A summarized version of this essay was written for the Startup Genome’s 2017 Startup Ecosystem Report which came out in March. This is the full essay, which was originally written in Dec/Jan 2017 and is just being released now. The 2015 Startup Genome report can be downloaded here and the 2017 Startup Genome report can be downloaded here.
The 2017 Report unveils insights from 10,000+ startups in 50+ regions including:
- Global rankings and benchmarks on key factors such as funding, talent, market reach, corporate involvement, ambition, overall performance, and more.
- A snapshot of region-specific data that highlights an ecosystem’s current state.
- Trend essays that address the global connectedness of startup founders, concentration of respective value creation, and the urgency for cities to invest now.
In the 2015 Startup Ecosystem Report, we talked about the great transition society is in the midst of, as the Industrial Era jobs and institutions decline towards death and the Information Era matures and blooms.
The transition continues to march forward over the last year. If there was any hope before that the status quo establishment of the elites would be able to manage a smooth, prosperous and equitable transition, there is less now. The decline of the Industrial Era may have been subtler, and easy to ignore in years past. Over the last year, the economic hardship felt by the losers of this transition made itself center stage in the political scene with waves of populist backlash in Europe with the Brexit vote and in the USA with the election of Donald Trump. The populist backlash is likely only in its beginning stages.
The global economy as a whole is also in a precarious place. While we’ve nominally been in recovery since 2009, it has been one of the weakest recoveries in history. Growth rates over the past few years have been anemic compared to previous economic expansions. There are sky high debt levels across consumers, corporations and countries, which are all being buoyed by historically low interest rates. Wealth inequality is rising fast and geopolitical tensions are heating up. We’ve been blessed by very low volatility the last few years, but we also are in many ways dependent on it. There is not much slack left in the system now to enable a resilient response if we encounter choppy waters and risk perception, fear and interest rates all begin rising quickly.
Significant economic, political and cultural volatility seems inevitable in the next decade.
The long range economic potential and societal impact of new technology is one of the few certainties. Technology companies continue to become a bigger percentage of the world economy. They have overtaken Oil and Gas companies to become the largest public companies in the world, the private market is bursting with billion dollar unicorn valuations unseen before in history, and many non-technological industries are either dying at its hands or becoming one with it.
The first five information technology waves of Defense, Integrated Circuits, the Personal Computer, the Internet and Social Media, have dramatically transformed society. But the waves that are coming in the next 20 years, will make what’s come to pass look like a child’s surfing competition.
Self-Driving Cars, Artificial Intelligence, Robotics and Virtual Reality are just a few of the fast approaching societally transformative technologies coming in the next wave.
All of these technologies portend a future with great increases in productivity and prosperity, but also some of the biggest employment dislocations in human history. An MIT study projects half of all jobs will be automated by 2034.
Where will all this technology be created and commercialized? A majority of this future technology will likely be brought into the world by entrepreneurs creating startups. And if you’ve been following our work, you know startups grow in startup ecosystems and die almost everywhere else.
Some of this technological future will come from large companies, but by and large these large companies still haven’t figured out how to reliably create disruptive innovation. Their role in the innovation landscape is predominantly as acquirers, where they grow acquired products, applying their capacity for efficiency and scale.
Taking a step back to describe the larger societal dynamic at play we see:
1) Technology becoming an increasing part of the economy
2) Major dissatisfactions with the status quo
3) Enormous wealth creation and societal game changing tech coming in the future
4) A majority of this innovation being created in startup ecosystems, which are heavily concentrated geographically.
An essential orienting frame for understanding the current state of the world, is that we are at a point of criticality. A liminal space between eras. The old world Industrial order is breaking down, and the new Information world order is in the process of taking over. This transition period is one of opposing forces of exponential creation and exponential destruction.
The long run victory of the new system has an inevitability to it, but the short term tug of war between these forces could create years or decades of economic and geopolitical chaos if the transition is not managed well.
