Welcome to the Digital Economy - and Good Luck!
We are living through a time when technology is changing history. It is not the first time. But learning about history in a classroom or museum is one thing. Living through it is another.
For us, the explosion of digital connectivity and the digital applications it makes possible knows no parallel. Carrying a supercomputer in your pocket or handbag and having it connected to devices belonging to billions of others has turned the world upside down.
A Tale of Tech Giants
Just consider the story of three of today's Tech Giants. Facebook started life as project in a campus dorm room. Just 14 years later, the company had 2 billion users and 14 earned $30 billion in revenue. That's utterly impossible. Impossible. Yet it happened. In the process, it has created new markets and jobs, and years has minted enormous wealth for some while also driving competing companies into extinction and sparking growing concerns about privacy and the power of unregulated online media to foster hate, create division and undermine democracy.
The biggest hotel company in the world is not Hilton, Marriott or Hyatt. It is Airbnb. Only ten years after its founding in 2008, it was offering over 4 million listings in 65,000 cities, and analysts estimated its total value at $32 billion. All without owning any of the property it brings to market, which it does entirely through the internet and a mobile app. It has given property owners new ways to generate income. It has also brought unwelcome crowding and noise to many neighborhoods and may be worsening the problem of homelessness.
The world's biggest retailer does not - unlike Walmart, Tesco or Carrefour - own any of the inventory it sells. It is the Chinese company Alibaba, which operates a 100% online marketplace connecting buyers and sellers. It was founded in 1999, taking its name from a character in the Arabian Nights. Just nineteen years later, it earned $39 billion from a platform used by 550 million customers. It has made e-commerce available to millions of businesses and driven quite a few of them under.
Numbers like these give us a sense of the scope and scale of the change. To understand its sheer power, you need only look at your own life. It is all but impossible to apply for a job that pays a living wage unless you do it online. Your children will fall behind in school unless they can use the internet to do their homework. We worry about screen time and phone addiction, cyberbullying and revenge porn. Your digital life can be locked up by ransomware and bad attempts at humor on social media can cost you your job and your reputation. It's a bizarre world the Tech Giants have created with our eager assistance and its impact run deeper than most of us can imagine.
A Tale of Two Economies
Six decades ago, a famed Finnish architect named Alvar Aalto built a red-brick paper mill in Hamina, a town of 20,000 in southeastern Finland. It closed its doors in 2008, victim of competition from much lower-cost countries. The next year, however, it was bought by Google, which transformed it into a data center. More than 2,000 people working for 50 different companies contributed to the project, which employs 125 people in full-time and contractor roles in engineering, technical work, security, food service and maintenance.
That's the positive news from the digital economy. But the story has a dark side as well.
In 2015, the three biggest Tech Giants Apple, Facebook and Google generated $1 trillion in sales and employed 137,000 people. Compare that to 1990, when the three biggest automakers GM, Ford and Chrysler generated US$65 billion in sales (measured in 2015 dollars). To do it, they employed a bit more than one million people.
Those two sets of numbers tell the story of economic disruption wrought by digital technologies. The biggest growth businesses of the 21st Century employ a paltry number of people per dollar or euro or yen or renminbi earned, compared with the growth industries of yesterday. Going a step further, many of the highgrowth Tech Giants are doing more than that. In the US, visits to shopping malls fell 50% from 2010 to 2013 and have fallen every year since. Even before COVID19 lockdowns decimated retailing, department stores had lost 18 times more workers than coal mining since 2001.
Why? E-commerce, of course, led by Tech Giant Amazon, which accounted for 44% of all US e-commerce sales in 2017.2 Worldwide e-commerce sales more than doubled to $2.8 trillion from 2014 to 2018.3 E-commerce is expected to become the largest retail sales channel in the world by 2021.4 The upside, according to economist Michael Mandel, is that e-commerce has created 355,000 new jobs in the warehouses, shipping and other back-office work. Those new jobs pay better than traditional retail jobs and wages are growing fast. But they also require more education than is typical for retail workers, which spells trouble for most.
These changes are creating two economies, which offer completely different experiences to those inside them. Call them the Gold Economy and the Copper Economy.
In the Gold Economy, workers find good jobs in growth industries like information technology and digital services as well as finance, advanced manufacturing and the upper levels of healthcare and government. They add big value to their employers, whether measured in profit, productivity or effectiveness, and get paid good wages in return. They can afford to live in prosperous neighborhoods that offer attractive retail, strong schools and rewarding social and cultural institutions. They complain about the unrelenting pace of work running faster and faster just to keep up but they also reap the gold.
Copper is useful stuff. We couldn't live without it to carry electricity, communications and water. But it's also what pennies are made of, at least in the United States. In the Copper Economy, workers are stuck in menial jobs that generate only small value for their employers. That keeps their wages low. They work in food services and accommodation, transportation, domestic service, manual healthcare and social services, building administration and waste services. They live paycheck-to-paycheck in places with poor housing, limited and costly retail outlets and too little in the way of culture or entertainment.
