While sitting in the London School of Economics visiting a friend, I began trying to reconcile the academic view of economic growth, the exponentially changing world that Silicon Valley is creating, and the geopolitical climate that shows a deteriorating world in the face of accelerating changes. As my partners and I were embarking on our mission to make highly skilled jobs and processes fully autonomous, I wanted to have a framework to understand the impact on the underlying economy.
In this post, I want to work through some of the key issues that will define the Autonomous Economy. I am not trying to forecast any given moment in the future; rather I am trying to describe the implications of the trends I see shaping the world. Unlike the stochastic calculus my friend is studying, we will dive deep into specific paths instead of building probabilistic models incorporating every scenario into a master algorithm.
From Physical Borders to Virtualized Ones
As technology levels the playing field, it simultaneously democratizes the work needed to make the new economy function. With today’s information technology, it is possible for people to never meet face to face, yet collaborate on mission critical projects. It means that for the most highly valued skills, location will no longer be a barrier. Furthermore, the nature of high-value work means that people can often work from anywhere with just a laptop and an internet connection.
In the autonomous economy, borders will become blurred and traditional economic indications, like GDP, inflation, and measures of unemployment, will need to evolve to be meaningful. In a world where capital isn’t scare and mega funds like SoftBanks—and soon-to-be Sequoia—reign supreme, dollars (or Yen) will flow directly to where the talent is. Though capital controls could keep this from coming true, it is increasingly difficult for countries whose income relies heavily on services and technology to isolate themselves in such a manner. Plus the adoption of technologies like crypto-currencies only adds to the argument that capital will flow to where the talent is and not be held hostage by foreign (or for some, domestic) governments.
Five of the top 10 companies in the S&P 500 are technology companies, three founded in the past twenty years. Pretty amazing. Though entrepreneurs are not going to be the only driver of the economic growth (my other bet is on energy), it is clear that many of the global enterprises that will take the world into the autonomous economy haven’t been founded yet. Though old companies won’t all fall by the wayside, they will have to compete in a more competitive world as technology continues to eliminate barriers to entry.
Starting a U.S. company today isn’t hard. I can incorporate a Delaware corporation in a few days for a hundred bucks on RocketLawyer, build my product on AWS in a coffee shop on my laptop, and market online with blogs (like this one) and banner ads. I can use SaaS-based accounting software to manage finances, hire freelancers on Fiverr for many of the tasks I need done, sell deals online through my website, use a PayPal API to process my payment, and deliver software via the cloud. I can build a backend pretty cheaply and only pay for the resources once I sell deals.
Moreover, the ability to access high quality knowledge via Y Combinator’s blog, knowledge which traditionally took years of experience to obtain, provides a blueprint to build a company from scratch cheaply. An engineer can hack together a product then quickly get up to speed on sales, marketing, and operations all online. Though building a large technology company isn’t simple, the barriers to compete in business have been peeled back, allowing small players with a great product to compete with global enterprises.
A Shift To Quality in a Quantitative World
In a world defined by 1s and 0s, at a time where the 90% of the world’s data has been created in the last 18 months, and a time where information runs rampant, the ability to make meaningful decisions becomes vital. A wise man once said, “Not everything that counts can be counted, and not everything that can be counted counts.” A world driven by data must emphasize the data that matters and not crunch numbers for the sake of crunching numbers — and we cannot forget that there are humans who underpin these numbers. This idea has taken center stage in the business community.
The Milken Institute, a non-profit that hosts the world’s top businessmen and politicians, centered its 2017 conference around “Building Meaningful Lives.” In a world where populism is on the front pages, elite businessmen focus on the quality of life, and every management consulting firm has a blog post ready to define the future of work, the issue of building meaningful lives must be addressed.
Obviously, technology will eliminate some jobs, create new jobs, and augment many tasks to make existing people more productive. This creative destruction is iterative and never ending. However, as the rate of technological change accelerates and many of people’s daily needs can be fulfilled by technology, key decision makers will define the quality of life for our future workforce.
How employers and policy makers choose to prioritize quality, and decide what needs will be provided to society, will define the workforce of the future. Tradeoffs could include socializing services or providing people with a basic income, allowing for technology to amplify inequalities or deciding whether people should use technology to produce more with the hours they’re currently working or work less time to produce the same.
Drags on the Economy — Technological Deflation
The iPhone you’re reading this article on cost you ~$600 (if you got a good deal) and a gallon of gasoline is ~$3. Looking back 30 years, a Mac PC cost you $2,495 and a gallon of gas cost $1.13. I don’t need to keep listing examples for you to the gist of what I’m saying: Unavoidable costs will, on average, continue to increase while cutting-edge technology becomes cheaper and cheaper. Though one could argue over the value technology unlocks, unless it lowers the cost of goods through improved processes, technology won’t make items cheaper.
Look at rural villages in Africa where people are trading crops and livestock in small markets and checking prices on their mobile devices to determine fair value. Praising this kind of incremental benefit is great, but the role of technology to create real change has yet to be realized.
Finally, as technology-driven sectors of the economy continue to outpace real GDP in terms of growth, we must understand the deflationary effects technology could have on the overall economy as its cost is driven down. In terms of real GDP, the deflationary effects of technology could partially offset productivity gains.
What’s It All Mean?
There’s no easy way to simplify these dynamic factors driving this autonomous economy. This post hasn’t even covered currencies, debt levels, war, climate change, and security threats. This is only a single path, with many exogenous shocks that could easily make these variables insignificant. However, in understanding the impact of technology, increasing productivity and capital continuing to flow to talent—offset by the potential technological deflation and a need for quality in terms of living standards—provides a simpler framework to think through how the future might play out. However, the future is rarely what anyone expects.