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Exponentially Accelerating Information Technologies Could Put an End to Corporations

A Talk with High Technology Guru David S. Rose

SOURCE: AP Photo/Russel A. Daniels Students prepare for the first commencement at Singularity University in Mountain View, Calif. S.U. is backed by Google, operates on NASA's Silicon Valley campus and gets its name from futurist and co-founder Ray Kurzweil's favorite term for our technologically enhanced future.

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We talk a lot about how science and technology are changing society. From the  trains, planes and automobiles of past centuries that have allowed us to move people and goods around the world, to exponentially accelerating information technology that allows us today to shop from home or answer tough questions with the click of a mouse—technology really has changed the way we live. At Science Progress we comment on how stem cells, genomics, and synthetic biology are starting to revolutionize medicine, how emergent clean energy technologies are changing our century-long relationship with fossil fuels, and how computing in the era of “Big Data” is changing the very nature of the scientific method itself. But these are all issues of here and now.

What about the next decade? And the one after that? What happens when we can use synthetic biology and 3D-printing to literally print new organs? Or when breakthroughs in neuroscience and nanotechnology allow us interact with the Internet or any other person with simply a thought? What happens when we can download our thoughts or even our entire consciousness into the computing cloud? Or when the artificial intelligence we create becomes smart enough and powerful enough to optimize and improve upon itself? It could be a very different world, and it may not be as far-fetched as it sounds.

Here today to discuss these issues with us is David Rose, a serial entrepreneur, angel investor, and track chair at Singularity University. David has been called the Father of Angel Investing in New York” by Crain’s New York Business, and a “world conquering entrepreneur” by BusinessWeek. Suffice it to say David has a lot of experience connecting capital to technology. And we are very lucky to have him with us today

Science Progress: You lecture on the changes that accelerating technology innovation has brought to business. What is the singularity, and how might it change society and business?

David S. Rose: Ray Kurzweil helped to popularize an idea called the “singularity” based on Moore’s law, which predicts continued exponential increase in pace of technological advancement. On of his recent books, The Singularity is Near, is a well researched, 700-page analysis of technological progress and the future merging of man and machine.

You can look at the singularity either as bringing human characteristics and consciousness to machines, or bringing machine power to humanity, or some kind of cooperative effort among the two. But basically it means leveraging the best of us in terms of humans with the power that comes from exponentially advancing technology.

SP: What is the goal of Singularity University?

DSR: Well, if you buy the idea of exponential growth, then the question is, “What the heck do you do about it?” And how can you leverage all of this exponentially advancing technology to solve the grand challenges that we have as humans?

And to answer that question, a number of far-sighted organizations got together to create something called “Singularity University.” Their mission statement is “To assemble, educate, and inspire leaders who understand and develop exponentially advancing technologies to address humanity’s grand challenges.”

I have the honor to run the finance, entrepreneurship, and economics program at Singularity U where we discuss the extraordinary changes that technology is having on business. We discuss what business will look like in the not too distant future when these technologies come into play.

SP: We see the impact of technology already at work in society, take for example the rapidly growing power of smart phones in our pockets. What is your role at SU in dealing with these issues?

DSR: Right, and that’s been what, five years? Think about it. If technology continues to advance at this doubling rate, which it had been doing and continues to do—and you look at all the areas that this is happening…

My role at SU is to pull this together and say look what it’s doing to society as a whole, and look at the effect of technology on business.

SP: So, let’s skip to that. What are some of the challenges and opportunities these exponentially growing technologies present to business and the workforce?

DSR: Well let’s take companies. Why do companies exist? God didn’t necessarily invent companies. There is nothing in the natural order that says a company has to exist. But as technology advances and as it takes more people and more specialized things to create anything—form the empire statement to giant computers, or anything—it takes a lot of individuals working on something. So then the question becomes, how do you organize these people?

Ronald Coase won the Nobel Prize for his theory of transaction costs. Coase’s theory is that companies will grow and get bigger until the external transaction costs reached equilibrium with the internal transaction costs.