They have something else in common, too. They probably do not live in the Copper Economy by accident. They are more likely to be members of minority groups that have felt the sharp end of racism for generations, if not centuries. Their grandparents and parents and they themselves are more likely to have been actively discriminated against throughout their lives in employment, education, housing and voting. They are Black and Native and Latino Americans. They are Black Brazilians or South Africans, the Aborigines of Australia and Maori of New Zealand, the Dalit of India, the Rohingya of Myanmar and the descendants of Turkish guest workers in Germany and Arab immigrants in France.
The death of George Floyd under the knee of an American police officer in 2020 was a uniquely American event, tied as it was to centuries of slavery and its extension by unjust laws and racism embedded in American culture. Yet protests in George Floyd's name sprang up all around the world because the denial of opportunity, equality and humanity to minorities is a universal sin.
The awakening to injustice, whether momentary or lasting, adds weight to the fundamental question facing every town, city and region in the world. How can your local economy be more Golden than Coppery and how widely will the gold be shared? This is the question to which the rest of this book is devoted.
The Toll of Machine Intelligence
And if you think this question matters today, you ain't seen nothing yet. The rise of machine learning and artificial intelligence is expected to replace many of the job functions that humans currently perform. While few categories of employment will disappear altogether, artificial intelligence will drive decline in some jobs and disruption in many more.
About 5% of occupations could have close to 100% of their tasks automated
- Sewing machine operators
- Assembly line workers
- Motor vehicle operators
- Warehouse workers
About 60% of occupations could have 30% of their tasks automated
- Office and administrative staff
- Management and business operations
- Web developers
- Nursing assistants
The storm of disruption in the economy will eventually ease, as it always has. We will go through a period of adaptation and absorption, as we learn to make our digital tools serve us more than we serve them. But in the meantime, every community faces a choice. The challenges are great but so are the opportunities to produce a future more promising than the past. For all the disruption brought by technology, it also offers new hope.
For three thousand years, we have only known one way to spark economic growth and the social and cultural growth that follows it: to concentrate a large number of people in a small geographic area called a city, so they can do business, exchange knowledge, invent new things and amass new wealth. Today, the United Nations forecasts a continued rise in the economic prospects of the world's developing nations and that has led in a straight line to forecasts that most of the world's people will live in megacities, from Tokyo and New York to Jakarta, Delhi, Manila, Sao Paulo, Bangkok and Kolkata.
The flip side of that forecast is a massive depopulation of everywhere else economic decline, social breakdown and cultural poverty together with a rise of urban ills in the megacities, from congestion and pollution to inequality and homelessness.
It doesn't have to be that way.
Digital technologies are already making it possible for people with the right skills to earn their living almost anywhere. They are a tiny minority of the population today but where those individuals go today, companies will follow. They are following now. Even very small companies today may have employees spread across countries and around the world.
By its nature, digital tech is distributive. It does not require centralization of people and resources. It encourages the creation of many hubs of talent, expertise and market access, and by networking them together, creates a virtual whole much greater than the sum of the individual parts. It opens a path for the midsize and even small city to chart an independent economic destiny that preserves what its people love most about it while creating the future they dream about.
It will not make the big city obsolete indeed, so far, it is hastening the concentration of talent in urban cores. But it opens a new path for small-to-midsize cities to build the same kind of economic, social and cultural dynamism found in the world's leading cities. On a different scale, certainly. Lacking the crazy energy, the masking anonymity and the apparently bottomless potential of the big city. But possessing attributes just as valuable: a human scale, lower costs of living, ease of getting around, more natural beauty in most cases, and generally a much easier time getting things done.
We know that it is possible, that it is happening now, because we follow the cities that are doing it. Places like the Sunshine Coast in Queensland, Australia and Whanganui in New Zealand. Like Chattanooga, Tennessee and Mitchell, South Dakota in the US. Or Waterloo, Ontario and Abbotsford, British Columbia in Canada, or Eindhoven, Netherlands or Espoo, Finland. These are places you have probably never heard of, but where the future of our world is being written.
That future had already become clear before the COVID19 pandemic gave the world another reason not to concentrate too much economic activity in a few big places. Social distancing the only proven way to keep infectious diseases under control demonstrated with shocking suddenness the power of broadband to enable economic, social and cultural activity. It substituted for classroom education, for conferences, for customer meetings and happy hour socializing. Admittedly, it did none of these things really well. That's hardly surprising, since this was our first experience at making serious use of its capabilities. But there was no avoiding the lesson: geographic dispersion coupled with connectivity can offer an extra layer of resilience in the face of threats, whether they are natural disasters or terrorist attacks.
The path to true distributed development is not easy or quick. For each of these cities and hundreds more, it has taken vision, an engaged community, strong leadership and the willingness to play the long game. But the model they have proven is available to any city, town, country or region willing to start the journey and stick to the road. And the first step, as an economic development leader of a small city once told us, doesn't cost a thing. The first step is to change your mind.