Futures Week 2021: The future of value

Our manager of foresight, Marcus Ballinger, examines how emerging technologies are shifting value in the next digital economy by breaking four scarcities associated with specific kinds of human activities.

Speaker

Marcus Ballinger, Manager

Transcript

MARCUS BALLINGER: Welcome, to all of you, to this session on the future of value. I will be presenting a new way of thinking about and understanding what is happening in the economy. I’ll be talking about how emerging technologies are shifting value in the economy, by breaking four different kinds of scarcities associated with specific kinds of activities.

Businesses and individuals generate economic value by addressing scarcity. If people want something, and it’s scarce, and you have it, they will pay you for it. That is not new. What is new, is a series of emerging and maturing technologies that can fundamentally affect different types of scarcities, with potentially profound economic consequences, given the scale, the speed, and the depth of disruption these technologies will have and in fact have already had.

I want to point out that The Future of Value paper builds on previous work. We have other papers that I encourage you to read because they provide context for The Future of Value. These include The Next Digital Economy, The Future of Work, Biodigital Convergence, and a series of reflections on the impact of digital technologies on the economy. You can find those in the Economic Futures section of our website, which is where you will also find The Future of Value paper, when it’s published.

I’m going to touch on two papers, starting with The Next Digital Economy. What this paper does is introduce a new model for the production and consumption of goods and services. In the paper, we present the idea that unbundled labor and capital can be tied together using digital technologies to create bespoke value chains. What we saw was a lot of disaggregation in both labor and capital.

On the labor side, jobs are being unbundled into tasks. We also saw a lot of production technologies unbundling, from being held together within one company, into dispersed and repurposable things, like 3D printers or cloud services for example. Capital, that was previously held in one firm, could be unbundled into a number of different places and owned by a number of different people.

Our idea was that you can chain together different unbundled pieces to create a bespoke value chain for just a short run and then essentially repurpose them into a different value chain. It’s like having building blocks that you pull out of a box, click together for as long as you need them and when you’re done with them you throw them all back into the box for anyone else to use, to create a different value chain. The glue, that allows you to click these unbundled blocks together, are digital technologies.

There are the nine digital technologies that allow this: the Internet of Things, artificial intelligence, robotics, telepresence, mixed reality, synthetic biology, advanced materials, decentralized production, and blockchain. You’re going to see these again. We realize that there are a number of policy areas that could be affected by this change in how the economy could be restructuring.

These are 10, that we immediately saw as potentially needing a rethink: economic development strategies, employment and skills training, trade, social supports, regulation, environment, tax, fiscal policy, measurement of economic performance using metrics, like GDP, and of course value. Which is what we’re going to talk about in just a minute or two.

In our next paper, on the future of work, we took the ideas from the Next Digital Economy and applied them more narrowly to the world of work. In doing that, we surfaced five important game changers.

The first, is that work moves from being long term and time based, to being temporary and task-based. Most of us are aware that this is happening. This is basically the gig economy and the use of platforms, like Uber or Upwork or Taskrabbit.

The second game changer, is that artificial intelligence and the automation of tasks, could put people out of work long before technologies replaced their entire jobs. Essentially, AI and automation could take over parts of people’s work, but maybe not all of it. But, if you take two jobs and use AI and automation to do 50% of each job, you only need one person to do the work that’s still left.

The third game changer, is that AI decreases the scarcity of knowledge workers, potentially allowing jobless growth in knowledge industries. Now, we, should realize that as public servants, a lot of us are actually in the knowledge industry and so we should expect AI to impact us significantly. In fact, the line I just said, was written by GPT-3 and AI, that we used to help write this presentation.

The fourth game changer, is that combined digital technologies could reduce the need for human intermediaries that provide trust and security. Blockchains, in particular, could be really significant in sectors like banking, legal, and also brokerages that play a role in many economic transactions.

The last game changer that we saw, is that people may work and earn in one place, but live and spend in another. Most of us are teleworking. Many of us are arguably working for an Ottawa-based office. But may not be living in Ottawa. My colleague Claire, who introduced me, sat just across the hall from me when we were in the office. Now she is living and spending in PEI. We used to have to live where we worked. This could be less and less the case and not only for white collar workers like us.

I’m going to walk through an example that touches on a number of these game changers to demonstrate how it shifts value. Let’s look at a complex workplace and task like this one. We have an assumption that it’s going to be hard to use robots in complex work environments or for complex tasks because we assume that the robot has to have all the functionality of the human. It has to be as mobile as a human to get into tight spaces like this, it has to have all the dexterity of a human, as well as the onboard knowledge required to do the repair autonomously.

So most of us aren’t worried that we’re going to be replaced by robots until robots look like this. But let’s actually think about what’s happening in the previous picture. The person is using expertise, but what is expertise? It’s actually two things. It’s knowledge, which is knowing what to do, but it’s also ability, the capacity to do it. The person not only has to know what wrench to use and what bolt to turn, they also have to have the physical strength and the dexterity to do it. Our assumption is that you can’t split the knowledge and the ability, so expertise is always in the same person.

