Professor William Brian Arthur 67, is a mathematician and economist. At present, he is serving as a guest scholar in the Intelligent Systems Lab at the Palo Alto Research Center (PARC). His work focuses on fundamental economic and technology development issues. While working at the Santa Fe Institute, Arthur developed a theory that views the economy as a complex system that develops within the framework of an evolutionary process. In his latest book, "The Nature of Technology," Arthur examines the question of how innovations are created. He believes that networked computers and sensors are forming a digital nervous system that will autonomously control our economy in the future.
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Professor Arthur, what does the term “Second Economy” mean?
Arthur: Right now, I’m sitting in an office at Xerox PARC in Palo Alto — in other words, in the middle of Silicon Valley. It therefore makes sense for me as an economist to take a closer look at the so-called digital revolution, which most people associate with two things: computers and the increasing level of networking between them. Still, it seems to me that something more complex is going on, namely that more and more business processes are being carried out by machines without any human involvement whatsoever. In other words, a second digital economy in which servers “talk” to each other and conduct transactions is now taking shape alongside the economy we’re familiar with — the one that involves physical objects and services provided by people. That’s what I mean by the “Second Economy.”
How does this business world of machines work in practice?
Arthur: When you went to an airport 20 years ago, you walked up to a counter where someone checked you in. Today, you insert a frequent flyer or credit card in a terminal and immediately trigger a “conversation” between computers all over the world: Once your name has been recognized, computers check the status of your flight and gather data on your past flights, after which your information is compared with the databases of government authorities. The machines then assign you a seat, update your mileage status, and determine whether you’re entitled to access airport lounges. These “conversations” are carried out by servers, routers, satellites, Internet computers, and other machines. It is only after all these operations have been carried out that you’re issued your boarding card. The entire process is largely autonomous without any human involvement. After it’s completed, the results “appear” in our familiar physical world.
What role does the Internet play here?
Arthur: It plays a major role, but not all machine-to-machine communication is carried out via the Internet because most internal digital business processes are conducted via private networks, for example. So the Internet does play an important role in the Second Economy, but it’s not the only system involved.
What’s driving the Second Economy?
Arthur: Networked machines help make many processes faster and less expensive. They also make it possible to distribute processes worldwide. Moreover, it’s not just computers but also an increasing number of sensors that are being linked around the world. Trucks carry cargo with RFID tags that communicate with sensors, for example, and those sensors talk to computers that themselves are networked with other computers in a system that optimizes supply chains. What we’re seeing is the dawn of an economy that’s becoming increasingly automated thanks to sensors. This is also having a real effect on our everyday lives and will continue to do so. For example, I believe that in around ten years, you’ll be able to drive in Los Angeles in vehicles with an autopilot function whose sensors allow them to determine the position of other cars. There will also be intelligent traffic lights that optimize traffic flows. Once again, all of this involves machines that communicate with other machines — automobiles with other vehicles in their vicinity, and automobiles with traffic guidance systems. In other words, we’re moving toward an autonomous economic system that can be compared to the human immune system, which also operates autono-mously rather than being centrally controlled by the brain.
What impact will all of this have on the economy of tomorrow?
Arthur: Take production, for example. Here we’ll be seeing robots whose sensors enable them to recognize specific situations and respond flexibly to them. They will no longer be blind, so to speak. And that means they won’t be limited to rigid predefined tasks. This will increase efficiency and cause manufacturing industries to expand once again in the U.S, and Europe, which in turn could create and safeguard jobs in high-wage regions.
But isn’t it also true that increasing levels of machine autonomy will result in a loss of jobs?
Arthur: Yes, those people that used to check you in at the airport immediately come to mind. We’re moving toward an economy that will produce more things than we ever could have imagined. The economist John Maynard Keynes predicted 80 years ago that we would be able to manufacture a tremendous volume of products and provide a huge number of services in the future. He said that the problem would be how to distribute this wealth. We will probably have more free time in the era of the Second Economy because machines will do a lot of the work for us. Society will need to address this challenge, whereby one answer might be to subsidize new jobs — for example, in the social services sector — for the interest of the public at large. Perhaps we’ll also have shorter working hours and more vacation, which would allow the work that remains to be better distributed. The road might be quite rough here because a lot of jobs considered secure could disappear as we move through the transition.
How quickly do you expect the Second Economy to grow?
Arthur: It’s already important because many processes are now carried out autonomously on Wall Street and in other financial markets, for example. Still, no one knows exactly how big the Second Economy is at the moment. I would estimate that it’s already half the size of the traditional economy and will catch up to it by 2030. It’s going to be a huge upheaval.
You’ve described this as the biggest upheaval that the global economy has ever experienced. Why?
Arthur: I’m more or less skeptical by nature — but the changes that will be brought about by the Second Economy are simply huge. We’re not just talking about greater productivity; instead we’re looking at a transformation of the character of the economy. During the industrial revolution, steam engines and electric motors increasingly took over production — machines suddenly became the “muscles” of the economy. Today’s networked sensors and computers are creating a “nervous system” that autonomously and intelligently controls these muscles without human intervention. That’s why I think the upheaval will be at least as big as the industrial revolution, probably even bigger.
Will this new world be better than the one we live in now?
Arthur: There’s definitely a very good chance that it will be — provided we address certain issues like ensuring a good education for broad segments of the population and a fair distribution of jobs. However, if we simply observe this development without doing anything, we may see social tensions rise. We could learn a lot here from the problems associated with the industrial revolution as described in the novels by Charles Dickens. Society ultimately solved these problems, and I’m optimistic that we’ll succeed in doing so in the future as well.