by Michio Kaku
(But the good thing is that unknown singers can now rise to the top, without having to face the de facto censorship of the big music companies. In the past, these music moguls could almost choose who the next rock star would be. So, in the future, the top musicians will be chosen more democratically, via a free-for-all involving market forces and technology, rather than by music business executives.)
Newspapers are also facing a similar dilemma. Traditionally, newspapers could rely on a steady stream of revenue from advertisers, especially in the classified ads section. The revenue stream came not so much from the purchase of the paper itself, but from the ad revenue those pages generated. But now we can download the day’s news for free and advertise nationwide on a variety of online want-ads sites. As a consequence, newspapers around the country are shrinking in size and circulation.
But this process will continue only so far. There is so much noise on the Internet, with would-be prophets daily haranguing their audience and megalomaniacs trying to push bizarre ideas, that eventually people will cherish a new commodity: wisdom. Random facts do not correlate with wisdom, and in the future people will be tired of the rants of mad bloggers and will seek out respected sites that offer this rare commodity of wisdom.
As economist Hamish McRae has said, “In practice, the vast bulk of this ‘information’ is rubbish, the intellectual equivalent of junk mail.” But he claims, “Good judgment will continue to be highly valued: successful financial analysts are, as a group, the best paid researchers in the world.”
THE MATRIX
But what about Hollywood actors? Instead of becoming box-office celebrities and the talk of society, will actors find themselves on the unemployment line? Recently, there has been remarkable progress in computer animations of the human body, so that it appears nearly real. Animated characters now have 3-D features and shadowing. So will actors and actresses become obsolete anytime soon?
Probably not. There are fundamental problems modeling the human face by computer. Humans evolved an uncanny ability to differentiate one another’s faces, since our survival depended on it. In a flash, we had to tell if someone was an enemy or a friend. Within seconds, we had to rapidly determine a person’s age, sex, strength, and emotion. Those who could not do this simply did not survive to pass on their genes to the next generation. Hence, the human brain devotes a considerable amount of its processing power to reading people’s faces. In fact, for most of our evolutionary history, before we learned how to speak, we communicated through gestures and body language, and a large part of our brain power was devoted to looking at subtle facial cues. But computers, which have a hard time recognizing simple objects around them, have even greater difficulty recreating a realistic animated human face. Kids know immediately if the face they see on the movie screen is a real human or a computer simulation. (This goes back to the Cave Man Principle. Given a choice between seeing a live-action blockbuster action movie with our favorite actor or seeing a computer-animated cartoon action picture, we will still prefer the former.)
The body, by contrast, is much easier to model by computer. When Hollywood creates those realistic monsters and fantasy figures in the movies, they use a shortcut. An actor puts on a skintight suit that has sensors on its joints. As the actor moves or dances, the sensors send signals to a computer that then creates an animated figure performing the precise movements, as in the movie Avatar.
I once spoke at a conference sponsored by the Livermore National Laboratory, where nuclear weapons are designed, and at dinner sat next to someone who had worked on the movie The Matrix. He confessed that they had to use an enormous amount of computer time to create the dazzling special effects in that movie. One of the most difficult scenes, he said, required them to completely reconstruct an imaginary city as a helicopter flew overhead. With enough computer time, he said, he could create an entire fantasy city. But, he admitted, modeling a realistic human face was beyond his ability. This is because when a light beam hits the human face, it scatters in all directions, depending on its texture. Each particle of light has to be tracked by computer. Hence, each point of skin on a person’s face has to be described by a complex mathematical function, which is a real headache for a computer programmer.
I remarked that this sounded very much like high-energy physics, my specialty. In our atom smashers, we create a powerful beam of protons that slams into a target, creating a shower of debris that scatters in all directions. We then introduce a mathematical function (called the form factor) that describes each particle.
Half jokingly, I asked if there was a relationship between the human face and high-energy particle physics? Yes, he replied. Computer animators use the same formalism used in high-energy physics to create the faces you see on the movie screen! I never realized that the arcane formulae that we theoretical physicists use may one day crack the problem of modeling the human face. So the fact that we can recognize the human face is similar to the way we physicists analyze subatomic particles!
IMPACT ON CAPITALISM
These new technologies that we have been discussing in this book are so powerful that, by the end of the century, they are bound to have an impact on capitalism itself. The laws of supply and demand are the same, but the rise of science and technology has modified Adam Smith’s capitalism in many ways, from the way that goods are distributed to the nature of wealth itself. Some of the more immediate ways in which capitalism has been affected are as follows:
• Perfect capitalism
The capitalism of Adam Smith is based on the laws of supply and demand: prices are set when the supply for any good matches the demand. If an object is scarce and in demand, then its price rises. But the consumer and producer have only partial, imperfect understanding of supply and demand, and hence prices can vary widely from place to place. So the capitalism of Adam Smith was imperfect. But this will gradually change in the future.
