
atio
n R
atio
Leve
l of G
DP,
Pro
fits,
and
Inve
stm
ent (
Jan-
95 =
100
)
Trends in US GDP, Profits, Investment, and Employment
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WHAT’S GOING ON?
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“Digital technologies change rapidly, but organizations and skills aren’t keeping pace.
As a result, millions of people are being left behind.”
Our View
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The Great Decoupling
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The Hard Truth
Digital progress makes the economic pie bigger.
But there is no economic law that everyone, or even most people, will benefit.
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Three Sets of Winners and Losers 1. High Skilled vs. Low & Mid Skilled Workers
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Skill Disparities
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Polarization of the Labor Market Mid-wage workers have been hit hardest in both
employment and wages
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Three Sets of Winners and Losers 1. High Skilled vs. Low & Mid Skilled Workers
2. Capital vs. Labor
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Capital vs. Labor
Corporate Profit as % of GDP
Labor Share of GDP 96
99
102
105
108
111
114
117
120
0
2
4
6
8
10
1947 1958 1969 1980 1991 2002 2013
Labo
r Sha
re (2
009
= 10
0)
Corp
roat
e Pr
ofits
as %
of G
DP
Corporate Profits After Tax as % of GDP & Non-Farm Labor Share, 1947-2013
Source: research.stlouisfed.org
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Three Sets of Winners and Losers 1. High Skilled vs. Low & Mid Skilled Workers
2. Capital vs. Labor
3. Superstars vs. Everyone Else
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Superstars
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WHAT IS TO BE DONE?
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The New Grand Challenge • Digital technologies will continue
to accelerate.
• Our skills, organizations and institutions are lagging.
• Business as usual won’t solve this problem.
We need to reinvent our economy and society to keep up with accelerating technology
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The New Landscape
• What challenges and opportunities do you see?
• What are your concerns and questions?
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The Initiative on the Digital Economy
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To learn more, visit:
http://digital.mit.edu/erik
http://digital.mit.edu/ide
http://secondmachineage.com