But what if you have telepresence? In the video, we showed you an example from the Kruger paper mill, in which a worker is using an augmented reality headset to dial in expertise from somewhere else on the specific thing that they needed to do. What telepresence does is allow you to split knowledge and ability, whereas previously you had to have them in the same person.

In this case, let’s say the person in yellow would have been the expert, you can now split them into two people. The red person might have the knowledge side of the perspective, well the green person has the ability side of the expertise. Think about that. Knowledge can be separated from ability.

So what are the effects of this? Well, it allows a one-to-many model. In this case, one expert could serve many workers rather than having a lot of people with a high degree of expertise, you could have one person with knowledge and a larger number of people with a general level of skill to take care of the ability side. But it also works the other way. A person who has a general set of skills could arguably just connect to whatever expert they needed for the specific knowledge component for a particular task. So it’s not just one-to-many, it also could be many to one.

So let’s think about this. Knowledge can be anywhere and you access it only when you need it. Ability, can be local and continuously repurposed as necessary by connecting it to a person with the required knowledge.

So what are some of the ripple effects? Well, the person with the ability still has to be where the thing needing fixing is, but the knowledge person could be anywhere and they don’t have to travel to do their job. So if knowledge is anywhere, for all you know, your expert could be this guy sitting in his field in India. Conversely, ability can stay local and be repurposed as needed, so you don’t need to attract as many high-priced experts to your town or fly them in to get things done. The local worker could be dialing in somebody to get the knowledge to fix a particular part on an automobile today and then fixing an electronic circuit board tomorrow.

The other thing is if we could disconnect ability from knowledge, then ability is not necessarily a prerequisite for work in a particular field. This could actually be a master plumber. He could have the knowledge component of the plumber and be directing a team of apprentices in the field using augmented reality headsets, like we saw in the video.

There are further ripple effects. If we don’t have to send the knowledge person to the place where they’re required to do the work, then travel gets affected, accommodation for that person gets affected, real estate gets affected because they can live anywhere they want. They don’t need to actually be where the work is and of course that has trickle-down effects into the local secondary economy. This type of thinking got us to wonder if telepresence is one example, are there other examples of other technologies that impact specific types of activities?

Turns out there are. Then the question is, if that’s the case, how do they shift the value that is generated in those activities? And of course, if it’s shifting value, money is changing hands.

That thinking led us to the Future of Value paper, which is what I’m going to talk about for the rest of the presentation.

This is a new way of thinking about the future of the economy and specifically how technology will change it. What we found as a result of our thinking through how technologies affect different types of business activities, is that business activities can be broken down into combinations of more basic human activities.

Each of these activities represents a unique combination of characteristics, based on the nature of the interactions that are happening. For example, is the interaction between humans or between humans and machines, or humans and the natural environment, does it involve something tangible, like a good or something intangible like information? What change happens as a result of the interaction? Are atoms rearranged? Is knowledge created or is there a change in the emotional state of the recipient? These are the 14 basic human activities that we came up with. I’m not going to go through all of them here, but I’ll talk about the first one in a minute, to give you an example.

What we realized was that in each of the 14 basic human activities there was a particular scarcity or constraint that was at play. It was addressing that scarcity or constraint that actually creates the value for the company or the activity. It turns out there’s four types of scarcities.

The first one is temporal. It’s essentially that the interaction has to happen at the same time. For example, this presentation is happening now and only now.

The second one is spatial, that’s the idea that the interaction has to happen in a particular location or a particular place. Do you want a haircut? You need to go to a barber shop or a hair salon.

The third one is absolute scarcity, essentially there’s a limited supply of something in the world. We normally think of natural resources but it can also be expertise or something like the Mona Lisa.

The fourth one is artificial scarcity, which is essentially that there’s some sort of framework, often legal such as licensing, which creates an artificial scarcity on something that would otherwise be abundant or relatively accessible.

I said I would go through an example. This physiotherapist is providing a physical service to a living being. It has the following characteristics. It involves a human interacting with another human. It involves atoms, in the sense that she is manipulating the atoms of the other person. There are both temporal and spatial scarcities, in the sense that she and the patient have to be in the same place at the same time to deliver the service. There’s an absolute scarcity in the sense there’s only a certain number of people who know how to do physiotherapy and there could also be an artificial scarcity, if there’s a particular licensing or accreditation that’s required for her to practice.

When we started looking at things from this perspective, we realized that the scarcities that exist for a physiotherapist, are the same as those for a surgeon or a dentist. But if you think about it, they are the same for a tattoo artist, someone doing a manicure or hairdresser. They all face the same constraints of temporal and spatial scarcity, as well as the possibility of absolute and artificial scarcity. Recognizing this is important because if a technology can break a scarcity in one of these occupations, there’s no reason why I couldn’t break it in any or all of them. Because of this, technological disruption could spread rapidly between sectors or across professions.

This is a heat map. We set out the 14 different activities across the top and all the different technologies I mentioned earlier down the side and we figured out where the greatest impacts are likely to be seen. As I said earlier, most of us are public servants and we’re largely in the knowledge generation and knowledge transfer business. What is most likely to affect us in the future is AI and automation, whereas if you are say in the maintenance industry, which features mostly physical services to things, mixed reality is a technology that’s very likely to impact your business.