The world is set up for a sharp differential between winners and losers. The winners in the new economy will win big and the losers will lose big. There are major societal issues about how to take care of the net losers in this transition. There will be major losses in most of economy due to the fact that they are not positioned to ride the coming waves of technological disruption.
In the forthcoming era of technological disruption the need for a robust social safety net will be paramount.
One of the best bets an economic region can place is on developing a startup ecosystem to enable it to participate in the new economy. Not only will those who work in the startup ecosystem obviously benefit, but the wealth generated by the startup ecosystem can generate the excess wealth needed to sustainably support the safety net.
In the next section we will take a deeper look at some of the key trends and data showing information technology’s growing importance in the economy today and forecasting a number of the key disruptions in the future.
Part 1 — Preeminent Accelerating Technological Growth
Technology’s Percentage of World Economy GDP is Growing
According to the research consultancy IDC, the global information technology (IT) industry market, encompassing hardware, software, services, and telecommunications, is expected to reach $3.8 trillion in 2016, up from $3.7 trillion the previous year. Other calculations exclude sectors that are not deflationary such as services, and come up with 1.6 Trillion/year or 2% of World GDP. This figure was just 1% of World GDP in 2004 and only about 0.5% of World GDP in 1992. So technology’s percentage of the world economy is growing exponentially. At this rate it will be 4% of world GDP by 2026 and 8% by 2038.
A PWC report on the future, expects the global economy to grow 3% per annum and double by 2038 to $150 Trillion per year. If technology keeps on its exponential pace, hitting the 8% figure, then deflationary technology sectors will be doing $12 Trillion in revenue in 2038 — $10.4 Trillion being net new revenue from today.
This is a very large amount of future growth for technology that portends a very bright future for technology businesses and in particular technology startups and startup ecosystems due to a variety of factors:
- A significant portion of the technology products that will make up the $12 Trillion in global annual GDP 20 years in the future likely doesn’t exist yet.
- Startups are much better at new disruptive innovation than large companies.
- Large tech companies have developed a more symbiotic relationship with startups. Companies such as Amazon, Apple, and Microsoft, have displayed strong competency over the last 5–10 years in developing complementary relationships with startups by providing platforms and infrastructure for them to develop on top of.
- Disruption cycles are speeding up.
Technology in Public Markets
A strong indication that we are in the middle of the passing of the batons between the Industrial era and the Information era is the recent milestone reached in July of 2016 where the World’s 5 largest public companies by market capitalization became all technology companies. The 5 companies Apple, Google (Alphabet), Microsoft, Amazon and Facebook and their market caps are shown in the graphic below, and beneath that the following 15 largest public companies by market cap. (This ranking however is fluid, and as of February 2017, Berkshire Hathaway as narrowly surpassed Amazon and Facebook for spot #3 — this fluidity we believe reinforces the notion that we are in the middle of this epochal transition, like the equilibrium state change between water and ice. Where some of the ice is turning to water and some of the water is turning to ice. Over the next 5–10 years we expect this transition to stabilize — up a level of in self-organization or down a level to re-consolidate is a fate that hangs in the balance.
Following is a graphic that shows the world’s previous largest companies were hallmarks and stalwarts of the Industrial era: Oil & Gas companies, General Electric and Wal-Mart.
Growing percentage of S&P 500
Technology companies have also steadily been becoming a larger percentage of the S&P 500. While technology has not returned to the peak it was at during the height of the dot-com bubble, the upward trendline is steady.
Additionally, here’s a table showing the top 15 internet companies in 1995 vs. 2015. The top 15 companies today represent $2.4 Trillion of market capitalization vs. 17 Billion in 1995. There’s also a strong robustness and enduring, bright potential for the majority of those 15 companies.
Tech in Private Markets: Huge Increase in Number of Unicorns
Public markets certainly don’t tell the whole story for the influence of technology on the economy anymore. Technology companies go public at a much later date in their maturity and at considerably higher valuations than they did in decades prior.
