The Future (10 page)

Along with my partner and cofounder of Generation Investment Management, David Blood, I have advocated a set of structural remedies that would promote what we call Sustainable Capitalism. One of the best-known problems is the dominance of short-term perspectives and the obsession with short-term profits, often at the expense of the buildup of long-term value. Forty years ago, the
average holding period for stocks in the United States was almost seven years. That made sense because roughly three quarters of the real value in the average business builds up
over a business cycle and a half, roughly seven years. Today, however, the average
holding period for stocks is less than seven months.

There are many reasons for the increasing reliance on short-term thinking by investors. These pressures are accentuated by the larger trends in the transformed and now interconnected global economy. As one analyst noted in 2012, “our banks, hedge funds and venture capitalists are geared toward investing in financial instruments and software companies. In such endeavors, even modest investments can yield extraordinarily
quick and large returns. Financing brick-and-mortar factories, by contrast,
is expensive and painstaking and offers far less potential for speedy returns.”

This short-term perspective on the part of investors puts pressure on CEOs to adopt similarly short-term perspectives. For example, a premier business research firm in the United States (BNA) conducted a survey of CEOs and CFOs a few years ago in which it asked, among other things, a hypothetical question: You have the opportunity to make an investment in your company that will make the firm more profitable and more sustainable, but if you do so, you will slightly miss your next quarterly earnings report; under these circumstances, will you make the investment?
Eighty percent said no.

A second well-known problem in the way capitalism currently operates is the widespread misalignment of incentives. The compensation of most investment managers—the people that make most of the daily decisions on the investment of capital—is calculated on a quarterly, or at most annual, basis. Similarly, many executives running companies are compensated in ways that reward short-term results. Instead, compensation should be aligned temporally with the period over which the maximum value of firms can be increased, and should be aligned with the fundamental drivers of long-term value.

In addition, companies should be encouraged to abandon the default practice of providing quarterly earnings guidance. These short-term metrics capture so much attention that they end up heavily penalizing firms that try to build sustainable value, and fail to take into account the usefulness of investments that pay for themselves handsomely over longer periods of time.

One thing is certain: the transformation of the global economy and the emergence of Earth Inc. will require an entirely new approach to policy in order to reclaim humanity’s role in shaping our own future. What we are now going through bears little relation to the problems inherent in the business cycle or the kinds of temporary market disruptions to which global business has become accustomed. The changes brought about by the emergence of Earth Inc. are truly global, truly historic, and are still accelerating.

Although the current changes are unprecedented in speed and scale, the pattern of productive activity for the majority of human beings has of course undergone several massive changes throughout the span of human history. Most notably, the Agricultural and Industrial revolutions both led to dramatic changes in the way the majority of people in the world spent their days.

The first known man-made tools, including spear points and axes, were associated with a hunting and gathering pattern that lasted, according to anthropologists,
almost 200 millennia. The displacement of that dominant pattern by a new one based on agriculture (beginning not long after the last Ice Age receded)
took less than eight millennia, while the Industrial Revolution required less than 150 years to reduce the percentage of agricultural jobs in the United States
from 90 to 2 percent of the workforce. Even when societies still based on subsistence agriculture are included in the global calculation,
less than half of all jobs worldwide are now on farms.

The plow and the steam engine—along with the complex universe of tools and technologies that accompanied the Agricultural and Industrial revolutions respectively—undermined the value of skills and expertise that had long been relied upon to connect the meaning of people’s lives to the provision of subsistence and material gains for themselves, their families, and communities. Nevertheless, in both cases, the disappearance of old patterns was accompanied by the emergence of new ones that, on balance, made life easier and retained the link between productive activity and the meeting of real needs.

To be sure, the transformation of work opportunities required large changes in social patterns, including mass internal migrations from rural areas to cities, and the geographic separation of homes and workplaces, to mention only two of the most prominent disruptions. But the net result was still consistent with the hopeful narrative of progress and was accompanied by economic growth that increased net incomes dramatically and sharply reduced the amount of work necessary to meet basic human needs: food, clothing, shelter, and the like. In both cases, formerly common pursuits became obsolete while new ones emerged that called for new skills and a reconception of what it meant to be productive.

Both of these massive transformations occurred over long periods of time covering multiple generations. In both revolutions, new technologies opened up new opportunities for reorganizing the human enterprise into a new dominant pattern that was in each case disruptive and, for
many, disorienting—but produced massive increases in productivity, large increases in the number of jobs, higher average incomes, less poverty, and historic improvements in the quality of life for most people.

Consider again the larger pattern traced in the history of these three epochs: the first lasted 200,000 years, the next lasted 8,000 years, and
the Industrial Revolution took only 150 years. Each of these historic changes in the nature of the human experience was more significant than its predecessor and occurred over a radically shorter time span. All were connected to technological innovations.

Taken together, they trace the long gestation, infancy, and slow development of a technology revolution that eventually grew to play a central role in the advance of human civilization—then gradually but steadily gained speed and momentum in each of the last four centuries, jolted into a higher gear, and began to accelerate at an ever faster rate until it seemed to take on a life of its own. It is now carrying us with it at a speed beyond our imagining toward ever newer technologically shaped realities that often appear, in the words of Arthur C. Clarke, “
indistinguishable from magic.”

Because the change under way is one not only of degree but of kind, we are largely unprepared for what’s happening. The structure of our brains is not very
different from that of our ancestors 200,000 years ago. Because of the radical changes induced by technology in the way we live our lives, however, we are forced to consider making adaptations in the design of our civilization more rapidly than seems possible or even plausible.

