In 1995, I published The Digital Economy, a book that became one of the first best-sellers about the internet in business. To mark its 20th anniversary, my publisher asked me to write a dozen mini-chapters for a new edition. As I revisited it, I was struck by how far we’ve come since 1995 and by how many concepts in the book have withstood the test of time. “The digital economy” term itself has become part of the vernacular.
The book was pretty breathless about the opportunities of the digital revolution, but it equally warned of some huge dangers ahead — and this dark side has indeed emerged over the last two decades. Back then, I wrote:
The Age of Networked Intelligence is also an age of peril. For individuals, organizations, and societies that fall behind, punishment is swift. It is not just old business rules but also governments, social institutions, and relationships among people that are being transformed. The new media is changing the ways we do business, work, learn, play, and even think. Far more than the old western frontier, the digital frontier is a place of recklessness, confusion, uncertainty, calamity, and danger.
Some signs point to a new economy in which wealth is even further concentrated, basic rights like privacy are vanishing, and a spiral of violence and repression undermine basic security and freedoms. Pervasive evidence exists that indicates the basic social fabric is beginning to disintegrate. Old laws, structures, norms, and approaches are proving to be completely inadequate for life in the new economy. While they are crumbling or being smashed, it is not completely clear what should replace them. Everywhere people are beginning to ask, “Will this smaller world our children inherit be a better one?
While the digital revolution has brought us many wonders, in hindsight my somewhat discouraging conclusion is that the “promise” of a more fair, equal, just, and sustainable world has been unfulfilled. It has become clear that the original democratic architecture of the internet has been bent to the will of economies and societies in which power is anything but distributed. If anything, the power has become more concentrated, and the main benefits of the digital economy have been skewed.
Let’s look at a few concerns I raised in 1995 and assess what has actually happened in the years since.
“Dislocations in labor markets, with old industries and jobs disappearing.”
In the book, I warned that technology might actually destroy more jobs than it was creating. I asked, “How will we manage the transition to new types of work and a new knowledge base for the economy?”
Now, for the first time in modern history, economic growth in OECD countries is not generating a commensurate number of new jobs. Young workers are taking the biggest hit. Arguably, structural unemployment will be the biggest public policy issue for decades.
It appears that the biggest culprit is digital technologies themselves. We’ve already seen knowledge work such as accounting and legal services being shipped offshore to cheaper employees. Soon the work will stay here but be done by computers. For example, IBM’s Watson computer diagnoses cancers with much higher levels of speed and accuracy than skilled physicians do. The same software combined with robotics, 3D printing, and myriad other innovations will continue to eliminate jobs throughout the workforce.
Strategies for growth in a connected world
Technology is also the foundation of new species of businesses that are capable of wiping out entire industries. Spectacular digital conglomerates such as Apple, Google, Amazon, and others are taking over a dozen industries, partly because they do a better job with a fraction of the employees. Service Aggregators such as Uber, Lyft, and Airbnb hold the power to wipe out jobs in industries ranging from taxis to hotels. Data frackers such as Facebook are acquiring vast treasure troves of data that position them to dominate multiple industries.
Factoring in the hangover from the financial collapse of 2008, we’re witnessing youth unemployment levels across the western world from 15–50%. This situation is not only immoral; it is creating a massive powder keg. Rather than a Schumpeterian “creative destruction,” we’re seeing structural elimination of entire labor markets.
“The destruction of privacy in an unprecedented and irrevocable manner.”
I believed this topic to be so important that I devoted an entire chapter to it. I wrote: “Most of us believe we have the right to decide what personal information we divulge, to whom, and for what purpose. Left unchecked, the internet could render such thinking irrelevant.”
Safeguarding privacy is now a major concern on people’s minds. So-called “data minimization,” or limiting what information we give away, is no longer feasible. Everywhere we go and in everything we do, we leave a trail of digital crumbs. Today, what happens in Vegas, stays … on YouTube.
Rather than restricting what we input, every country needs better norms and laws protecting our privacy. For example, we should own the data we create. And if we give it to social media companies, it should only be used for the purpose for which it was collected — not sold to others without our permission.
The danger of growing social inequality
Two decades ago, the book warned of a “severe bipolarization of wealth” that could foster a two-tiered society where the benefits of the digital age are asymmetrical and where wealth creation does not lead to prosperity for all.
Today, income inequality is one of the hottest topics on the planet. It was listed as the number one global risk by the World Economic Forum’s 2014 meeting in Davos, Switzerland. It is the subject of Capital in the Twenty-First Century, the New York Times best-seller by French economist Thomas Piketty. While many people disagree with his socialist conclusions, Piketty’s scholarship has been pretty much unassailable, showing that growing social inequality is endemic to capitalism, even in the digital age. More people today are questioning whether the digital revolution might actually accelerate inequality.
“Many governments seem slow to comprehend the shift.”
In 1995, I wrote, “Bureaucracies by definition resist change, thinking that heads-down is the route to survival. Can government become electronic, transforming the way government services are delivered?”
Have the operations of governments changed fundamentally in the past two decades? Sure, there are improvements, but most governments have spent time making existing models of government digital — paving the cow path — instead of rethinking the system in a digital age. (The same applies to many legacy businesses that are struggling with their digital transformations but lack market forces to compel change.) The economic crisis of 2008 has made it more urgent for governments to think seriously about both how they can use open data and social media to alter the deep structures of government and how we orchestrate capability to create public value.
“What will happen to democracy?”
These questions are still relevant today: “Will the electronic town hall become an electronic mob? Will cyberdemocracy become hyperdemocracy? Or can we craft a new age in which networked intelligence can be applied for the good of the people?”
The problem is hardly too much citizen engagement through digital media, as I worried; the opposite is occurring. Industrial-age governments have clung to the “you vote, I rule” model, where politicians broadcast their views to passive citizens. This is leading to a crisis of legitimacy among democratic institutions (of which the U.S. Congress is Exhibit A). This matters. Seymour Martin Lipset, the American political sociologist, wrote that legitimacy is “the capacity of a political system to engender and maintain the belief that existing political institutions are the most appropriate and proper ones for the society.”
The ongoing abuse of trust by office holders is not simply a series of isolated incidents; it is the manifestation of a deep and widespread rot. And people have had it. During the past 20 years, voter turnout has dropped in most western democracies, particularly among young people, who are looking for alternative ways to bring about social change.
To restore legitimacy and trust, we need to do what The Digital Economy advised two decades ago: build a second era of democracy based on integrity and accountability, with stronger, more open institutions, active citizenship, and a culture of public discourse and participation.
Technological utopians are being proven wrong by the facts: technology does not create prosperity, good democracy, and justice — humans do. To ensure that the digital economy fulfills its promise, we’ll need a new social contract that guarantees opportunities for full employment, protects our privacy, and enables prosperity not just for the few but for everyone.