The last few years have seen the astounding rise of the Unicorn — the moniker for a startup with a Billion dollar valuation.
In 2014 there 45 Unicorns, as tracked by the Wall Street Journal, and as of January 2017 there are 154.
Here’s a graph of the number of companies over a billion and their respective valuations in 2014 and 2016.
Expanding Boundaries of Information Technology Companies
As Marc Andreessen, now famously proclaimed, software is eating the world — and one of the implications of that is many companies and industries that weren’t software companies are now compelled to become technology companies.
This is good news for startups and startup ecosystems, because it widens the markets they will be disrupting and significantly increases the pool of potential acquirers.
Take the Finance Sector — A NYT times article described how BlackRock, one of the world’s largest asset managers, transformed themselves, “from a bond shop catering to pension funds and insurance companies into an asset-gathering machine that uses advanced technology to reimagine how investors buy, sell and assess the risks of a wide variety of securities.”
The article goes on to state that “some analysts, in fact, argue that BlackRock should be valued as a technology company, as opposed to an asset manager.” This means BlackRock should get a higher multiple on it’s earnings because it’s not an asset manager, it’s a tech company.
As part of their transition to becoming more of a technology company, in 2016 they acquired FutureAdvisor, a robo-advisor backed by Sequoia Capital, for close to $200 Million.
Take the Industrial Sector — General Electric has unexpectedly become a significant acquirer of startups. In 2014, they bought a Wurldtech, a cyber-security firm from Vancouver. In 2016, they spent around $2 Billion dollars on 4 software startups that will enhance their Industrial IOT platform.
Lou Kerner, a prominent venture capitalist, describes the convergence of many non-information technology companies becoming information technology companies as such, “Just like every successful company started using electricity, and every successful company started using the telephone, every successful company is obviously deeply engaging with software. The winners and the losers in every industry are increasingly being determined, as in Blackrock’s case, by those companies most adept at imagining, developing and deploying software”.
Increasing Pace of Change of Technological Creation, Adoption and Value Creation
1. Increasing Pace of Change of Technological Creation
The pace of technological change is speeding up. On the production side, and on the market adoption side.
On the production side, the most famous driver of technological progress is Moore’s Law, which is the observation by Intel founder Gordon Moore, that number of transistors per square inch on an integrated circuit doubled approximately every two years. While Moore’s Law is limited to the exponential progress of semiconductors, there are similarly exponential progressions in storage capacity and memory. Moore’s Law is also situated within a larger trend of the exponential progress of computing.
Ray Kurzweil in his book the Singularity is Near explains that, “Moore’s Law of integrated circuits is only the most recent paradigm in a much longer and even more profound technological trend.
It is important to note that Moore’s Law of Integrated Circuits was not the first, but the fifth paradigm to provide accelerating price-performance. Computing devices have been consistently multiplying in power (per unit of time) from the mechanical calculating devices used in the 1890 U.S. Census, to Turing’s relay-based machine that cracked the Nazi enigma code, to the vacuum tube computer that predicted Eisenhower’s win in 1952, to the transistor-based machines used in the first space launches, to the integrated-circuit-based personal computer.”
Famed Venture Capitalist Steve Jurvetson, says of this graph, “I used to say that this is the most important graph in all the technology business. I’m now of the opinion that this is the most important graph ever graphed.”
Kurzweil packages the network of ideas and trends described here as the ‘Law of Accelerating Returns’ and contends that its exponential progress applies to anything that is or becomes an information technology.
We see this kind of exponential price performance improvements in areas outside of traditional computing such as solar energy and genome sequencing. The exponential improvement of Photovoltaic Panels is known as Swanson’s Law:
The National Human Genome Research Institute show the exponential decrease in the cost of genome sequencing, and plot Moore’s Law as the analogous explanatory trendline.