As an example, take Henry Ford. When he moved from making cars in his garage to mass production, he had to have all the various pieces of auto manufacturing. And it made sense to bring a lot of that stuff in-house. Because back then in the 20s and 30s, the transaction costs of finding suppliers and shipping things in and contracting for all the pieces were very high. So Ford’s River Ridge plant in Michigan had something like 100,000 people working in one factory.

It had not only the assembly line to make the cars and car parts… but it even had its own printing plant to print the instruction manuals for the cars, because it was cheaper than going out and finding printers to do one-off instruction manuals. And even more, it had its own paper mill to make the paper to print the manuals for the cars.

SP: So, they were very vertically integrated.

DSR: Yes, because the transaction costs were cheaper internally than they were externally.

SP: So, to guess at where this is going, technology today is driving transaction costs further and further down?

DSR: What’s happened now with the internet is the ability to discover all the various suppliers and sources out there in the world, the ability to contract with them easily online digitally, the ability increasingly to deliver things digitally—art or research or creative services in the cloud or whatever—has made it very, very cheap to outsource the services that had been done inside because the transaction costs are very low.

As a result companies are shrinking because if it’s cheaper to do it outside, you wouldn’t do it inside. So what you saw was companies growing—from the industrial revolution on, you saw companies getting bigger and bigger until the computer revolution in the last 20 or 30 years. And now what you see is like a tsunami going the other direction. Companies are shrinking and shrinking and shrinking.

Google’s entire worldwide workforce for example, is less than what you had at that one River Ridge Ford plant in the 1920s, and that’s a trend that’s only going to continue as companies shrink and shrink. So the world of the future is one where companies shrink down to near point size, and you have individuals marketing their skills, delivering their things, and being contracted effectively on an individual basis.

In turn, that means that each individual now becomes responsible for his or her own career. There’s not going to be some big company that’s going to give you lifetime employment and take care of you now, or give you a pension in your old age and tell you what to do and direct you. Instead, each person is going to be responsible for managing their own career, managing their own brand, finding and delivering their own work, and taking responsibility for their own lives. And that’s going to be a major sea change.

SP: So what you’re saying is that we are moving toward a future of every person as their own entrepreneur and your thesis is that this is almost inevitable just given the power of information technology to reduce transaction costs?

I’m not making a value judgment here. I’m not saying this is good or this is bad. What I am saying is: This is.

DSR: Absolutely, and its not only a question of just transaction costs. Look also at the things that technology has obviated. It’s obviated a lot of menial or service-oriented tasks as we are moving into a self-service world.

Look at the way we now do our own airline tickets without the need for a travel agent, and having it sent to our mobile phones so there is hardly any need for interaction with third parties. The percentage of our GDP that is IT-based is also growing exponentially over time. So what you’re seeing now that more and more and more of the jobs that are lost… are going to be those at the base of the pyramid—the service jobs.

Then the next jobs to go are the intermediary jobs. Already if you think of the floor of the New York Stock Exchange, with all the specialists on the floor waving tickers around—that’s already gone! The NY Stock Exchange floor today is virtually just a set for a television show. There is little that goes on on the floor. NASDAQ, for example, has no floor. Or take real estate brokers. It used to be that they were the only ones who had the knowledge to make the real estate deals… but now thanks to the power of search and the internet, you’re seeing “for sale by owner,” you’re seeing access by consumers to multiple listing sites. You’re seeing consumers doing their own stock trades. So the whole intermediary role is disappearing too.

SP: So what you’re basically saying is that human jobs are being replaced by the power of this exponentially growing information technology to connect people… buyers, sellers, what have you. And that is going to spread its way higher and higher up the value-added ladder of jobs in our economy.

DSR: Absolutely. You’re now seeing retail kiosks at airports. Instead of having stores you’re having vending machines that will sell you a computer, or an iPod, or a headset. Some of the latest developments are kiosks that don’t even need to be stocked by a real person!

