Researcher Erik Brynjolfsson developed a method to measure the value that innovative IT companies generate.

“We don’t measure productivity growth correctly.”

Erik Brynjolfsson, a us researcher, is convinced that the digital economy generates value.
Author: Anja Steinbuch
Photo: Evgenia Eliseeva

He believes in cooperation

If man and machine don’t work together, mankind will end up losing, warns Erik Brynjolfsson. Often casually attired with an open collar, this professor of economics and information technology is at the center of the debate about the future of work in our digital era of computers and artificial intelligence. His recommendation? To “race with the machines” as technological innovation picks up the pace significantly over the next several years. His viewpoint puts him at loggerheads with Robert Gordon, a US economist who has pronounced technological innovation dead. While Robert Gordon and Nobel laureate Paul Krugman pooh-pooh the value created by digital transformation, Brynjolfsson is a fervent believer that digital progress adds value. “We just don’t measure productivity growth correctly.”

“We have to race with the machines.”
Erik Brynjolfsson, Professor of economics and information technology
At first glance, free services like Wikipedia, Skype and Google don’t seem to add anything to gross domestic product. “But when you look closer, you see that they certainly do add value.” While researching at the Massachusetts Institute of Technology (MIT), Brynjolfsson developed a method to measure the value that innovative IT companies generate. Using this method, he has found that disruptive business models like online networks and digital services create 300 billion dollars in value each year – value that isn’t captured by the statistics or by the critiques that Gordon and Krugman based on them.

Harnessing technology, stimulating the economy

Brynjolfsson has been researching economics and productivity since the 1980s. In his book “The Second Machine Age”, he describes the differences between the first and second industrial revolutions: “Computers and other digital advances are doing for mental power what the steam engine and its descendants did for muscle power.” This is a different technology, though – one that will have a much broader impact. Brynjolfsson’s vision has been applauded by politicians and industrialists – but he believes it should be more widely embraced. Denial is not an option, he warns. “There is too much stagnation in Europe and the US,” he says. Policymakers need to promote entrepreneurship and eliminate obstacles that prevent start-ups from harnessing new technology to stimulate the economy.
His current assessment is this: prosperity, productivity and the ranks of millionaires are at all-time highs – but employment rates and average incomes are down. Our society is becoming increasingly divided. Automation and digitization are turning the world of work upside down. “The middle class is disappearing,” warns the economist. New jobs are only available for unqualified or highly qualified workers. So who’s to blame?

Europe may either add 1.25 trillion euros of gross industrial value, or lose 605 billion euros of value by 2025, according to Roland Berger Strategy Consultants*
*Source: BDI 2015

Reinventing education

Technological progress has been driving these changes in the labor market for the past ten years. “But that’s nothing compared to what’s yet to come,” says Brynjolfsson. Technology is growing exponentially more powerful, and innovation is moving faster than expected. For example, computer chips double in processing power roughly every two years. Robots are already diagnosing medical disorders and scanning millions of documents for attorneys in order to find the perfect precedent for a particular case. Self-driving cars were considered science fiction only a few years ago. Today, prototypes bristling with sensors and self-learning systems are cruising the streets. How many jobs will be lost to digitization and automation? It’s a common question, but Brynjolfsson believes that it misses the point. What really matters is the number of new jobs created to sustain society as we know it. “The choice is ours,” he insists. “Tomorrow’s jobs will be created in new companies and new industries with new products or services,” says Brynjolfsson. He has three suggestions to help make this vision a reality: “First, we have to reinvent education. Don’t just memorize facts; computers can already do that, after all. Instead, our curricula should also teach creativity and soft skills.” Second, entrepreneurship should be promoted; it should be easier to establish new companies. And third, we have to rethink our antitrust laws and tax policies. A negative income tax could help absorb the negative impact of automation on low-income families. That requires a country with a mature democracy and a strong government, notes Brynjolfsson. One such country is Switzerland. “Few countries are better prepared for change than Switzerland.” It considers groundbreaking ideas such as an unconditional basic income. “I see Switzerland as a model for the future,” says Brynjolfsson.

Further articles