On the Market adoption side, the time it takes for a new technology to reach mainstream adoption is accelerating exponentially, to the point in the future where a new technology can have greater than 50% market penetration in just a few years, whereas before it would take decades.
The increased speed of adoption is in large part of due to increases in global connectivity. All or nearly all of the technologies listed here have played a role in increasing global connectivity. Therefore the increased speed of adoption of technology is in many ways a self-reinforcing compounding cycle that builds on itself. Televisions were advertised on Radio, Cell Phones were advertised on Television and Social Media spread on the back of the Internet. This recursive process is an example of Kurzweil’s Law of Accelerating Returns and what gives it its accelerating force.
In addition to technology speeding up the pace of adoption, social consciousness has changed strongly in the direction of an increased comfort and embrace of change. One area where that can be seen clearly is the increasing pace at which new social norms are adopted. This graph from Bloomberg shows how quickly Americans changed their mind on key social issues of their time:
The widespread adoption of same sex marriage was incredibly quick. Many expect a similar pace in the adoption of recreational marijuana. Ethical issues around future technology and technological enhancement are likely to face similar curves of adoption. However, given that we’re in this liminal space between eras, some short-term turbulence and backlash against technology and startups should be expected. Arguably, some of the energy of populist revolts like Brexit and Trump are due to the rapidity of changes in long standing Traditional social norms on issues like same-sex marriage. As the populace comes to understand that technology is more to blame for future job loss than globalization, technology startups may become a new targeted villain. Most of this angry conservative or ‘regressive’ energy hungering for the past is from the older generations. Millennials are typified for their open minds and progressivism, so as the population ages, the pace of adoption should tilt towards fast adoption of new technology.
Why does this matter for startups and startup ecosystems?
The exponential progress of technology is the biggest creator of opportunity for startups. It is what makes powerful incumbents obsolete and vulnerable to new angles of attack because the landscape is changing under their feet so drastically. When technologies improve exponentially new applications and platforms become possible and feasible, and second order effects appear as new ecosystems evolve around those new emergent possibilities.
Uber, the world’s biggest private unicorn, only had its window of opportunity open to disrupt the transportation industry once smartphones with sophisticated operating systems, sensors and application platforms became ubiquitous. Netflix needed high speed bandwidth to become ubiquitous before its media empire could balloon from a 5B dollar company in 2013 to 50B in 2016 on the appeal of on-demand high definition streaming video.
Exponential progress in energy and medicine will create disruptive opportunities for startups. Both in these markets themselves and the new applications they open up. Significantly cheaper energy costs will shake the competitive balance of market dynamics in many industries, and ubiquitous genome sequencing is an essential foundational technology, enabling medicine and biology to increasingly becoming an information science. This will enable startups in these domains to leverage the tools and economics of technology startups.
Here are a few foolish statements from powerful incumbents who could not see exponential technological improvement or its implications.
In 1943 the president of IBM, Thomas Watson said, “I think there is a world market for maybe five computers.” His error was in seeing computers statically staying as house-sized vacuum tube powered adding machines. Ken Olsen founder of the Digital Equipment Corporation in 1977 said “There is no reason anyone would want a computer in their home.”
3. Value Creation
The increased pace of technological creation and adoption as accelerated the pace of value by technology startups.
Tomasz Tunguz, a venture capitalist at Redpoint plotted the time required for startups to achieve a $1B valuation, and concludes that startups are unequivocally growing at a faster pace.
Big Tech Disruptions on the Horizon
We’ve talked about many of the trends that are propelling technological disruption. Now we’ll briefly discuss some of the specific disruptions on the horizon.