It’s a broadband-connected kiosk and when it empties its various wares it automatically signals a central depot, which sends out a canister by UPS. The UPS guy opens up the kiosk, unlocks it, takes out the old canister, puts in the new one and away you go. So you’re seeing increasing automation at every stage of industry. That means that increasingly the roles are going to be dedicated to two kinds of people. On the one hand it’s personal producers who are creating things or providing skills that people need. On the other hand, its entrepreneurs who have the ability to pull together buried resources that are available out there on the cloud, from human skills—creativity and the like—to services like shipping, logistics, or hosted cloud computing resources from Amazon or whatever.

SP: So, this sounds a little scary, what if I don’t want to be an entrepreneur? What if I want to have a stable, safe job with a company that will take care of me? It sounds like you are saying that this is going to be harder and harder to do in the future with these very profoundly powerful trends. You say you’re an optimist, but to me this sounds scary. Should we be excited about this potential future or worried about it?

DSR: You’re not the only one who is scared. This is counter to everything we’ve thought about. It’s counter to the way our parents were brought up in the 40s, 50s, and 60s. I’m not making a value judgment here. I’m not saying this is good or this is bad. What I am saying is: This is. Because of these rapidly decreasing transaction costs, and they are dropping exponentially, the need for a company to keep people on staff for a 20- or 30-year career to do the same thing day in and day out is just disappearing. Unfortunately those days are gone.

So it’s going to force society to take very hard look at itself. And the people who will be able to thrive are the people who are self-starters. And for a kid getting out of college today, the likelihood that they will find a nice cushy job with a nice cushy salary like their parents had and be told what to do and succeed if they work diligently at it for the next 20 or 30 years… that’s just not going to happen. So it’s going to be a real challenge for our society to figure out how to deal with that.

SP: Even just with the mundane day to day technologies that we take for granted… take for example books, the internet, writing, reading… you already have a whole segment of people who have been left behind. Even today between one-quarter and one-third of American adults—depending on which study you look at—are functionally illiterate. So how are we going to cope in a future when skills beyond literacy, technology skills, engineering skills, creativity etc., are placed at an ever-higher and escalating premium, when we can barely keep people up to a standard of technological education enough to cope in our present technological paradigm?

DSR: You have a very real question. Let me tell you something even more scary: The majority of high school students in NYC public schools will not graduate from high school. The majority. That is an insanely scary kind of thing. So forget a college graduate who can’t find a job or a graduate student who can’t find a job. You’re talking about people, not people with high school degrees—people who didn’t get out of high school. So you tell me how someone who can’t make it out of high school and who is functioning with much less than full literacy is going to function in a world where they have to take control of their destiny and effectively be an entrepreneur or be entrepreneurial about what they do with their life. What happens to them?

So I think this is a major policy question where we as a society have to figure what to do with a growing class of people who are willing to work, but can’t. We’re going to have lots of people with decent values and who are willing to work, but who don’t have the advanced education that will let them be taking part in this new creative, entrepreneurial economy. What are they going to do?

The recession, which was caused by the housing boom among other factors, masked some of these changes that have been happening because of technology. So the companies that are coming back now are not employing more people… they are employing fewer.

SP: Doesn’t innovation and technology also create new opportunities for people? To some extent, aren’t we just rehashing the same arguments people made during the height of the industrial revolution when artisans were being put out of work by efficient factories? Or when advanced mechanization began to put assembly line workers out of jobs?

DSR: So Ray is an optimist. He would note that despite technological progress at an exponential rate over the last century, there are more people employed today than there were at the early part of the century. Ray foresees that this technology will ultimately continue to find new things for people to do, and to some extent he is right.

So for example, there is something called Amazon Mechanical Turk. Amazon has a little side project where anybody who is doing a process that needs some kind of human task—like writing a review of a restaurant or identifying the subject of an image—can take that one task, drop it into the Mechanical Turk online database, and then anybody anywhere in the world can come in, pick up this one task, do it and put it back in the system, and get paid for it. So it’s an automated system for farming out piecework to anyone in the world.