“Perfect capitalism” is when the producer and the consumer have infinite knowledge of the market, so that prices are perfectly determined. For example, in the future, consumers will scan the Internet via their contact lenses and have infinite knowledge of all comparative prices and performances. Already, one can scan the Internet to find the best airline fares. This will eventually apply to all products sold in the world. Whether through eyeglasses, wall screens, or cell phones, consumers will know everything about a product. Going through a grocery store, for example, you will scan the various products on display and, via the Internet in your contact lens, immediately evaluate if the product is a bargain or not. The advantage shifts to the consumers, because they will instantly know everything about a product—its history, its performance record, its price relative to others, and its strengths and liabilities.
The producer also has tricks up his sleeve, such as using data mining to understand the wants and needs of the consumer, and scanning the Internet for commodity prices. This removes much of the guesswork in setting prices. But in the main, it is the consumer who has the advantage, who instantly has comparative knowledge of any product, and who demands the cheapest price. The producer must then react to the constantly changing demands of the consumer.
• Mass production to mass customization
In the present system, goods are created by mass production. Henry Ford once famously said that the consumer could have the Model T in any color, as long as it’s black. Mass production drastically lowered prices, replacing the inefficient, older system of guilds and handcrafted goods. The computer revolution will change all this.
Today, if a customer sees a dress of the perfect style and color but the wrong size, then there is no sale. But in the future, our precise 3-D measurements will be stored in our credit card or wallet. If a dress or other garment is the wrong size, you will e-mail your measurements to the factory and have it immediately produce one in the right size. In the future, everything will fit.
Mass customization today is impractical, since it is too costly to create a new product just for on
e consumer. But when everyone is hooked to the Internet, including the factory, custom-made objects can be manufactured at the same price as mass-produced items.
• Mass technology as a utility
When technologies become widely dispersed, such as electricity and running water, they eventually become utilities. With capitalism driving down prices and increasing competition, these technologies will be sold like utilities, that is, we don’t care where they come from and we pay for them only when we want them. The same applies for computation. “Cloud computing,” which relies heavily on the Internet for most computing functions, will gradually gain in popularity. Cloud computing reduces computation to a utility, something that we pay for only when we need it, and something that we don’t think about when we don’t need it.
This is different from the situation today, when most of us do our typing, word processing, or drawing on a desktop or laptop computer and then connect to the Internet when we want to search for information. In the future, we could gradually phase out the computer altogether and access all our information directly on the Internet, which then charges us for the time spent. So computation becomes a utility that is metered, like water and electricity. We will live in a world where our appliances, furniture, clothes, etc., are intelligent, and we will talk to them when we need specific services. Internet screens are hidden everywhere, and keyboards materialize whenever we need them. Function has replaced form, so, ironically, the computer revolution will eventually make the computer disappear into the clouds.
• Targeting your customer
Companies historically placed ads in newspapers, on radio, on TV, etc., often without the slightest idea of the impact the ads had. They could calculate the effectiveness of their ad campaign only by looking at upticks in sales. But in the future, companies will know almost immediately how many people have downloaded or viewed their products. If you are interviewed on an Internet radio site, for example, it is possible to determine precisely how many people have listened. This will allow companies to target their audience to tailor-made specifications.
(This, however, raises another question: the sensitive question of privacy, which will be one of the great controversies of the future. In the past, there were worries that the computer might make Big Brother possible. In George Orwell’s novel 1984, a totalitarian regime takes over the earth, unleashing a hellish future in which spies are everywhere, all freedoms are squashed, and life is an unending series of humiliations. At one point, the Internet might have evolved into such an all-pervasive spying machine. However, in 1989, after the breakup of the Soviet bloc, the National Science Foundation in effect opened it up, converting it from a primarily military device to one that networked universities and even commercial entities, eventually leading to the Internet explosion of the 1990s. Today, Big Brother is not possible. The real problem is “little brother,” that is, nosy busybodies, petty criminals, tabloid newspapers, and even corporations that use data mining to find out our personal preferences. As we will discuss in the next chapter, this is a problem that will not go away but will evolve with time. More than likely, there will be an eternal cat-and-mouse game between software developers creating programs to protect our privacy and others creating programs to break it.)
FROM COMMODITY CAPITALISM TO INTELLECTUAL CAPITALISM
So far, we have asked only how technology is altering the way capitalism operates. But with all the turmoil created by the advances in high technology, what impact is this having on the nature of capitalism itself? All the turmoil that this revolution is creating can be summarized in one concept: the transition from commodity capitalism to intellectual capitalism.