This is a framework developed that allows you to analyze your business in a different way. The first step is to look at which of the 14 basic human activities make up your business, then figure out the relative proportion of each one. Look at which ones represent a cost and which ones represent a revenue, then determine which emerging technologies are the ones that have the highest impact on those activities. You could ask yourself whether that technology is significantly advanced right now and whether you should adopt it or maybe you decide to watch to see if your competitors are adopting it, or you may think, well there’s an opportunity here and I’m going to create a technology that will address that particular scarcity and then sell it to other businesses or to the government.

There’s a ripple effect to these technologies being adopted. There’s the immediate impact of the technology, in our case Zoom or Pheedloop, the telepresence technology we’re using right now is allowing far more people to attend this session than we could have done in our physical offices at Horizons. But you’re also attending at a significantly lower cost. It’s costing each of you no more than a few cents for electricity and internet to attend this 90-minute session.

But using this technology has ripple effects that spread out through the economy. We’re all here in this room for this meeting, but let me ask you, did anyone drive to this meeting? Anyone pick up a coffee on the way in? Anybody get gas? Paying for parking? Planning to go to the office food court for lunch? How about going out for a drink with colleagues after work because we’re all downtown?

You can see that there’s a ripple effect. There’s the immediate impact of the technology and in this case the telepresence technology, but there are ripple effects that spread out through the economy. I ran through some consequences of telepresence technology but we see similar effects from all of the digital technologies we looked at. So my question is, are we talking about ripples or waves? The people might say you’re being alarmist, don’t worry, we’ve been through transitions before, look at the industrial revolution. It created all kinds of stuff, all kinds of great jobs.

Life isn’t great because of the industrial revolution but let’s just think about that for a second. The industrial revolution took place over a period of 150 years and it was not without its challenges. How much do you think this young man is enjoying his industrial revolution job? What we’re seeing through our work is that the pace of disruption we’re talking about is going to be really really really fast. We think that the changes that are being brought about in the Next Digital Economy might take place in 15 years rather than 150. In some areas, COVID has actually accelerated change beyond what we had originally expected.

So we need to be prepared. I imagine a lot of people are probably feeling a little bit like this right now, a lot of uncertainty just ahead. What we need to do as a government, is navigate this change.

Let’s think about some of the questions that come up when you see these icebergs ahead.

What do we need to think about? One is, what types of workers are most likely to be affected? How could those workers be retrained or upskilled? What are some of the implications for economic modeling or industrial development strategies? Are there shifts in value that Canadians want to accelerate or decelerate? Could transformation create vulnerabilities for important areas of the economy? How might shifts in value affect government revenue streams and could the combination of new technologies allow governments to provide better public services at lower cost?

We’re a sector too, there’s no reason why technologies can’t be disruptive to us as well, potentially in a positive way. This is an illustrative picture of the current economic times. Technological disruptions are going to cause shifts in this economic pie, relative shares are going to change, we’re going to see some new wedges appear and some wedges are likely to disappear.

So maybe it looks like this in the future but there’s another question. Does the pie as a whole get bigger or does the pie as a whole get smaller? The other question is where does the pie grow? There is a highly international market now for all sorts of things, so there’s no reason to expect that growth is going to happen evenly across the world or that it will favor Canada.

Our most recent publication, Reflections, which draws heavily on expertise from Armine Yalnizyan, explores these issues in greater detail and I encourage you to take a look at it. There are going to be winners and losers in the disruption that’s coming. So the question is, who reaps the benefits and who bears the costs? Where does the value go? Who gets the money?

The value could go to upstream providers, like platform companies, the Googles of the world that are providing the AI or it could go to device manufacturers, the Apples or the Samsungs of the world. It could go to shareholders. If you use technologies to reduce your costs or increase your revenues, but you don’t pass that on to consumers in terms of lower prices. There’s more profit. That money could go to the shareholders or owners of the company. Could also go to labor, there’s more money on the table, perhaps wages could go up. If it goes to workers, which ones? Does it go to workers in Canada or does it go to workers overseas? And although we don’t usually think of it as a payment to labor, it could also go to executive compensation.

There could also be money on the table for taxes. Increasing government revenues could help offset some of the costs that might be needed for redistribution as technologies disrupt the economy. And finally, consumers could be winners, if we reduce the cost of producing goods and services and then flow that through to consumers as lower prices, consumers reap the benefits of lower costs across the board for goods and services.

So looking ahead, the questions are: Where are the surprises? Where are we ready and where are we not? As a government, we need to be asking these questions. We need to be alive to the disruption that’s coming. As public servants we are going to have to respond.

If we think about these changes now we can reach out into the future and own it, or we can sit back and wait for the waves to crash across our desks. I know where I want to be and I hope you will invite us at Horizons to work together with you to figure out what these transformations mean for your areas of responsibility. Thank you for your attention. To learn more about foresight and read our latest reports, please visit horizons.gc.ca