A summary from top industry experts such as Peter Diamandis, Tony Seba, Kevin Kelly and the World Economic Forum gives us the following list:
Virtual Reality/Augmented Reality /Mixed Reality
Artificial Intelligence/Machine Learning
Sensors & the Internet of Things
It’s worth keeping in mind, that while this list comes from foresight professionals with a strong track record, whose worldviews, jobs and incentives, are more likely to generate accurate predictions, than the blatant mis-predictions we quoted from business executives earlier, many transformative technological categories are very likely missing from this list, and some technologies on this list may fizzle out. What’s great about empowering startup ecosystems is that the thousands of startups they create, are each like little evolutionary experiments, where the possibility space of ideas gets well explored through trial and error. Predetermined plans are not binding. As Alan Kay, a famous computer scientist from the 70’s said, “The best way to predict the future is to invent it”, and that is exactly what startups will be doing.
As these technologies develop and make their way into mainstream society over the next two decades we can expect profound restructurings in many markets including Transportation, Finance, Healthcare, Education and Energy.
“Within two decades, we will have almost unlimited energy, food, and clean water; advances in medicine will allow us to live longer and healthier lives; robots will drive our cars, manufacture our goods, and do our chores”, describes Vivek Wadhwa, Fellow at Carnegie Melon and faculty at Singularity University.
As significantly as the Internet has transformed society over the last few decades, what is coming will be even more significant.
Mary Meeker, a VC at Kleiner Perkins in her annual trends report has a slide noting the impact to date of the Internet in various sectors of society, remarking how much has changed but that in many ways we’re just at the beginning.
Kevin Kelly, has a terrific little essay, The Internet Is Still at the Beginning of Its Beginning, foretelling while it might seem the current world is saturated in technology, the potential for startups creating new companies has never been greater. Here is the excerpt:
Can you imagine how awesome it would have been to be an ambitious entrepreneur back in 1985 at the dawn of the internet? At that time, almost any dot-com name you desired was available. All you had to do was simply ask for the one you wanted. One-word domains, common names — they were all available. It didn’t even cost anything to claim. This grand opportunity was true for years. In 1994 a Wired writer noticed that mcdonalds.com was still unclaimed, so with my encouragement he registered it. He then tried unsuccessfully to give it to McDonald’s, but the company’s cluelessness about the internet was so hilarious (“dot what?”) that this tale became a famous story we published in Wired.
The internet was a wide-open frontier then. It was easy to be the first in any category you chose. Consumers had few expectations and the barriers were extremely low. Start a search engine! Be the first to open an online store! Serve up amateur videos! Of course, that was then. Looking back now, it seems as if waves of settlers have since bulldozed and developed every possible venue, leaving only the most difficult and gnarly specks for today’s newcomers.
Thirty years later, the internet feels saturated with apps, platforms, devices, and more than enough content to demand our attention for the next million years. Even if you could manage to squeeze in another tiny innovation, who would notice it among our miraculous abundance?
But, but … here is the thing: In terms of the internet, nothing has happened yet! The internet is still at the beginning of its beginning. It is only becoming. If we could climb into a time machine, journey 30 years into the future, and from that vantage look back to today, we’d realize that most of the greatest products running the lives of citizens in 2050 were not invented until after 2016. People in the future will look at their holodecks and wearable virtual reality contact lenses and downloadable avatars and AI interfaces and say, “Oh, you didn’t really have the internet” — or whatever they’ll call it — “back then.”
And they’d be right. Because from our perspective now, the greatest online things of the first half of this century are all before us. All these miraculous inventions are waiting for that crazy, no one-told‑me‑it‑was-impossible visionary to start grabbing the low-hanging fruit — the equivalent of the dot-com names of 1984.
Because here is the other thing the graybeards in 2050 will tell you: Can you imagine how awesome it would have been to be an innovator in 2016? It was a wide-open frontier! You could pick almost any category and add some AI to it, put it on the cloud. Few devices had more than one or two sensors in them, unlike the hundreds now. Expectations and barriers were low. It was easy to be the first. And then they would sigh. “Oh, if only we realized how possible everything was back then!”
