Erik Brynjolfsson and Andrew McAfee

WW Norton, 2014

Rapid technological change has become such a constant in our lives that it’s easy to forget what the world was like before computers, the Internet and social media apps. Increasingly, these innovations are reinventing the economy and transforming corporations and the lives of individuals. Are these changes inevitably positive or should we be worried about them?

Erik Brynjolfsson and Andrew McAfee are two economists who have made a specialty of studying the impact of technological change, and they first attempted to answer this question in 2011 with a short e-book called Race Against the Machine. Now, backed by a large publisher, they take another stab at the problem in The Second Machine Age.

The economic context behind both books is the so-called ‘jobless recovery’—why did US GDP per capita grow while employment and median incomes stayed stagnant? Why wasn’t increased productivity raising everyone’s living standards? Brynjolfsson and McAfee argue that that technological change is the reason. In the space of two decades, computers have increased their power by more than a million-fold, as a result of faster processors and better algorithms. That makes jobs that once were the preserve of humans (such as driving cars or answering the phone) susceptible to automation.

As computers take over more routine types of jobs, vast armies of employees are no longer needed as productivity grows in their absence. Even emerging market countries that did well when multinational companies off-shored routine tasks such as call centres are now threatened by this new wave of automation.

In this new world, the winners are those whose skills can’t be automated, such as PhDs, or superstars in a particular field who can exploit technology to capture an entire market. That leads to a winner-takes-all economy with a declining middle class. It also benefits those who provide capital rather than labour to the economy as startups like Instagram with a handful of employees displace companies such as Kodak that used to employ tens of thousands of people.

Unless you are lucky enough to be one of the winners, the data compiled by Brynjolfsson and McAfee give a bleak picture. In Race Against The Machine, they sought to counter this bleakness with optimism about the impact of new technology. They provide examples where humans learned to work with machines rather than compete with them. They point out that the fixed start-up costs for entrepreneurs have never been lower, helped by the Internet and the ability to leverage social networks. They argue that the number of business opportunities is growing at combinatoric speeds, outstripping the exponential growth of computer power. In The Second Machine Age, they suggest that crowdsourcing provides a route to capturing the value of these untapped opportunities.

What else is new in The Second Machine Age?The tone of the new book is more optimistic than the first, with the bleak economic assessment of technology-driven change buried in the middle rather than at the start of the book. With the resources of their publisher behind them, Brynjolfsson and McAfee have done numerous interviews with technologists and entrepreneurs, bringing to life examples of new technology in a vivid way. Perhaps the more upbeat tone will help win support for their policy prescriptions.

It’s hard to disagree with these prescriptions, such as a plea for improved education which Brynjolfsson and McAfee point out is essential to prepare for the new automated world. They argue for reduced obstacles for skilled immigrants, better infrastructure and taxes targeted at economically-damaging things like pollution or congestion. Longer-term, they argue for policies such as basic income guarantees or a negative income tax to blunt the effect of greater inequality.

While the policy recommendations make sense, one fears that optimism might not be enough to overcome the negative aspects of the winner-takes-all world outlined within the book. After all, winners have a way of protecting themselves against smaller rivals, and can buy political influence to ensure that inequality becomes self-perpetuating.

Brynjolfsson and McAfee have succeeded in showing how computer technology has reached an inflection point in economic terms. Empirically, they provide evidence of the troubling economic impact of this revolution, pitting the free market against individual freedom and equality. Their thought-provoking book provides hope but no assurance that we will find a way out of this dilemma.