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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

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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  Abili5es  -­‐  Autonomous  mobility  and  fine  motor  

control  -­‐  Language  and  complex  communica5on  -­‐  PaCern  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

Ø 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

LionbridgeTransla/on  

Narra/ve  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

Accu

racy

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

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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)  

Corproate  Profi

ts  as  %

 of  G

DP  

Corporate  Profits  AKer  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 andinstitutions are lagging.

• Business as usual won’t solvethis problem.

Ø We need to reinvent our economy and society to keep up with accelerating technology

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The Initiative on the Digital Economy

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The New Landscape

• What challenges and opportunities do yousee?

• What are your concerns and questions?

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To learn more, visit:

http://digital.mit.edu/erik

http://digital.mit.edu/ide

http://secondmachineage.com