We have difficulty even perceiving and thinking clearly about the pace of change with which we are now confronted. Most of us struggle with the practical meaning of exponential change—that is, change that is not only increasing but is increasing at a steadily faster pace. Consider the basic shape of all exponential curves. The pattern of change measured by such curves is slow at first, and then ascends at a gradually but ever increasing rate as the angle of ascent steepens. The steep phase of the curve drives changes at a far more rapid rate than the flat part of the curve—and it is this phase that has consequences not only of degree but of kind. As explained by Moore’s Law, the fourth-generation iPad now has more computing power than the most powerful supercomputer
in the world thirty years ago, the Cray-2.

The implications of this new period of hyper-change are not just
mathematical or theoretical. They are transforming the fundamental link between how we play a productive role in life and how we meet our needs. What people do—their work, their careers, their opportunities to exchange productive activity for income to meet essential human needs and provide a sense of well-being, security, honor, dignity, and a sense of belonging as a member of the community: this basic exchange at the center of our lives is now changing on a global scale and at a speed with no precedent in human history.

In modern societies we have long since used money and other tangible symbols of credit and debit as the principal means of measuring and keeping track of this ongoing series of exchanges. But even in older forms of society where money was not the medium of exchange, productive work also was connected to the ability to meet one’s needs, with a tacit recognition by the community of those who contributed to the needs of the group, and whose needs were then met partly by others in the group. It is that basic connection at the heart of human societies that is beginning to be radically transformed.

Many economists comfort themselves with the idea that this is actually an old and continuing story that they know and understand well—a story that has generated unnecessary alarm since Ned Ludd, a weaver, smashed the new knitting frames invented in the late eighteenth century, which he realized were making the
jobs of weavers obsolete. The
“Luddite fallacy”—a phrase coined to describe the mistaken belief that new technologies will result in a net reduction of good jobs for people—was validated on a large scale when the mechanization of farming eliminated all but a tiny fraction of farm-related jobs, and yet the new jobs that emerged in factories not only outnumbered those lost on farms but produced higher incomes, even as farms became far more productive and food prices sharply declined. Until recently, the large-scale automation of industry seemed to be repeating the same pattern again: routine, repetitive, and often arduous jobs were eliminated, while better jobs with higher wages more than replaced those that were eliminated.

Yet what we believe we learned during the early stages of this technology revolution may no longer be relevant to the new hyper-accelerated pace of change. The introduction of networked machine intelligence—and now artificial intelligence—may soon put a much higher percentage of employment opportunities at risk in ever larger sectors of the global economy. In order to adapt to this new emergent reality we may soon
have to reimagine the way we as human beings exchange our productive potential for the income necessary to meet our needs.

Many scholars who have specialized in the study of technology’s interaction with the pattern of society, including Marshall McLuhan, have described important new
technologies as “extensions” of basic human capacities. The automobile, in the terms of this metaphor, is an extension of our capacity for locomotion. The telegraph, radio, and television are, in the same way, described as extensions of our ability to speak with one another over a greater distance. Both the shovel and the steam shovel are extensions of our hands and our ability to grasp physical objects. New technologies such as these made some jobs obsolete, but on balance created more new ones—often because the new technologically enhanced capacities had to be operated or used by people who could think clearly enough to be trained to use them effectively and safely.

In this context, the emergence of new and powerful forms of artificial intelligence represents not just the extension of yet another human capacity, but an extension of the dominant and uniquely human capacity to think. Though science has established that we are not the only sentient living creatures, it is nevertheless abundantly obvious that we as a species have become dominant on Earth because of our capacity to make mental models of the world around us and manipulate those models through thought to gain the power to transform our surroundings and exert dominion over the planet. The technological extension of the ability to think is therefore different in a fundamental way from any other technological extension of human capacity.

As artificial intelligence matures and is connected with all the other technological extensions of human capacity—grasping and manipulating physical objects, recombining them into new forms, carrying them over distance, communicating with one another utilizing flows of information of far greater volume and far greater speed than any humans are capable of achieving, making their own abstract models of reality, and learning in ways that are sometimes superior to the human capacity to learn—the impact of the AI revolution will be far greater than that of any previous technological revolution.

One of the impacts will be to further accelerate the decoupling of gains in productivity from gains in the standard of living for the middle class. In the past, improvements in economic efficiency have generally led to improvements in wages for the majority, but when the substitution
of technology capital for labor creates the elimination of very large numbers of jobs, a much larger proportion of the gains go to those who provide the capital. The fundamental relationship between technology and employment is being transformed.

This trend is now nearing a threshold beyond which so many jobs are lost that the level of consumer demand falls below the level necessary to sustain healthy economic growth. In a new study of the Great Depression, Joseph Stiglitz has argued that the massive loss of jobs in agriculture that accompanied the mechanization of farming led to a similar contraction of demand that was actually a much larger factor in causing the Depression than has been previously recognized—and that we may be poised for another wrenching transition with the present ongoing loss of manufacturing jobs.

New jobs can and must be created, and one of the obvious targets for new employment is the provision of public goods in order to replace the income lost by those whose employment is being robosourced and outsourced. But elites who have benefited from the emergence of Earth Inc. have thus far effectively used their accumulated wealth and political influence to block any shift of jobs to the public sector. The good news is that even though the Internet has facilitated both outsourcing and robosourcing, it is also providing a new means to build new forms of political influence not controlled by elites. This is a major focus of the next chapter.