Wealth in Adam Smith’s day was measured in commodities. Commodity prices fluctuate, but on average commodity prices have been dropping steadily for the past 150 years. Today, you had breakfast that the king of England could not have had 100 years ago. Exotic delicacies from around the world are now routinely sold in supermarkets. The falling of commodity prices is due to a variety of factors, such as better mass production, containerization, shipping, communication, and competition.
(For example, today’s high school students have a hard time understanding why Columbus risked life and limb to find a shorter trade route to the spices of the East. Why couldn’t he simply go to the supermarket, they ask, and get some oregano? But in the days of Columbus, spices and herbs were extremely expensive. They were prized because they could mask the taste of rotting food, since there were no refrigerators in those days. At times, even kings and emperors had to eat rotten food at dinner. There were no refrigerated cars, containers, or ships to carry spices across the oceans.) That is why these commodities were so valuable that Columbus gambled his life to get them, although today they are sold for pennies.
What is replacing commodity capitalism is intellectual capitalism. Intellectual capital involves precisely what robots and AI cannot yet provide, pattern recognition and common sense.
As MIT economist Lester Thurow has said, “Today, knowledge and skills now stand alone as the only source of comparative advantage …. Silicon Valley and Route 128 are where they are simply because that is where the brainpower is. They have nothing else going for them.”
Why is this historic transition rocking the foundation of capitalism? Quite simply, the human brain cannot be mass-produced. While hardware can be mass-produced and sold by the ton, the human brain cannot, meaning that common sense will be the currency of the future. Unlike with commodities, to create intellectual capital you have to nurture, cultivate, and educate a human being, which takes decades of individual effort.
As Thurow says, “With everything else dropping out of the competitive equation, knowledge has become the only source of long-run sustainable competitive advantage.”
For example, software will become increasingly more important than hardware. Computer chips will be sold by the truckload as the price of chips continues to plunge, but software has to be created the old-fashioned way, by a human working with pencil and paper, sitting quietly in a chair. For example, the files stored in your laptop, which might contain valuable plans, manuscripts, and data, may be worth hundreds of thousands of dollars, but the laptop itself is worth only a few hundred. Of course, software can be easily copied and mass-produced, but the creation of new software cannot. That requires human thought.
According to UK economist Hamish McRae, “in 1991 Britain became the first country to earn more from invisible exports (services) than from visible ones.”
While the share of the U.S. economy coming from manufacturing has declined dramatically over the decades, the sector that involves intellectual capitalism (Hollywood movies, the music industry, video games, computers, telecommunications, etc.) has soared. This shift from commodity capitalism to intellectual capitalism is a gradual one, starting in the last century, but it is accelerating every decade. MIT economist Thurow writes, “After correcting for general inflation, natural resource prices have fallen almost 60 percent from the mid-1970s to mid-1990s.”
Some nations understand this. Consider the lesson of Japan in the postwar era. Japan has no great natural resources, yet its economy is among the largest in the world. The wealth of Japan today is a testament to the industriousness and unity of its people, rather than the wealth under its feet.
Unfortunately, many nations do not grasp this fundamental fact and do not prepare their citizens for the future, relying instead mainly on commodities. This means that nations that are rich in natural resources and do not understand this principle may sink into poverty in the future.
DIGITAL DIVIDE?
Some voices decry the information revolution, stating that we will have a widening chasm between the “digital rich” and the “digital poor,” that is, those with access to computer power and those without. This revolution, they claim, will widen the fault lines of society, opening up new disparities of wealth and inequalities that could tear at the fabric of society.
But this is a narrow pictu
re of the true problem. With computer power doubling every eighteen months, even poor children are getting access to computers. Peer pressure and cheap prices have encouraged computer and Internet use among poor children. In one experiment, funds were given to purchase a laptop for every classroom. Despite good intentions, the program was widely viewed as a failure. First, the laptop usually sat unused in a corner, because the teacher often did not know how to use it. Second, most of the students were already online with their friends and simply bypassed the classroom laptop.
The problem is not access. The real problem is jobs. The job market is undergoing a historic change, and the nations that will thrive in the future are those that take advantage of this.
For developing nations, one strategy is to use commodities to build a sound foundation, and then use that foundation as a stepping-stone to make the transition to intellectual capitalism. China, for example, has been successfully adopting this two-step process: the Chinese are building thousands of factories that produce goods for the world market, but they are using the profits to create a service sector built on intellectual capitalism. In the United States, 50 percent of the Ph.D. students in physics are foreign born (largely because the United States does not produce enough qualified students of its own). Of these foreign-born Ph.D. students, most are from China and India. Some of these students have returned to their native countries to create entirely new industries.