So, the truth: Right now, today, in 2016 is the best time to start up. There has never been a better day in the whole history of the world to invent something. There has never been a better time with more opportunities, more openings, lower barriers, higher benefit/ risk ratios, better returns, greater upside than now. Right now, this minute. This is the moment that folks in the future will look back at and say, “Oh, to have been alive and well back then!”
The last 30 years has created a marvelous starting point, a solid platform to build truly great things. But what’s coming will be different, beyond, and other. The things we will make will be constantly, relentlessly becoming something else. And the coolest stuff of all has not been invented yet.
Today, truly is a wide-open frontier. We are all becoming. It is the best time ever in human history to begin.
You are not late.
Summary of Part 1
The increasing prominence of technology on the future of the global economy cannot be understated. Geometrically speaking, it is increasing in all directions: Vertically, Horizontally, increased cycle time, with massive future potential to expand into.
Vertically — Technology companies within the technology industry are now the largest in the world and represent a growing portion of the S&P 500
Horizontally — Other sectors are being forced to become technology companies and harness it as their key competitive advantage
Cycle Time — Technology is progressing exponentially, disruptions are coming faster and faster.
Future Potential — The growth of technology is not an s-curve that will level off. Rather the disruptive technologies on the horizon will support its continued exponential pace.
New technology is where a majority of future wealth creation will come from. Most of this new technology will be created by startups that don’t exist yet. This creates the critical role for startup ecosystems. If economic regions want a share of future economic growth they need a startup ecosystem.
That however, is just the upside — the carrot, if you will. The downside or stick, of not having a startup ecosystem and not having a share of future economic growth will have very harsh consequences, as we will discuss in more detail in the next section. The future growth of technology is poised to be very concentrated in specific regions like Silicon Valley, New York City and London. Additionally, this forecasted technological growth is expected to kill a massive number of industrial and service sector jobs through automation. So, while startups are creating a massive amount of future growth in the new economy, they will be killing massive amount of wealth in the old economy. Failure to adapt to this future economic climate will spell a death sentence.
This is why we’ve chosen to devote our time and energy to supporting the development of the global startup ecosystem, as it is one of the best bets a region can make for its future vitality and prosperity.
Part 2 — Technological Consequences
The Future of Jobs at Risk
The future driven by the technological progress discussed in Part 1 forecasts major waves of economic restructuring. While sectors and jobs linked to this technological future have bright outlooks, sectors and jobs that are not will experience major carnage. Whole regions may become economically irrelevant and experience massive poverty and social unrest.
This is great for information era aligned startup ecosystems and terrible for industrial and service sector economies that have not aligned themselves with the changing eras of the economy.
In 2013, a significant study was published entitled The Future of Employment: how susceptible are jobs to computerisation. The authors opened by saying, ‘To our knowledge, no study has yet quantified what recent technological progress is likely to mean for the future of employment. The present study intends to bridge this gap in the literature.’ Their study concluded with the observation that, “According to our estimates, about 47 percent of total US employment is at risk.”
Here’s a graphic summary compiled from data from that study:
George Monbiot, summarized from the study, “the jobs most likely to be destroyed are in mining, raw materials, manufacturing, transport and logistics, cargo handling, warehousing and retailing, construction (prefabricated buildings will be assembled by robots in factories), office support, administration and telemarketing…Service and care work, where hope for some appeared to lie, will be threatened by a further wave of automation, as service robots — commercial and domestic — take over…At lower risk is work that requires negotiation, persuasion, originality and creativity. The management and business jobs that demand these skills are comparatively safe from automation; so are those of lawyers, teachers, researchers, doctors, journalists, actors and artists. The jobs that demand the highest educational attainment are the least susceptible to computerisation. The divisions tearing America apart will only widen.”
