Smart Automation Impact on Society: Understanding Smart Technology Part 8

Published on INFORMS Analytics Magazine (Joseph Byrum)

Author’s Note: This blog series Understanding Smart Technology – And Ourselves examines our relationship with advancing technologies and the fundamental choices we face. As we stand at the threshold of an uncertain future shaped by artificial intelligence, the author challenges readers to consider whether we should embrace these transformative changes or resist them in defense of our humanity. Drawing from historical patterns of technological adoption and resistance, the series promises to deliver nuanced perspectives on our technological trajectory, beginning with a comprehensive overview of our current understanding of smart technology and its implications for society. Read Part 7 where the author discusses the “unknown knowns” of the dangers of smart technology.

“The best way to predict the future is to create it.”

Alan Kay (Xerox PARC) [1] 

Humans create the future by deciding which technologies to pursue and how to turn them into applications.

Understanding the relationship between man and machine provides a foundation for discovering what we need to know about smart automation. If we consider technologies are already in the works, it’s possible to estimate where they are likely to be in a decade or two. Of course, such predictions are imperfect and imprecise because they are looking into the unknown. Humans create the future by deciding which technologies to pursue and how to turn them into applications, and this process of innovation always has a way of surprising us.

Consumers decide which technologies to adopt, and those technologies may change beyond recognition to meet their needs. Businesses can exploit declining cost curves of powerful technologies and decide how to use them in new business models. Whole new industries may arise to fill these needs. Governments also influence technology decisions with laws and regulations designed to steer these developments, encouraging some, discouraging or even prohibiting others. That’s how the future of smart automation will be determined by a series of human choices. The good news is that as consumers, business leaders or citizens, we all get a say in what our future will be. 

Smart Technology’s Economic Impact

New technologies change how the factors of production may be combined to produce a particular level of output. An improvement in production technology lowers the quantity of at least one of the factors needed to produce a given output (land, capital, labor, entrepreneurship), but it may increase one of the others.

For example, the introduction of the farm tractor significantly lowered the number of laborers required on a farm, but this innovation also required an increase in capital investment. Those putting money into the purchase of an expensive tractor had to make full use of the new asset. That meant expanding the farm to keep the new, more efficient equipment from sitting idle. Production has to stay at a high enough level for the tractor purchase to make sense. Once the tractor is producing beyond the break-even point, the cost for every additional bushel of grain is reduced. By decreasing the marginal cost of production, the farmer achieves an economy of scale.

Farm ownership is not easy because of the barriers to entry. There are significant start-up costs involved in accessing land, equipment such as tractors and so forth. In today’s economy, there are other barriers to entry, including the need for licenses from the government to operate, or access to intellectual property. Sometimes the economies of scale needed to succeed are so big that they are the barriers to entry. The cost of developing and producing a new microchip [2], automobiles [3] or airplane today is measured in the billions.

The massive capital and intellectual property barriers severely limit the number of companies that can compete on these playing fields. There are 23 carmakers around the world that sell over a million vehicles a year, but the total number of global automakers has been on a steady decline as famous marques merge with larger entities. Once independent companies such a Porsche, Bentley and Lamborghini are now part of the Volkswagen Group.

Only four companies – Intel, Samsung, TSMC and GlobalFoundries – have the facilities that can manufacture the latest generation of semiconductors. Only three global airliner manufacturers remain – Airbus, Boeing and Embraer – though the latter Brazilian company is about to become a part of Boeing [4].

The number of competitors in a given market is related to the magnitude of the barriers to entry. A new car can be designed and put on the market for about a billion dollars, but a 7nm computer chip factory costs $10 billion. Boeing spent $32 billion [5] designing its latest 787 Dreamliner. The higher the barrier to entry, the closer the market comes to a monopoly.

New Technologies

New technologies can disrupt existing monopolies. For example, in many countries, copper fixed-line telecommunications providers held longstanding natural monopolies. But mobile phone technology allowed competitors to easily construct cell towers almost anywhere, and voice-over-Internet communications opened the telecom industry to the most competition it has seen in decades.

At the same time, new technologies can create their own barriers to entry. The tech industry is dominated by a handful of giants – Apple, Alphabet (parent of Google), Amazon, Microsoft and Facebook – with Facebook being the smallest with a $420 billion market cap. These five firms have had a huge impact on the economy. Since 2000, recorded music revenues in the United States fell from $14 billion a year to around $8 billion [6]. Newspaper ad revenue fell from $63 billion in 2000 to $23 billion in 2013 [7], while Google’s share of ad revenue climbed to $74 billion and Facebook taking in $36 billion [8]. Nobody else even comes close to those two in ad revenue.

So, technology can have a massive impact on the economy. What impact will the dominance of these companies have in the field of artificial intelligence in the decade ahead? Our next installment will consider how society should prepare for smart technology’s ethical impact.

References

1. http://quoteinvestigator.com/2012/09/27/invent-the-future/
2. https://venturebeat.com/2017/10/01/globalfoundries-next-generation-chip-factories-will-cost-at-least-10-billion/
3. https://www.autoblog.com/2010/07/27/why-does-it-cost-so-much-for-automakers-to-develop-new-models/
4. https://www.flightglobal.com/news/articles/brazil-court-revokes-injunction-against-embraer-boei-454663/
5. https://www.seattletimes.com/business/boeing-aerospace/will-787-program-ever-show-an-overall-profit-analysts-grow-more-skeptical/
6. https://www.riaa.com/u-s-sales-database/
7. https://www.adweek.com/digital/us-newspapers-make-40-billion-less-ads-today-2000-160966/
8. https://www.recode.net/2017/7/24/16020330/google-digital-mobile-ad-revenue-world-leader-facebook-growth