At any given time now there are something like 100,000 different tasks that can be done. So anybody anywhere in the world, including the outskirts of Botswana, as long as they have access at a community center to a computer and can speak English can pick up a task and get paid 2 cents, 3 cents, 5 dollars, whatever can get paid. So Ray believes there will continue to be a role for humans, even as computers take over many of the simpler tasks that we once did.

But again I believe that as companies shrink and people need to get more entrepreneurial, we as a society face a significant challenge because we are not training our populace to be able to deal with this.

SP: It sounds like either way whether you are an optimist or a pessimist, educating our kids in STEM is something we’re going to have to focus a lot harder on.

DSR: Yes. And one of the things we discuss at Singularity University is the whole concept of globalization—and not just globalization in terms of our factories going to China. It’s globalization in the larger sense that you really have to treat the entire world these days as one single organism—as one single market.

This globalization means that you are bringing on extraordinary workforces from the rest of the world who are now learning. And even if they’re not getting multidoctorates in nuclear physics, the fact that you are bringing 2 billion people into the educated mainstream means they are competing with Americans, and we have not kept pace. Our STEM education is nowhere near the top of the world; it’s a real challenge for our society.

SP: It sounds like with technology like this Amazon Mechanical Turk making outsourcing even easier, these trends are only going to get more severe. What is the response?

DSR: Yes, absolutely. The knee-jerk reaction is to be protectionist, and say: “We are going to provide economic incentives to keep all our things here, we’re going to tax and tariff.” But that’s a shortsighted approach. This tidal wave is out there. It is happening in real time. And like King Canute, you can’t send the tides back. So we need to function as a society and figure out how we are going to take our place in this world on our merits, not by being isolationist. Because like the floods in the south. You can’t stop it. It’s happening.

SP: To wrap up. Sounds like we’ve identified STEM education as a critical priority moving forward. What other kinds of policy implications do these trends have going forward?

DSR: They would tend to indicate that protectionist stuff is only a short-term Band-Aid. You can’t be an isolationist. We are in a globalized world and we need to accept that fact and move forward. The question is how do you keep America strong and encourage our populace to continue to lead the world when we’re on a much more level playing field.

I think a lot of that has to do with the private sector. I am an unrequited capitalist and an entrepreneur. I started starting companies when I was 10 years old. While I recognize that not everyone is an entrepreneur, only some small segment of the population is, we need as a society to be more entrepreneurial. We need to support entrepreneurship, because that’s where Schumpeter’s creative destruction comes from. Destroy the old by creating the new. That’s where innovation lies.

I believe as a country we need to strongly support innovation. We need to strongly support private-sector innovation. And encourage the natural entrepreneurship and ingenuity and creativity and energy of the private sector in the United States.

SP: So, everyone as their own entrepreneur is what this future sounds like. Anything else to add?

DSR: I do believe that America has an extraordinary future ahead of it. But these massive changes are affecting us. They are here and now. Most people can’t see it because they are focused only on their particular industry. But when you start pointing out to everybody that everybody’s industry is changing irrevocably and deeply and fundamentally, and ask what that means as a whole for society as a whole, it becomes a real issue.

We need to encourage this wonderful individual American entrepreneur and worker and creative person to function. And its not going to happen with a paternalistic society either with the private sector with jobs for life or in the public sector with guaranteed employment… It’s a different way of thinking for a lot of people and I believe that we can do it, but it’s going to require a complete reset of our mindset.

David S. Rose is CEO of Angelsoft, which a standard collaboration platform for over 25,000 early-stage investors and the founder and chair of New York City Angels, one of the most active angel investment groups in the country. In addition, he is also Chairman of the New York-based private equity firm Egret Capital Partners, serves on the boards of KoolSpan, Pond5, Magnify Networks and Comxiology, and has helped to fund over seventy-five startup companies.

Sean Pool is Assistant Editor for Science Progress.

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