It is the technology companies of today and the startup companies of tomorrow that will be creating the tools and services that destroy these jobs. Today, Amazon is disrupting many retail jobs, and Airbnb disrupting employment in the hotel industry. Even startups that today have provided a big lift in employment like Uber and Lyft, are actually moving things one step forward to be followed by two steps back — as they have clear plans to remove the need for drivers with self-driving cars. And not just those driving passengers, but freight too. Uber recently acquired Otto, a startup that wants to automated trucking, and they recently completed a 120 mile driverless expedition of 50,000 cans of beer. Om Malik in the New Yorker noted that, “ From the point of view of a truck driver with a mortgage and a kid in college, it was a devastating “oh, shit” moment. That one technical breakthrough puts nearly two million long-haul trucking jobs at risk. Truck driving is one of the few decent-paying jobs that doesn’t require a college diploma. Eliminating the need for truck drivers doesn’t just affect those millions of drivers; it has a ripple effect on ancillary services like gas stations, motels, and retail outlets; an entire economic ecosystem could break down.”
Erik Brynjolfsson, a professor at M.I.T. has compiled statistics showing the long term trend of technology’s effect on employment and how we’ve recently hit an inflection point. As you can see in the graph below, technology has been enhancing productivity for decades, and historically it rose along with job growth, but in the last decade it has been decoupled — largely due to technology that previously enhanced worker’s ability to do their job, now automating and replacing them.
Brynjolfsson describes the trend as, “Productivity is at record levels, innovation has never been faster, and yet at the same time, we have a falling median income and we have fewer jobs. People are falling behind because technology is advancing so fast and our skills and organizations aren’t keeping up.” It is, he said, “the great paradox of our era.”
The Decline of Industrially Oriented Cities
Richard Florida has done great work on the changing composition of the American workforce. He lumps the jobs that we consider part of the information technology revolution into a larger category called the Creative Class. Here we see Manufacturing and Agriculture jobs declining rapidly as significant percentage of the workforce.
The areas that were previously Manufacturing and Agriculturally oriented, have some of the hardest time adapting to the new times.
Here’s a list in 2015 of the least creative cities in America:
Bottom 20 U.S. Creative Class Cities
Notably, nearly all of the cities are former agricultural or industrial cities. Though it’s important to recognize that the distribution of the future have and have-not regions is not a simplistic divide of the coasts vs. the rest. Rather, the regions that are struggling the most are often nestled nearby cities that are most booming, such as central California near Silicon Valley and upstate New York near New York City.
What Is Government To Do
One of the most important variables that should affect government’s response around the world to these trends of technological disruption, is whether we will have net job growth or net job loss as a result. All previous technological revolutions eventually created more new jobs than they replaced. Scribes may have lost their jobs when the printing press was invented but many more jobs were created by its existence. The industrial revolution later killed many trades, but far more jobs were created by factory production.
Many experts think that this time is different. Technology has been slowly but surely increasing the percentage of tasks it can do better than humans. The industrial revolution created tools that eclipsed human capability in most forms of manual labor. The early information computer revolution created tools that eclipsed nearly all routine cognitive tasks. Recently, Machine Learning has been eclipsing human ability in many complex cognitive tasks. Creative and emotional work is the last stand, but it may not last long.
Looking over the evidence, we are in agreement with the assumption that the startup revolution will bring net job loss. This puts governments in a very tricky place, as the programs of decades past won’t work.
Larry Summers, former Treasury Secretary, wrote in a WSJ Op-ed, that the big challenge of the economy in the future would not be producing enough, but providing enough work. He concluded the goal of governments should be to, “create enough work for all who need work for income, purchasing power and dignity.”
However, in a rebuttal Vivek Wadwha replied that governments have already proven themselves too slow to possibly be able to achieve this. He lays it out, ‘They can barely keep up with the advances that are happening in technology, let alone develop economic policies for employment. Even the courts are struggling to understand the legal and ethical issues of advancing technologies. Neither they nor our policy makers have come to grips with how to protect our data and personal information, control cable and Internet monopolies, regulate advances in genetics and medicine, and tax the sharing economy that companies such as Uber and AirBnb inhabit. How are policy makers going to grapple with entire industries’ disruptions in periods that are shorter than election cycles?” He concludes by discussing how much faster the information revolution has occurred and is occurring than the industrial revolution, and says, “ The writing is clearly on the wall about what lies ahead. Yet even the most brilliant economists — and futurists — don’t know what to do about it.’
