Wednesday, November 26, 2014

The Internet’s Next Act

BERKELEY – Ten years ago, the world emerged from the dot-com bust and started to look more soberly at the Internet’s potential. While speculative greed and fear of missing out might have overplayed the short-term outlook, the Internet’s immense longer-term prospects were never in doubt. I, and other optimistic economists, assumed that free information and communication would herald an era of rapid productivity growth and improved wellbeing – to a greater or lesser extent – for everyone, regardless of their skills, wealth, or social background. Were we right?

In many respects, the revolution in information and communications technology (ICT) has delivered more than it promised – and often in unpredictable ways. For many, the true marvel of the digital age is its creation of a parallel universe. Anyone with a laptop and an Internet connection can gossip with (or about) virtual friends; witness extraordinary events that may or may not have happened; or play games in a mock world of incomparable complexity.

The Internet has created a dreamscape that is accessible to all and that can inspire us to still greater heights of imagination. Indeed, those who scoff at the value of this should remember that ever since Homer sang around the hearth fire about the wrath of Achilles, dreams have been our greatest source of pleasure and inspiration.

But the benefits of the Internet have come not just to those who work or play online. Everyone has gained to some degree. Go to a WalMart, Costco, Tesco, or Lidl superstore anywhere in the world, and compare the price, quality, and range of today’s goods with those of a generation or two ago. This dramatic change for the better largely reflects the rapid development of global supply chains, with real-time monitoring of customer preferences enabling manufacturers located on the other side of the world to know instantly what, when, and how much to produce.

There is much more to come. Companies are using the Internet to “crowdsource” new ideas, and even let customers co-design their own products. New Web-based platforms allow ordinary people – without money or special skills – to share their cars, spare bedrooms, or even do-it-yourself tools, thus challenging the dominance of global corporations. The “Internet of Things” is connecting simple household items – like a thermostat – to the Web, helping owners to save money and even reduce their carbon emissions.

And yet we must still ask: Is everyone really benefiting in the new economy? Only a fortunate few, especially those who combine innovative thinking with financial acumen, have fully captured the monetary profits of the ICT revolution, becoming its poster children in the process.

Lower down the economic scale, most people, though enjoying easy access to technology and low prices, have lost ground, with real wages falling for many years. This is not a temporary decline: labor in advanced Western economies can no longer command a large wage premium, and workers’ situation may worsen further.

Moreover, white-collar managers and employees – the brainpower that keeps the intricate global corporate machinery whirring, and once the backbone of the middle class – are no longer in such high demand. Many of their skills, which long underpinned their status, careers, and livelihoods, are becoming redundant.

For today’s ordinary middle-class family, a medical mishap can become a financial catastrophe. Owning a home involves a life of indebtedness. Providing a decent education to one’s children requires struggle and sacrifice. The assumptions that defined middle-class households – and many working-class households – for at least two generations are disappearing before our eyes.

Who is speaking out for them? Most households stand to gain from the continuation of the ICT revolution. But middle-class and working-class families would benefit more if the hyper-cheap products and services, free information, and virtual leisure experiences augmented, rather than eroded, their marketable skills. The politician who can figure out how to steer the revolution accordingly might never lose another election.

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    1. CommentedMarten Klein

      You can't blame the exceptionalism of US medial system within the Western nations on the economy, that system a deliberate choice of the United States population or political system.

    2. CommentedCurtis Carpenter

      If a politician who can figure out how to steer the revolution accordingly emerges, I suspect it will mark the tragic end of most, if not all, of the internet's potential. And speaking as one committed to liberal hopes -- how could the author overlook the potential long-term impact of Massively Open Online Courses (MOOCs) that have brought ideas and insight to people all over the world?

        CommentedEllie Kesselman

        MOOCs haven't brought much of anything to the world! Not yet, maybe never. As for the Internet's potential, it isn't the technology's fault, recent "innovations" e.g. Uber, are not realizing the Internet's wonderful potential either.

    3. CommentedAndré Fonteyne

      Great article as usual
      It reminds me of this one

        CommentedEllie Kesselman

        That Salon post is excellent! It is one of my favorites.
        Thank you for the reminder.

    4. CommentedXWilma Roscoe

      Superb 'big picture’ description!

        CommentedNathan Coppedge

        Some information about my experiments can be purchased in book form. It is titled Scientific Papers, and is by Nathan Coppedge.

        CommentedNathan Coppedge

        As a warning, it is the simplest possible perpetual motion concept, and has only been proven to have a tendency towards circular movement. Additionally, I think I have evidence that objects can roll upwards, in a separate experiment.

        CommentedNathan Coppedge

        The website for the Escher Machine is Wikimedia Commons. The image is also available at Wikipedia (EN) under a multimedia search, and at my primary website at

        CommentedNathan Coppedge

        One question to raise is 'how to stay ahead of the curve now?' There is a genuine possibility that any major new innovation will be beyond any convention of reasoning.

        For example, in my own work, I have found evidence of simple perpetual motion machines (see engineering videos at Academic Room or search Youtube for 'master angle' or 'successful over-unity experiment' or search Wikimedia for 'Escher Machine'). Clearly this kind of innovation has been shunned by scientists, according to everyone without the most paranoid imagination.

    5. CommentedProcyon Mukherjee

      A thought provoking article by Delong, but I am curious that all our minds as investors are so overwhelmed with the prospects of internet that almost every IPO goes through the roof on expectations, while simultaneously our minds continue to ignore the fact that we are creating virtually far lower pool of consumers in the long term going by the purchasing power; this is the greatest remiss of our times.

        CommentedEllie Kesselman

        It IS an oddly short-sighted way of thinking! Investors ignore the fact that the tech companies in which they invest, if successful, will decrease consumer purchasing power.

        The same is true for data-mining in order to devise more granular targeted advertising. Ultimately, it will be useless if the potential customers, the current lower and middle classes, have too little wealth or insufficient income to make purchases. I'm not certain that most households will benefit from the ICT revolution for much longer, not while their marketable skills continue to lose value.