The problem with change happening so quickly is retraining programs lose a significant portion of their potency. In the industrial revolution, young people were trained for the new jobs not old people. The percentage of former factory workers who will become coders is just not likely to be very big.
This has prompted many governments, think tanks and private organizations around the world to explore efficacy and feasibility of basic income — a guaranteed monthly stipend for all citizens. We won’t go into the details of basic income now, but there are some very innovative policy solutions being explored that align with the worldview being presented here — namely, accelerating technological progress, its dramatic effect on reshaping the economy now and in the future, and the paramount role of startups in creating the wealth of the future. In short, one of these basic income proposals uses the inherent deflationary properties of technology and its growing share of gdp to enable money printing that doesn’t cause inflation, because the future deflation generated by technology is so large.
We believe it’s critical to see investing in the creation of Startup Ecosystems not just as a generator of economic prosperity and job creation but also as a hedge towards the social security of the future.
The waves of populism upwelling around the globe demand this. The electoral victories of Brexit, Trump and the Italian referendum are just the first step. We are likely to see more populist victories in elections next year in Europe. But after a global politik with a new flavor of values are put in place in government around the world, we are likely to see the failure of their promises and policies — because the lost jobs that have generated a significant portion of the ire fueling political populism, are not coming back. A new wave of protectionism will not work — at least not for very long. Job loss is being driven more by technology than globalization driven outsourcing. What jobs are being outsourced are also soon to be on the technological chopping block.
As George Monbiot puts it, “Governments across the world are making promises they cannot keep. In the absence of a new vision, their failure to materialise will mean only one thing: something or someone must be found to blame. As people become angrier and more alienated, as the complexity and connectivity of global systems becomes ever harder to manage, as institutions such as the European Union collapse and as climate change renders parts of the world uninhabitable, forcing hundreds of millions of people from their homes, the net of blame will be cast ever wider.”
There is a real threat of the pitchforks coming out with increasing fury, if solutions aren’t found. The creation of startup ecosystems represents one of the brightest possible options. It can generate the wealth for regions to have options to support their society in the midst of this great transition from the Industrial to Information era. If a supermajority of the wealth generated all accrued to the top ecosystems like Silicon Valley, New York City, London and Beijing, the rest of the world would be in dire economic straights, as currently producing economic sectors for regions around the world dramatically shrink. The good news is that isn’t happening. We’re seeing startup ecosystems emerge all around the world, from Sri Lanka to Santiago, from Cape Town to Lagos, to Kuala Lumpur. These ecosystems may only be getting a small piece of the overall pie, but the pie is growing exponentially, and concentration amongst the top is decreasing. By our calculations, even smaller ecosystems outside of the top 10 could have aggregate valuations in the hundreds of billions in 20 years. Within these ecosystems there is still likely to be increasing wealth inequality, as most outcomes in technology startups are distributed along a power law, and as we discussed, many people are not going to be able to transition their skills to succeed in jobs at technology firms. While this definitely creates hope, history has shown that widening wealth inequality eventually leads to political revolution, economic collapse and war.
This makes a solution look something like the following: Step 1 — cities all around the world grow and nurture their startup ecosystem so they can capture a slice of the biggest wealth creation engine of the next 3 decades. Step 2 — Regions figure out how to use the wealth generated to support a viable social safety net to enable society to continue meaningfully support its citizens in this time of great transition. Step 2 is a deeper discussion for another time, but as for Step 1, the 2017 Startup Ecosystem Report includes a stack of information to guide cities in the development of their Startup Ecosystems. In the report you can dive deep with us to understand the state of the Global Ecosystem and what has changed since our last report came out in 2015.